Himachal Pradesh constituted CSR committees between June 2014 and July 2018. The state PSEs and private companies operating in Himachal Pradesh are mandated to frame the CSR policy based on the recommendation of the CSR Committee and approval of the Board of Directors. The role of the CSR Committee is to recommend CSR activities and the amount to be spent in the financial year to the Board. The board has to ensure the implementation of the CSR activities. This entails planning and approval of CSR activity and budget.
As a best practice, the proposed CSR projects and the budget for the ensuing financial year should be presented to the Board for approval through the CSR committee by March 31 every year.
As per Section 135(5) of the Act, any company must spend annually at least two percent of the average net profit of three immediate preceding financial years (calculated under Section 198 of the Act), and the Board shall ensure that the company spends two percent of the average net profit of the preceding three years.
As per the Guidance Note (GN) on Accounting for CSR issued by the Institute of Chartered Accountants of India, the unspent amount is to be disclosed only in the Board’s Report, and no provision is to be made in the accounts for the unspent amount.
However, if a company has already undertaken certain CSR activity for which a contractual liability has been incurred, then following the generally accepted accounting principles, a provision for the amount to the extent for which the CSR activity was to be completed during the year needs to be recognized in the books. Section 135(5) of the Act provides that the company shall give preference to the local area and areas where it operates for spending the amount earmarked for CSR activities.
As per provisions of Section 135, Schedule VII of the Companies Act, 2013 and CSR Rules, 2014, financial assistance/grants cannot be given under CSR except to be spent on the specific activities mentioned in the schedule. As per Rule 5(2) of CSR Rules, 2014, the CSR Committee shall institute a transparent monitoring mechanism for implementing CSR projects, programs, and activities undertaken by the company.
Profit-making SPSEs may prepare an annual budget and CSR plan so funds allotted towards CSR can be utilized accordingly during the financial year.
All SPSEs should make efforts to spend two percent of the average net profits of the preceding three years towards admissible activities.
