Recently, major countries around the world are strengthening CSR through various methods, such as explicitly institutionalizing corporate social responsibility (CSR). In the case of India, CSR activities were legislated in 2014, and punishment provisions related to CSR obligations were included starting in July of this year. Accordingly, companies that have entered or are planning to enter the Indian market should find ways to understand this in advance and respond accordingly.
At the ‘India CSR Mandatory Law Revision Briefing’ held by KOTRA on the 27th, Attorney Ji-hye Yoo, CEO of Birdtree Management in India, said, “India is the first country in the world to implement a CSR mandatory law,” and urged, “As the country has recently introduced punishment provisions for companies that violate CSR expenditure obligations, our companies entering the market should be careful.”
CSR (Corporate Social Responsibility) of a company is a series of stakeholder-based management activities that direct and indirect stakeholders who are affected or affected by corporate activities pursue to fulfill the social obligations that the company demands from the company.
India, mandatory spending of 2% of net profits for CSR
India is emerging as the world's factory after China. It is Korea's 11th largest trading partner and 7th largest export destination, and the number of companies entering the country has been increasing steadily recently. As multinational companies are actively entering the market, the Indian government is strengthening CSR in the country.
In 2014, the Indian government added a provision for disclosure and mandatory spending of 2% of net profits for CSR in Article 135 of the Companies Act. It is mandatory for companies to spend 2% of their net profits on CSR. Companies subject to the CSR obligation are companies that have at least one of the following: ▲net assets of 5 billion rupees (approximately 80 billion won) or more ▲total sales of 10 billion rupees (approximately 160 billion won) or more ▲net profits of 50 million rupees (approximately 800 million won) or more.
The company establishes a CSR committee composed of directors, and the CSR committee establishes a CSR policy and recommends it to the board of directors. In accordance with the CSR policy, the board of directors must propose the necessary expenses for CSR activities and constantly supervise the CSR policy.
The board of directors must spend at least 2% of the average net profit of the last three fiscal years on CSR activities, prioritize spending in neighboring areas or business areas, and state the reason in the board of directors report when spending is not made.
Punishment of companies and executives for non-compliance with CSR obligations starting from July of this year
The revised Corporate Act in July of this year strengthened regulations by adding a penalty provision for non-compliance with CSR obligations. If a company has not spent CSR obligation expenses and has no ongoing CSR projects, it must make a contribution to a specific fund within six months from the end of the fiscal year.
If a company has not spent CSR obligation expenses and has an ongoing CSR project, it must deposit this amount into a designated bank account within 30 days from the end of the fiscal year, and must spend it within three years from the date of deposit according to the company’s CSR policy. If not implemented, the amount will be invested in a specific fund within 30 days from the end of the third fiscal year.
A penalty provision for non-compliance with CSR obligations has also been added. If the CSR policy is not detailed in the board report or the obligation to spend revenue for CSR activities is not fulfilled, the company will be fined 50,000 to 250 billion rupees (800 million to 400 billion won), and executives may be imprisoned for up to 3 years or fined 50,000 to 500,000 rupees (800 million to 8 million won). On the other hand, there are no tax benefits for CSR expenses.
CSR activities recognized under the Companies Act are limited… Need to discover CSR
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CSR activities recognized under the Companies Act are limited. CSR activities recognized by the Corporate Law include ▲poverty eradication and public health promotion ▲education and livelihood improvement projects ▲promotion of women and the underprivileged’s rights ▲ensuring environmental sustainability and ecological balance ▲promotion of artistic activities such as restoration of cultural heritage ▲support for the welfare of veterans and their families ▲support for sports training ▲contribution to the National Relief Fund ▲participation in the Technology Business Incubator Fund ▲rural development projects and development of slum areas, disaster relief, etc.
CSR activities that companies and employees contribute in kind or participate voluntarily, such as volunteer work, are not recognized as CSR activities.
There are three ways to use CSR funds: direct use by the company, use through central government contributions, or use through NGOs. In the case of small and medium-sized businesses, several companies can come together to create a joint fund and operate CSR.
Attorney Yoo said that when using CSR funds through the government, there are many restrictions on using them through state governments, so they should be used through the central government. He went on to advise that since CSR activities are limited, companies need a program to systematically establish and operate CSR plans, and that they need to focus on discovering creative CSRs. Reporter Chae Min-seon of SME Economy
