Question

Under the Companies Act, 2013, any company having a net worth of rupees 500 crore or more or a turnover of rupees 1,000 crore or more or a net profit of rupees 5 crore or more should mandatorily spend ---------- of their net profits per fiscal on Corporate Social Responsibility activities

• A. 3%
• B. 5%
• C. 10%
• D. 2%

Hint:

For CSR under the Companies Act, 2013, remember the "500-1000-5" rule for applicability (Net Worth-Turnover-Net Profit) and the "2%" rule for spending on average net profits of the last 3 years.

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
The Companies Act, 2013, introduced the mandatory provision of Corporate Social Responsibility (CSR). It requires certain profitable companies to spend a portion of their profits on designated social welfare activities.
Step 2: Detailed Explanation:
Section 135 of the Companies Act, 2013, deals with CSR.
Applicability (Section 135(1)): The CSR provisions apply to any company which has, during the immediately preceding financial year:
- a net worth of \₹ 500 crore or more, OR
- a turnover of \₹ 1,000 crore or more, OR
- a net profit of \₹ 5 crore or more.
Mandatory Spending (Section 135(5)): The Board of every company to which CSR is applicable shall ensure that the company spends, in every financial year, at least two per cent (2%) of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR Policy.
Therefore, the mandatory spending percentage is 2%.