Question map
With reference to Corporate Social Responsibility (CSR) rules in India, consider the following statements : 1. CSR rules specify that expenditures that benefit the company directly or its employees will not be considered as CSR activities. 2. CSR rules do not specify minimum spending on CSR activities. Which of the statements given above is/are correct ?
Explanation
The correct answer is option A (1 only).
**Statement 1 is correct:** Activities that exclusively benefit the employees of a company and their families or those that are part of the normal course of business are not considered as CSR in the new regulations[1]. Activities undertaken in pursuance of normal course of business of the company are specifically excluded from being considered as eligible CSR activity[2]. This confirms that expenditures benefiting the company directly or its employees do not qualify as CSR activities.
**Statement 2 is incorrect:** India was the first nation in the world to bring a Corporate Social Responsibility law in 2014 that mandated companies to spend 2 per cent of their average profits of the last three years on CSR activities[3]. This clearly establishes that CSR rules do specify a minimum spending requirement of 2% of average profits, making the statement that rules "do not specify minimum spending" factually wrong.
Therefore, only statement 1 is correct, making option A the right answer.
Sources- [1] https://www.oecd.org/content/dam/oecd/en/publications/reports/2019/08/india-s-private-giving_52d4ed1a/4b3a0269-en.pdf
- [2] https://coal.gov.in/sites/default/files/2024-04/FAQ_CSR.pdf
- [3] Exploring Society:India and Beyond ,Social Science, Class VIII . NCERT(Revised ed 2025) > Chapter 7: Factors of Production > DON'T MISS OUT > p. 181
PROVENANCE & STUDY PATTERN
Full viewThis question tests the 'Negative List' of a major policy. While the 2% mandate (Statement 2) is a basic fact found even in Class VIII NCERTs, Statement 1 requires understanding the administrative boundary between 'HR costs' and 'Social Responsibility'. Strategy: When reading Acts, memorize the 'Exclusions' and 'Thresholds' first.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: According to India's Corporate Social Responsibility (CSR) rules (Companies Act 2013 and CSR Rules 2014), are expenditures that benefit the company directly or only its employees excluded from being counted as CSR activities?
- Statement 2: According to India's Corporate Social Responsibility (CSR) rules (Companies Act 2013 and CSR Rules 2014), is there a mandatory minimum CSR spending requirement (for example, 2% of the average net profits of the preceding three financial years)?
- Explicitly states which kinds of activities are not considered CSR under the Companies Act 2013 and CSR Rules 2014.
- Specifically names activities that exclusively benefit employees/their families or those part of the normal course of business as excluded.
- From an official FAQ on CSR referencing Rule 2(1)(d) and listing activities specifically excluded from eligible CSR activity.
- Mentions exclusion of activities undertaken in the normal course of business (closely tied to expenditures that primarily benefit the company).
Explicitly notes that the boundary between pure business activities and CSR activities is often obscured and that eligibility (e.g., for tax treatment) depends on discretion of authorities.
A student could use this rule to suspect that expenditures giving direct business benefit or primarily benefiting employees may be treated as business, not CSR, and therefore check the Companies Act/Rules for specific exclusions.
Provides a working definition of CSR as integrating social/environmental concerns and 'giving back to the society in which it is doing business', implying CSR is intended for societal benefit rather than internal company gain.
One could extend this by contrasting the definition with internal expenditures (employee-only benefits or activities that primarily serve the company) to evaluate whether they fit the 'societal benefit' criterion.
States India mandated companies to spend 2% of average profits on CSR activities, establishing a statutory CSR obligation and thus implying the need for rules to define qualifying activities versus non-qualifying business expenditures.
A student could use this to justify looking up the statutory rules (Companies Act/CSR Rules) or official lists to see whether internal/employee-only expenditures are explicitly excluded.
Mentions prior 'Voluntary Guidelines on Corporate Social Responsibility' (2009) to mainstream the concept, indicating that formal guidance exists and that definitions/guidance have evolved into statutory rules.
This suggests checking how earlier guidelines distinguished corporate-purpose activities from social activities, helping infer whether employee/internal-benefit spending is excluded under later rules.
- Directly states that the 2014 CSR law mandated companies to spend 2% of average profits of the last three years.
- Specifies both the percentage (2%) and the averaging period (last three years), matching the example in the question.
- Frames the requirement as a legal mandate introduced in 2014, linking it to Companies Act 2013 / CSR Rules 2014.
- [THE VERDICT]: Sitter-Trap Hybrid. Statement 2 is a fundamental fact (2% rule) covered in basic NCERTs. Statement 1 is a logical derivative found in standard economy texts (Singhania) and official FAQs.
- [THE CONCEPTUAL TRIGGER]: Companies Act, 2013 (Section 135) and Schedule VII. The specific theme is 'Regulatory Compliance vs. Internal Business Expense'.
- [THE HORIZONTAL EXPANSION]: Memorize these CSR specifics: 1) Thresholds: Net Worth ₹500cr OR Turnover ₹1000cr OR Net Profit ₹5cr. 2) Carry Forward: Unspent amounts for ongoing projects can be held for 3 years. 3) Exclusions: Political donations, activities outside India, marketing sponsorships, and employee-only benefits. 4) Committee: Minimum 3 directors, at least 1 independent.
- [THE STRATEGIC METACOGNITION]: Do not just read 'What is CSR?'. Ask 'What is NOT CSR?'. UPSC creates statements by looking at the 'Ineligible Activities' section of government notifications to test if you can distinguish between public welfare and private perk.
Companies meeting specified thresholds must spend 2% of their average profits of the last three years on CSR activities.
High-yield for UPSC because it is a key statutory requirement linking corporate law and public policy; useful for questions on corporate governance, business regulation, and sustainable development policies. Understanding this rule helps answer questions about compliance, fiscal impact, and corporate-state relations.
- Exploring Society:India and Beyond ,Social Science, Class VIII . NCERT(Revised ed 2025) > Chapter 7: Factors of Production > DON'T MISS OUT > p. 181
CSR is aimed at giving back to society and the boundary between pure business activities and CSR projects is often blurred.
Important for UPSC aspirants because exam questions probe legal definitions and policy interpretation; mastering this helps tackle issues on accountability, corporate ethics, and implementation challenges where benefits to the company may conflict with 'social' intent.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 12: Indian Industry > CORPORATE SOCIAL RESPONSIBILITY > p. 391
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 12: Indian Industry > Challenges to CSR > p. 392
Whether certain CSR expenditures qualify for tax breaks or recognition can depend on the discretion of tax authorities.
Useful for answering linkage questions between corporate law and tax policy; helps in analysis of compliance risks, administrative discretion, and legal disputes arising from CSR classification.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 12: Indian Industry > Challenges to CSR > p. 392
The statutory CSR norm sets a fixed 2% of average net profits (preceding three years) as the compliance benchmark for covered companies.
High-yield for questions on corporate regulation and governance; helps answer policy, legal provision and implementation questions. Connects to topics on corporate accountability, public finance allocation, and law-versus-voluntary CSR debates. Enables direct recall and comparative analysis of statutory thresholds.
- Exploring Society:India and Beyond ,Social Science, Class VIII . NCERT(Revised ed 2025) > Chapter 7: Factors of Production > DON'T MISS OUT > p. 181
CSR duties apply only to companies meeting thresholds such as specified net worth or turnover limits.
Important for distinguishing which firms are covered by CSR rules — useful in polity and economy questions about regulatory scope. Links corporate law to industry classification, taxation and public policy targeting. Enables questions asking which firms are obligated to spend on CSR.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 12: Indian Industry > CORPORATE SOCIAL RESPONSIBILITY > p. 391
India made CSR a statutory obligation through the Companies Act 2013 and implementing CSR Rules in 2014, marking a policy shift from voluntary guidelines to mandatory law.
Useful for comparative policy and governance questions about regulatory innovation and international firsts. Connects to topics on legal reform, corporate governance evolution, and state-business relations. Enables essay and mains answers that evaluate policy impacts and uniqueness.
- Exploring Society:India and Beyond ,Social Science, Class VIII . NCERT(Revised ed 2025) > Chapter 7: Factors of Production > DON'T MISS OUT > p. 181
Set-off Rule: If a company spends *more* than the mandatory 2% in a year, can they carry forward the 'excess' credit to set off against future obligations? Yes, they can set it off for the next 3 financial years. This is the next logical administrative rule to test.
Apply 'Loophole Logic' to Statement 1. If expenditures benefiting the company or employees *were* counted as CSR, every corporation would label their office cafeteria, gym, or staff picnic as 'CSR' to meet the quota without helping society. To prevent this obvious tax/compliance evasion, the rules *must* exclude them. Thus, Statement 1 has to be correct.
Connects to GS-4 (Ethics) and GS-2 (Governance). CSR is the legal codification of the Gandhian concept of 'Trusteeship'. In Mains, use the exclusion of 'employee benefits' to argue that the State enforces a strict separation between 'Profit Motive' (Shareholder Capitalism) and 'Social Welfare' (Stakeholder Capitalism).