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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
Guest previewThis 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.
Web source
Presence: 5/5
"Given that 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"
Why this source?
- 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.
Web source
Presence: 4/5
"Which activities do not qualify as eligible CSR activity? Rule 2(1)(d) of the Companies (CSR Policy) Rules, 2014 defines CSR and the following activities are specifically excluded from being considered as eligible CSR activity: (i) Activities undertaken in pursuance of normal course of business of the"
Why this source?
- 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 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).
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 12: Indian Industry > Challenges to CSR > p. 392
Strength: 5/5
“• Difficulties come up in most cases of shared value and social business projects because a. In those cases, the boundary between pure business activities and CSR activities is often obscured. • Complication regarding implication of CSR activities on whether company will be eligible \bullet for tax breaks on certain CSR spending or not depends considerably on the discretion of tax authorities.”
Why relevant
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.
How to extend
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.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 12: Indian Industry > CORPORATE SOCIAL RESPONSIBILITY > p. 391
Strength: 4/5
“• It is a management concept whereby companies integrate the social and environmental concerns in the business operation and interaction with their stakeholders.• In simple terms, corporate social responsibility (CSR) spending by a company is a way of giving back to the society in which it is doing business and making a profit for its shareholders.• Companies having net worth of ₹500 crore or more or turnover of ₹1,000 crore or more ö”
Why relevant
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.
How to extend
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.
Exploring Society:India and Beyond ,Social Science, Class VIII . NCERT(Revised ed 2025) > Chapter 7: Factors of Production > DON'T MISS OUT > p. 181
Strength: 3/5
“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.”
Why relevant
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.
How to extend
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.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 21: Sustainable Development and Climate Change > SUSTAINABLE CLIMATE FINANCE > p. 601
Strength: 2/5
“Sustainable Development and Climate Change 21.7
13500
• RBI included lending to social infrastructure and small renewable energy projects within the priority sector targets. • 'Voluntary Guidelines on Corporate Social Responsibility' were issued in 2009 to mainstream the concept of business responsibility. • A Committee was constituted to review and update the Business Responsibility Reporting (BRR) formats for listed as well as unlisted companies.”
Why relevant
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.
How to extend
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.
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.
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