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 ?

(a) 1 only ✓ UPSC's answer
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Why the answer is (a)

• Section 135 of the Companies Act, 2013 and the CSR Rules, 2014 govern corporate social responsibility in India.

• Statement 1 is correct: the Rules exclude from CSR any activity undertaken in the normal course of business, activities benefiting only the company's employees and their families, and expenditure that benefits the company directly (such as marketing).

• Statement 2 is wrong: companies meeting the thresholds (net worth ₹500 crore, turnover ₹1,000 crore or net profit ₹5 crore) must spend at least 2% of their average net profits of the preceding three years on CSR — a specified minimum, now mandatory with unspent amounts to be transferred to designated funds.

• India was the first country to legislate a mandatory CSR spend.

• Hence 1 only, option (a).

Why the other options are wrong

(b) 2 only: Statement 2 is wrong: a 2% minimum spend is prescribed; statement 1 is correct.
(c) Both 1 and 2: Statement 2 is wrong, so both cannot be correct.
(d) Neither 1 nor 2: Statement 1 is correct: self-benefiting spending is excluded from CSR.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2024, held on 16 June 2024. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.