UPSC Prelims 2024 Q50: Indian Economy – Infrastructure & Industry
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (a) 1 only
Explanation
CSR (Corporate Social Responsibility) — Provisions
| Statement | Claim | Verdict | Why |
|---|---|---|---|
| Statement I | CSR activities that directly benefit the company's employees are NOT counted as CSR | TRUE | Under Companies Act 2013 Schedule VII and MCA rules, activities that exclusively benefit employees and their families (e.g., staff housing, private employee canteen) do NOT qualify as CSR. CSR must benefit the community/public - not just the workforce. |
| Statement II | There is no legal requirement for companies to spend on CSR | FALSE | Section 135 of Companies Act 2013 mandates that companies with net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore must spend at least 2% of average net profit (preceding 3 years) on CSR activities. Non-compliance requires board explanation and may attract penalties. |
CSR under Companies Act 2013:
- Mandatory for qualifying companies (threshold above)
- 2% of average net profits of preceding 3 years
- CSR Committee of Board required for companies with ₹500 cr+ net worth
- Schedule VII lists eligible CSR activities: education, health, environment, rural development, etc.
- Direct employee benefit ≠ CSR
- Penalty for non-compliance introduced in 2020 amendment
Answer: (a) 1 only.
Why each option is right or wrong
- (a) CORRECT. Statement I is correct (employee-only activities don't qualify as CSR). Statement II is false (the 2% legal mandate under Companies Act 2013 Section 135 exists).
- (b) Incorrect. 'Only 2' would mean there is no CSR legal requirement. Section 135 of Companies Act 2013 creates a binding 2% CSR obligation for qualifying companies.
- (c) Incorrect. 'Both correct' would mean no legal CSR requirement exists. The 2% mandate is one of India's most significant corporate law provisions.
- (d) Incorrect. 'Neither' would mean employee benefits DO qualify as CSR. They do not — CSR must benefit the public/community, not just employees.
Key point
CSR = must benefit community, not employees. 2% net profit mandate under Companies Act 2013 Section 135. Statement I correct, II false → 1 only.
Remember
CSR is mandatory (2% net profit) for qualifying companies. Direct employee benefits don't qualify as CSR. Statement I correct, II false.
Common mistakes
- Thinking CSR in India is voluntary — it is mandatory (2% net profit) for companies above the threshold since Companies Act 2013.
- Assuming employee welfare always qualifies as CSR — direct employee benefits are excluded; community benefit is required.
- Not knowing the threshold: net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore.
Exam tip
India's CSR = mandatory 2% net profit law (Companies Act 2013, Sec 135). Employee-only activities excluded. Schedule VII lists eligible activities (health, education, environment). Penalty introduced 2020. Statement I ✓, II ✗ → 1 only.
Sources
- Companies Act 2013 — Section 135
- MCA — CSR Rules 2014 (Amended 2021)