Corporate Social Responsibility: Lifeline of Businesses

The word Corporate Social Responsibility has gained significant importance in the competitive business world. As companies get all the resources from society, they must give something back to society due to which the concept of CSR has evolved into a core aspect of modern business culture.

What is Corporate Social Responsibility (CSR)?

In simple words, Corporate Social Responsibility refers to a company’s commitment to act ethically and contribute positively to society. By practising CSR, a company tries to achieve a balance of economic, environmental, and social imperatives instead of contributing negatively to society.
The best marketing strategy that incorporates CSR is the “Societal Marketing Strategy” in which the company focuses on the needs and wants of the customer as well as ensuring the safety of the customer and society first, instead of just focusing on profit.

Why is CSR important?

CSR is important because it helps the businesses to grow in the following ways:

Reputation and Brand Building: Companies that practise tend to enjoy better reputations in the market. At present customers not just focus on the quality of product, they are increasingly becoming more aware of the impacts of companies on their community and environment.

Sustainability: CSR encourages sustainable practices, helping companies reduce their environmental impact and contribute to a healthier planet.

Employee Satisfaction: Employees are the biggest asset for every company. CSR activities can attract and retain employees, as many individuals prefer to work for socially responsible organisations. 

Long-Term Growth: CSR initiatives often have a long-term perspective. They focus on the well-being of society and the environment, which aligns with the idea of sustainable, responsible growth that benefits not only the company but also its stakeholders.

Types of corporate responsibility that your business can practise

There are several ways in which businesses can practise CSR:

Environmental Responsibility:

Focus: This type of responsibility centres on a company's impact on the environment. It involves acknowledging the environmental footprint of business activities and taking steps to minimise or mitigate negative effects.

Examples: Implementing eco-friendly practices, reducing carbon emissions, conserving natural resources, minimising waste, adopting sustainable supply chain practices, and supporting renewable energy initiatives.

Social Responsibility:

Focus: Social responsibility addresses a company's relationships with the broader community, employees, and society at large. It involves actions and policies designed to improve the well-being of people.
Examples: Supporting local communities through philanthropic initiatives, promoting diversity and inclusion in the workplace, ensuring fair labor practices, investing in employee health and well-being, contributing to education and healthcare programs, and taking a stand on social issues.

Economic Responsibility:

Focus: Economic responsibility pertains to a company's commitment to ethical financial practices, fair competition, and the well-being of its economic stakeholders, such as shareholders, investors, and suppliers.
Examples: Maintaining transparent financial reporting, adhering to fair trade practices, paying equitable wages, providing fair compensation to suppliers, and ensuring ethical financial dealings.

Philanthropic Responsibility:

Focus: Philanthropic responsibility is about giving back to society and supporting charitable causes. It goes beyond legal and ethical obligations to make a positive impact on communities and society.

Examples: Donating to nonprofits and charitable organizations, contributing to disaster relief efforts, offering in-kind donations, supporting educational programs, and volunteering time and expertise for community development.

These four types of corporate responsibility are not mutually exclusive and often intersect. Many companies incorporate elements of each type into their overall CSR strategies. The specific focus of a business's CSR efforts can vary based on its industry, values, and the concerns of its stakeholders.

CSR Applicability in India

The CSR regulations apply to any company that meets one of the following criteria in the preceding financial year:
Net worth of more than Rs.500 crore
Turnover of more than Rs.1000 crore
Net profit of more than Rs.5 crore

For companies falling under these criteria, the Board of Directors is responsible for ensuring that the company allocates at least 2% of its average net profits from the preceding three financial years, following its CSR policy. In cases where the company has not completed three financial years since its establishment, it must allocate 2% of its average net profits from the immediately preceding financial years, adhering to its CSR policy.

Is GST applicable to CSR?

In GST, 'supply' is a taxable event, defined in section 7 of the Central Goods and Services Tax Act, 2017. For an activity to be considered 'supply,' it must meet these conditions:
1. Involves goods, services, or both.
2. Occurs in the course of business.
3. Involves consideration.

While CSR activities may not appear to involve consideration, 'consideration' has a broad interpretation. Schedule I of the CGST Act, 2017 lists activities considered supply even without consideration. Therefore, goods or services supplied through CSR activities qualify as 'supply' and are subject to GST.

Is ITC available on GST paid on CSR?

Input Tax Credit (ITC) is generally available for GST paid on inputs and services used in the course of business. However, The Finance Bill of 2023 introduced an amendment to the Central Goods and Services Tax (CGST) Act, making it explicit that input tax credit (ITC) cannot be claimed for goods or services used in the provision of Corporate Social Responsibility (CSR) activities.

Read this case study on CSR 

FAQS

Can small businesses afford CSR initiatives?

Yes, CSR initiatives can be tailored to the size and capacity of the business. Even small businesses can make a positive impact by supporting local causes or implementing sustainable practices.

Are there any tax incentives for CSR activities?

Some countries offer tax incentives for CSR contributions. Check with local tax authorities to see if your business is eligible for such incentives.

How can I measure the impact of our CSR initiatives?

Impact measurement can involve tracking key performance indicators (KPIs) related to your CSR goals, conducting surveys, and collaborating with NGOs or experts to evaluate the effectiveness of your initiatives.

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