Companies (CSR Policy) Amendment Rules, 2021

Applicability of CSR

Section 135 of the Companies Act, 2013 is applicable to every company registered under the Act, and any other previous Companies Law, with a net worth of Rs 500 crore or more, or a turnover of over Rs 1,000 crore or a net profit exceeding Rs 5 crore in any financial year. ‘Any financial year’ implies any of the three preceding financial years.

Amount of contribution

At least 2% of average net profit of 3 immediately preceding financial years to be spent on CSR activities every year. Exp. For Financial Year 2017-18 Calculation: Average net profit of FY 2012-15, 2015-16 & 2016-17 needed to be considered.

Penalty for non-compliance

One of the amendments relates to the non-compliance of the law. According to the government order, a monetary penalty will be imposed on the businesses that are not spending 2 per cent of their net profit on CSR or are not transferring the unspent amount to specified accounts. The penalty could be up to Rs. 1 Crore for the defaulting company and up to Rs. 2 Lakhs for each defaulting officer

Introduction of Definition Of “Corporate Social Responsibility” & List of Activities not includible in CSR

CSR means the activity undertaken by the company u/s 135 read with these rules, but shall not include the following:
• Normal Course of Business - All Activities other than the Companies engaged in the R&D activity of the new vaccine, drugs and medical device related to the COVID 19 for the FY 2020-21, 2021-22, 2022-23
• Any activity undertaken outside India except for training of Indian sports personnel representing any State or Union territory at the national level or India at international level.
• Contribution of any amount directly or indirectly to any political party under section 182 of the Act.
• Activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019.
• Activities supported by companies on a sponsorship basis for deriving marketing benefits for its products or services.
• Activities carried out for fulfilment of any other statutory obligations under any law in force in India.

Inclusion of expanded and new definitions

Administrative overheads: mean the expenses incurred by the company for general management and administration of the CSR functions in the company but shall not include expenses directly incurred for designing, implementation, monitoring, and evaluation of a particular CSR project or program.

International organization: refers to an organization notified by the Central Government as an international organization under section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply.

Ongoing Project: means a multi-year project undertaken by a Company in fulfilment of its CSR obligation having timelines not exceeding three years excluding the financial year in which the project commenced and shall include such project that was initially not approved as a multiyear project but whose duration has been extended beyond one year by the board based on reasonable justification.

Compulsory registration with MCA by filing Form CSR-1 electronically

Every entity covered under these rules that intends to undertake any CSR activity will have to register itself with the Central Government by filing the form CSR-1 electronically with the ROC, with effect from April 1, 2021. On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically.

Board responsibility and CFO certification:

This is an extremely important amendment. In addition to the monitoring by the board, it requires the CFO or alike to give utilization certificate of the disbursements made. This makes the role of monitoring all the more crucial. This apart the, CFO will also be required to sign the annual CSR report. This clause makes the CFO apparently responsible for the entire CSR provision without him being part of the CSR committee or the board of directors. Probably, such certificate shall have to be placed before the CSR committee and / or the board – the draft rules are silent on this.

Rule 7: Treatment of surplus arising out of CSR activities or excess CSR amount

Surplus arising out of CSR activities shall not form part of the business profits of a company and shall be:
• Ploughed back into the same project or
• Transferred to the unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the company or to a Fund specified in Schedule VII, within six months from the end of the financial year.

Any excess amount spent by the company may be set off against future CSR obligations in immediately succeeding three financial years subject to the conditions that:
• The excess amount available for set off shall not include the surplus arising out of the CSR activities, if any; and
• The Board of the company shall pass a resolution to that effect.

Rule 8: Mandatory Impact Assessment

• Companies with average CSR obligation of INR 100 million or more in the three immediately preceding financial years are required to undertake impact assessment through an independent agency for CSR projects of INR 10 million or more and which have been complete not less than one year before undertaking the impact study.
• The impact assessment reports are to be placed before the Board and annexed to the annual CSR report.
• Expenditure on impact assessment may be accounted for towards CSR of that financial year, which shall not exceed five percent of the total CSR expenditure in the relevant financial year or INR 5 million, whichever is less.

Rules 8, Rule 9 and Rule 10:

Revamped CSR reporting A new format has been prescribed for annual report on CSR having enhanced reporting requirements and includes the following disclosures:
• Details regarding meetings of CSR committee
• Details of impact assessment of CSR projects
• Set-off of any excess CSR amount against future CSR obligations.
• Amount spent on administrative overheads, impact assessment, if applicable, and on ongoing projects; etc.
• The Board also needs to disclose the composition of CSR Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access.

Disclaimer:“Information contained herein is for informational purposes only and should not be used in deciding any particular case. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts have been made to provide authentic information, it is suggested that to have better understanding and obtaining professional advice after thorough examination of particular situation.”

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Prepared By

Gayatri Ganesh

CA Final

Date: 15-05-2021