MCA has introduced Companies (Corporate Social Responsibility Policy), Amendment Rules, 2021. And importantly CSR Spending made mandatory from voluntary w.e.f. financial year 2020-21.
Date of Effectiveness of Companies (Corporate Social Responsibility Policy), Amendment Rules, 2021:
 Companies (Corporate Social Responsibility Policy), Amendment Rules, 2021 came into effect on 22 January 2021, as the same has been published in the official gazette on the same date. Therefore, these amended rules are applicable on the financial year 2020-21 (subject to specific date of some rules).
|Old Rule No.||Old Rule Name||Effect||New Rule No.||New Rule Name|
|Rule 4||CSR Activities||Fully substituted||Rule 4||CSR Implementation|
|Rule 5(2)||CSR Committees||Sub rule 2 substituted||Rule 5(2)||CSR Committees|
|Rule 6||CSR Policy||Omitted|
|Rule 7||CSR Expenditure||Fully substituted||Rule 7||CSR Expenditure|
|Rule 8||CSR Reporting||Fully substituted||Rule 8||CSR Reporting|
|Rule 9||Display of CSR Activities on website||Fully substituted||Rule 9||Display of CSR Activities on website|
|Rule 10||There was no rule 10||Newly inserted Rule||Rule 10||Transfer of unspent CSR Amount|
Introduction of Definition Of “Corporate Social Responsibility” & List of Activities not includible in CSR
Earlier the Inclusive definition of CSR was given in the Act. Now that Inclusive definition has been amended as Exclusive definition and such Exclusive definition clearly specifies the activities which is not considered as CSR.CSR means the activity undertaken by the company u/s 135 read with these rules, but shall not includes the following:
|LIST OF ACTIVITIES NOT INCLUDE IN CSR|
|Normal Course of Business||Activities undertaken in pursuance of the normal course of business of the company.
However, in this point, MCA has exempted the Companies engaged in the research and development activity of the new vaccine, drugs and medical device related to the COVID 19 for the f.y. 2020-21, 2021-22, 2022-23 subject to the certain conditions.
|Outside India Activity||Any activity undertaken by the company outside the India (except for the training of the Indian sports personnel representing any State or Union territory at the national level or India at International level);|
|Political contribution||Contribution of any amount directly or indirectly to any political party under section 182 of the Act.|
|Benefit of Employee||Activities that significantly benefit the employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);|
|Benefit to its product||Activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services|
|Other obligation in Law||Activities carried out for the fulfillment of any other statutory obligations under any law in force in India|
UNIQUE CSR REGISTRATION NO:
Every entity who is covered under these rules, who intends to undertake any CSR activity, shall register itself with the CG by filing the e-form CSR-1 with the ROC w.e.f. 01 April 2021. On filing of CSR -1, one ‘Unique CSR Registration Number’ shall be generated by the system automatically.
From 1st April 2021, it is mandatory for every implementing agency to register itself with the ROC by filing the e-form CSR-1. If any implementing agency fails to file CSR-1, they shall not be eligible to continue as the Implementing agency.
PROVISIONS ON CSR EXPENDITURE (RULE 7):
As Companies on which provisions of Section 135 is applicable needs to spend 2% of the average net profit of the previous three financial years on the CSR Activity.
> What if Company spent excess amount in any financial year?
As per the Amendment Rules, 2021, Rule 7 sub rule 3:
If a Company spent on CSR in excess of the requirement (i.e. 2%), such excess amount may be set-off against the requirement of the CSR Spending u/s 135(5) upto the immediate succeeding 3 financial yearsubject to the conditions that:
Administration Over Head:
The administration over head shall not exceed 5% of the total CSR Expenditure of the Company for the financial year.
Definition of administration over head added Rule 2(b): Means the expenses incurred by the Company for ‘general management and administration’ of CSR functions in the Company. It does not include:
Treatment of Surplus arising out of CSR amount: (Rule 7(2)): Any Surplus arising out of the CSR activity shall not be a part of the business profit. Such surplus shall be used on the following within a period of 6 months of the expiry of the financial year.
Spending on Capital Assets:
The CSR amount may be spent by a Company for the creation or acquisition of a capital asset, which shall be held by:-
Note: Any CSR asset created prior to these Rules, required to comply within a period of 180 days (Board may extend by 90 days)
TREATMENT OF UNSPENT AMOUNT:
If the Company fails to spend 2% of the Average net profit, then the following shall be the treatment of the unspent amount.
|If unspent amount not relating to an ongoing project||the Board shall, in its report, shall specify the reasons for not spending the amount; and’
unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year
Amount remaining unspent for the f.y. 2020-21 shall be transferred to Schedule VII fund latest by September 30, 2021.
|If unspent amount relating to an ongoing project||The amount be transferred within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account (UCSRA).||IMPACT:
The amount remaining unspent (on ongoing project) for the FY 2020-21 shall be transferred to UCSRA latest by April 30, 2021
The amount remaining unspent transferred for f.y. 2020-21 to UCSRA, has to be utilized for the project upto FY 2023-24,
|If fails to spend on the ongoing project||If Company Fails to spend in 3 years, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year||Impact:
The unspent amount shall be transferred to a fund specified in Schedule VII.
REPORTING OF CSR DISCLOSURE:
The Company shall annex with its Board Report an annual report on CSR in format of Annexure-I (for f.y. 2020-21) or in Annexure II (w.e.f. fy 2021-22).
In case of a Foreign Company:
The Balance sheet filed u/s 381 shall contain ‘an annual report on CSR in the format of Annexure I (for f.y. 2020-21) or in Annexure-II (w.e.f. fy 2021-22).
Impact Assessment: It is a new concept introduced through these rules.
A company having the obligation of spending the average CSR amount of Rs 10 Crore or more in the three immediately preceding financial years in pursuance of Section 135(5) of the Act, shall undertake impact assessment.
Impact assessment to be done by an independent agency. Impact assessment to be done in respect of CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study.
The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR. Impact assessment expenditure for a financial year shall not exceed five percent of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is less.
Website Disclosure: (Rule 9): The Board of Directors of the Company shall mandatorily disclose the followings on its website (if any):
1. CSR Policy: CSR Policy to include:
2. Ongoing Project: “Ongoing Project” means a multi-‐year project having timelines not exceeding three years excluding the financial year in which it was
3. Net Profit: Net profit as per its financial statement with the applicable provisions of the Act, but doesn’t include:
4. Net Profit for foreign Company: Net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of sub-section(1) of Section 381, read with section 198 of the Act.
IMPLEMENTATION OF CSR SPENDING:
The CSR activities can be undertaken by the Company itself or through the followings implementing agencies:
♦ Either singly or along with the other Company; or
♦ Above entity established by the Central Government or State Government; or
♦ Any of the above entity having a track record of at least 3 years in undertaking similar activities; or
♦ Any of the above entity established under an Act of parliament or a State Legislature.
A Company may also collaborate with other companies for undertakingcthe projects or programs or CSR activities subject to the conditions.
Engage International Organization:
A company may engage the international organizations for designing, monitoring and evaluation of the CSR projects or programs as per its CSR policy as well as for the capacity building of their own personnel for CSR. Only the Central Government notified organizations shall qualify as International Organization.
CSR COMMITTEE: (Rule 5(2)- Committee shall formulate and recommend to the Board, an annual action plan in pursuance to its CSR Policy, which shall include the following:
RESPONSIBILITIES OF BOARD: (Rule 4(5-6))
Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
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