After CSR, rules 2014 now MCA has announced new CSR rules which shall be known as Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021.
FEW IMPORTANT POINTS IN THESE RULES ARE AS UNDER:
Rule 2: Definitions
♦ Corporate Social Responsibility (CSR) definition has been revised and instead of activities mentioned in Schedule VII the activities are described in the definition itself. CSR is classified in the following table:
|CSR INCLUDES:||CSR EXCLUDES (EXCEPTIONS TO CSR)|
(a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act;
(b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report;
♦ “Administrative overheads” means the expenses incurred by the company for ‘general management and administration’ of Corporate Social Responsibility functions in the company but shall not include the expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project or programme.
In the above definition general management and administration expenditure excludes direct expenses towards particular CSR Project or Programme.
♦ “International Organization” means 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.
The Government has allowed the International Organization for designing, monitoring and evaluation of the CSR Project or Programme.
♦ “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 it was commenced, and shall include such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the board based on reasonable justification.
As per definition, Ongoing project = Project already commenced + multi-year project whose duration is not less than one year but not exceeding 3 years
♦ “Public Authority” means ‘Public Authority’ as defined in clause (h) of section 2 of the Right to Information Act, 2005
♦ “CSR Policy” means a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formulation of the annual action plan.
In the above definition, a statement shall contain the approach and direction with relation to selection, implementation and monitoring of CSR Project or Programme.
Rule 4: CSR Implementation
♦ The Board shall ensure that the CSR activities are undertaken by the company itself or through –
♦ It shall be noted that the eligible intermediaries through which the company shall undertake the CSR Project or Programme will require registering itself with the Central Government by filing the Form CSR-1 electronically with effect from April 01, 2021.
♦ Further on filing the Form CSR-1 with the Central Government, a unique CSR Registration Number will be generated by the system automatically.
♦ International Organization as defined in Rule 2 of the Rule can also be engaged for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR.
♦ Further, it is the responsibility of the Board of the Company to monitor the implementation of ongoing projects and to ensure that the funds are utilized for approved purpose and shall be certified by the Chief Financial Officer (CFO) or Person in charge of finance.
♦ The Board shall have a power to make modifications in such projects to ensure smooth implementation of the project within permissible time limit.
Rule 5: CSR Committees
♦ It shall be noted that the CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following, namely:
Rule 7: CSR Expenditure
♦ The board shall ensure that the administrative overheads shall not exceed 5% of total CSR expenditure of the company for the financial year.
♦ Any surplus arising out of CSR activities shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the company or transfer such surplus amount to a Fund specified in Schedule VII, within a period of 6 months of the expiry of the financial year.
♦ Any excess amount may be set off against the requirement to spend up to immediate succeeding 3 financial years subject to the conditions that;
♦ Any capital asset created by a company prior to the commencement of the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, shall within a period of 180 days from such commencement comply with the requirement of this rule, which may be extended by a further period of not more than 90 dayswith the approval of the Board based on reasonable justification.
Amendment to Rule 8: CSR Reporting
♦ Companies with average CSR obligation of 10 Crore or more in the 3 immediately preceding financial yearsshall undertake impact assessment through an independent agency for projects of 1 crore or more which have been completed not less than 1 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.
Amendment to Rule 9: Website Disclosure
♦ The Board of Directors of the Company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access.
Amendment to Rule 10: Transfer of unspent CSR
♦ Until a fund is specified in Schedule VII for the purposes of sub-section (5) and(6) of section 135 of the Act, the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act.
♦ New format inserted for disclosure of ‘Annual Report on CSR activities’ to be included in the Board’s Report.
♦ Besides this, companies undertaking CSR activities will have to share.
♦ Impact Assessment for big CSR projects.
♦ Carry forward and set off of CSR expenditure.
♦ Annual action plan for CSR by Board every year in addition to CSR policy.
♦ Tweaks in reporting formats of Board Report.
♦ Mandatory disclosure of CSR projects and activities on company website.
♦ Capital Asset acquisition and its holding restricted to three bodies broadly.
♦ Transfer of unspent amount to government notified fund.
♦ In the event of the company failing to spend the earmarked two percent of net profits towards CSR, it will “have to specify the reasons for not spending the amount” and, unless the unspent amount relates to any ongoing project, transfer it to a government notified fund.