Critique of Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021

On 22nd January, 2021 MCA notified Companies (Companies Social Responsibility Policy) Amendment Rules, 2021.

Tabular presentation of Amended CSR Rules

Rule No. Old Rule New Rule Impact
Rule 4 CSR activity CSR implementation Substituted
Rule 5 Sub rule 2 CSR committee CSR Committee Only Sub rule 2 substituted
Rule 6 CSR policy —— Omitted
Rule 7 CSR Expenditure CSR expenditure Substituted
Rule 8 CSR reporting CSR reporting Substituted
Rule 9 Display of CSR activities on website Display of CSR activities on website Substituted
Rule 10 —- Transfer of unspent CSR amount Newly added

 Activities not include in ‘Corporate Social responsibility’

As per amended Rule 2(d), “Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Companies Act, 2013, in accordance with the provisions contained in these rules, but shall not include the following, namely:-

  (i) activities undertaken in pursuance of normal course of business of the company.

However, any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that-

 (a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in Schedule VII(ix) to the Act

(b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report

 (ii) any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level.

(iii) contribution of any amount directly or indirectly to any political party under section 182 of the Act.

(iv) activities benefitting employees of the company as defined in section 2(k) of the Code on Wages, 2019.

 (v) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services.

(vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India.

CSR implementation- Rule 4

The CSR activities can be undertaken by the company itself or through

(a) a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company, or

(b) a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government; or

(c) any entity established under an Act of Parliament or a State legislature; or

(d) a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of atleast three years in undertaking similar activities.

Every entity, as stated above, who intends to undertake any CSR activity, shall register itself by filing the form CSR-1 electronically, w.e.f 01.04.2021:

Provided that the provisions shall not affect the CSR projects or programmes approved prior to the 01st day of April 2021.

A company may engage international organisations 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.

A company may also collaborate with other companies for undertaking projects or programmes or CSR activities.

The board shall satisfy that the funds have been utilised for the purpose and the Chief Financial Officer or the person responsible for the financial management shall certify to the effect.

CSR Committee – Rule 5(2)

CSR committee shall formulate and recommend an action plan to the board which shall include-

i) List of CSR projects to be undertaken

ii) Manner of Execution of such projects

iii) the modalities of utilisation of funds and implementation schedules

iv) monitoring and reporting mechanism for the projects

v) details of need and impact assessment, if any, for the projects undertaken by the company

CSR Expenditure -Rule 7

  • Board shall ensure Administrative Overheads not exceed 5% of total CSR expenditure for the financial year.

Definition of Administrative Overhead- Means the expenses incurred by the Company for ‘general management and administration’ of CSR functions in the Company but shall not include:

The expenses directly incurred for the designing, implementation, monitoring, ad evaluation of a particular CSR project or program.

  • Any surplus arising out of the CSR activity shall not form part of the business profit of the company and
    • Ploughed back into the same project
    • Transferred to the Unspent CSR Account and spent in pursuance of CSR policy
    • transfer such surplus amount to a Fund specified in Schedule VII

within 6 months of expiry of the financial year.

  • Excess spent available for carry forward and set off – if a company spent in excess of the requirement (i.e. 2%), then such excess may be set off upto three immediately succeeding financial years provided
    • Excess amount available for set off shall not include the surplus arising out of the CSR activities
    • The Board shall pass the resolution to that effect
  • Creation or Acquisition of Capital Asset- The CSR amount may be spent for creation or acquisition of capital asset which shall be held by-
    • company established under section 8 of the Act, or a Registered Public Trust or Registered Society having charitable objects and CSR Registration Number
    • beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or
    • a public authority

Provided that any capital asset created prior to these Rules, required to comply within a period of 180 days (Board may extend by 90 days)

CSR Reporting Rule 8

  • Board report of a company to include annual report on CSR containing particulars as specified in Annexure -1 (For FY 2020-21) or in Annexure-2 (For FY 2021-21).
  • 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- Company having average CSR obligation of 10 crore or more in the three immediately preceding financials years shall undertake Impact assessment.
    • To be done by Independent agency
    • Only of CSR projects having outlay of 1 crore or more and which have been completed not less than 1 year before undertaking the impact study
    • 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.

Display of CSR activities on its website- Rule 9

Board of Directors 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.

Transfer of Unspent CSR amount– Rule 10

If company fails to spend 2% of the average net profit, then the unspent CSR amount shall be transferred in the following manner-

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.

If unspent amount relating to an ongoing project- The amount be transferred within a period of 30 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

The company shall spend that amount within three financial years towards CSR. Otherwise, the amount shall be transferred to any Fund specified in Schedule VII of Companies Act, 2013 within 30 days from completion of third financial year

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April 2021