Ministry of Corporate Affairs has amended the Companies (Corporate Social Responsibility) Rules, 2021 with effect from 22nd January, 2021. Significant changes have been made to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014.
The following amendments have been made:
i. activities undertaken in pursuance of normal course of business of the company:
Provided that 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 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;
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 clause (k) of section 2 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;
a. any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and
b. any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act:
However, in case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of section 381(1)(a), read with section 198 of the Act;
Rule 4-CSR Implementation:
√ The Board shall ensure that the CSR activities are undertaken by the company itself or through
√ Every entity, who intends to undertake any CSR activity, shall register itself with the Central Government by filing the form CSR-1 electronically with the Registrar, with effect from the 01st day of April 2021. On successful submission of the said form CSR 1 a unique CSR Registration Number shall be generated by the system automatically However, the existing CSR projects/programmes approved prior to 01/04/2021 are unaffected.
√ 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 in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programmes in accordance with these rules.
√ The Board of a company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect.
√ In case of ongoing project, the Board of a Company shall monitor the implementation of the project with reference to the approved timelines and year-wise allocation and shall be competent to make modifications, if any, for smooth implementation of the project within the overall permissible time period.
Rule 5-CSR Committee
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: –
Schedule VII of the Act;
However, the Board may alter such plan at any time during the financial year, on the recommendation of its CSR Committee, based on the reasonable justification to that effect.
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 the CSR activities shall not form part of the business profit of a company and 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 six months of the expiry of the financial year
√ Where a company spends an amount in excess 2% of the average Net Profit such excess amount may be set off up to immediate succeeding 3 financial years subject to the conditions that –
√ The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by –
However, 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 days with the approval of the Board based on reasonable justification.
Rule 8-CSR Reporting
New Format of Annual Report
√ A new format of annual report to be included in the Board Report from FY 2020-21 has been provided in under Annexure II of the rules. Reporting for the FY before 2020-21, the Annexure 1 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 shall continue.
√ In case of a foreign company, the balance sheet filed under clause (b) of sub-section (1) of section 381 of the Act, shall contain an annual report on CSR containing particulars specified in Annexure I or Annexure II, as applicable
√ Every company having average CSR obligation of Rs. 10 Crores or more in the 3 immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of Rs 1 Crore 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.
√ A Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed 5% of the total CSR expenditure for that financial year or Rs 50 Lakhs, whichever is less.
Rule 9 – Display on Website
The Board of Directors of the Company shall mandatorily disclose the following on its website, if any, for public access:
Rule 10-Transfer of unspent CSR amount
Until a fund is specified in Schedule VII for the purposes of section 135(5) & (6) 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.