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:

Rule 2-Definitions:

New Definitions:

  • “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
  • “International Organisation” means an organisation notified by the Central Government as an international organisation under section 3 of the United Nations (Privileges and Immunities) Act, 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 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;
  • “Public Authority” means as defined in clause (h) of section 2 of the Right to Information Act, 2005

Companies Act, 2013

Substituted Definitions

  • “Corporate Social Responsibility” 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:

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;

  • “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.
  • “Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely: –

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

  • a Section 8 company, or a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961, established by the company, either singly or along with any other company or having an established track record of at least 3 years in undertaking similar activities; or
  • a Section 8 company or a registered trust or a registered society, established by the Central Government or State Government; or
  • any entity established under an Act of Parliament or a State legislature.

√ 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: –

  • the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in

Schedule VII of the Act;

  • the manner of execution of such projects or programmes as specified in rule 4(1);
  • the modalities of utilisation of funds and implementation schedules for the projects or programmes;
  • monitoring and reporting mechanism for the projects or programmes; and
  • details of need and impact assessment, if any, for the projects undertaken by the company.

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 excess amount available for set off shall not include the surplus arising out of the CSR activities, if any.
    • the Board of the company shall pass a resolution to that effect

√ The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by –

    • a section 8 company, or a Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number; or
    • beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or
    • a public authority.

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

Impact Assessment

√ 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:

  • composition of the CSR Committee;
  • CSR Policy; and
  • Projects approved by the Board.

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.

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