Discover the latest changes in Companies (CSR Policy) Rules, 2014 including CSR applicability, expenditure modes, penalties for non-compliance, and amendments.

CSR APPLICABILITY:

As per sec 135(1) of Companies Act, 2013

CSR applicable to a company which complies any of the following conditions in the immediately preceding financial year

1) Company is having net worth of rupees five hundred crore or more, or

2) Company is having turnover of rupees one thousand crore or more or

3) Company is having a net profit of rupees five crore or more

Net profit has to be computed as per sec 198 of the Companies Act, 2013

Computation of net profits prescribed under Section 198 is used for two purposes – (i) for determining managerial remuneration under Section 197 and Schedule V; and (ii) for determining the minimum CSR amount to be spent by the company in a financial year, under Section 135(5) of the 2013 Act.

Section 198(3) provides items of income for which no credit shall be given while calculating net profit, which includes items like profit on sale of investments, profits of a capital nature, including profits from the sale of undertaking, and profit from sale of any immovable property.

CSR

Section 198(4) provides for various items of expenditure, which shall be deducted while calculating net profit, which includes usual working charges, directors’ remuneration, etc.

Section 198(5) provides for four specific items, which shall not be deducted — which includes items like loss of capital nature on sale of undertaking, income tax, any voluntary payments of compensation, etc.

Through the Companies (Amendment) Act, 2017 (‘2017 Amendment’), sub-clause (f) was inserted to Section 198(3). In accordance with Section 198(3)(f), while calculating ‘net profit’ — credit shall not be given for “any amount representing unrealised gains, notional gains or revaluation of assets”.

1) CSR Policy and Annual Report on CSR Activities to be Included in the Board’s Report.

2) If there exists any unspent CSR same has to be disclosed in Board report and reason for unspent also to be disclosed in the Board Report

Multiple modes of CSR expenditure:

CSR expenditure can be incurred in multiple modes as under:

(i) ‘Activities route’, which is a direct mode wherein a company undertakes the CSR projects or programmes as per Schedule VII of the Act, either by itself or by engaging implementing agencies as prescribed in Companies (CSR Policy) Rules, 2014.

(ii)‘Contribution to funds route’, which allows the contributions to various funds as specified in Schedule VII of the Act.

(iii) Contribution to incubators and R&D projects, as specified in item (ix)(a) and contribution to institutes/organisations, engaged in research and development activity, as specified under item (ix)(b) of Schedule VII of the Act.

CSR Policy:

Company has to enclose its CSR policy in Director’s report and has to place the same in company website 

CSR Committee:

As per the latest amendments it is not required to form CSR Committee

As per Sec 135 (9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company

What actions need to be taken if a company spends less than the amount required to be spent under CSR obligation in a particular year?

If a company spends less than the amount required to be spent under their CSR obligation, the Board shall specify the reasons for not spending in the Board’s report as per clause (o) of sub-section (3) of section 134, and shall deal with the unspent amount in the following manner: 

What actions need to be taken if a company spends less than the amount required to be spent under CSR obligation in a particular year?
Nature  of unspent amount Action required Timelines
Unspent  amount pertains  to ‘ongoing projects’ Transfer such unspent amount to a separate bank account of the company to be called as  ‘Unspent  CSR Account’. 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, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, 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.
Unspent  amount pertains to ‘other than  ongoing projects’ Transfer  unspent amount  to  any  fund included in Schedule VII of the Act. Within  6 months  from the end of the financial year.

 Penality for Non-compliance:

As per sub sec7 of sec 135 of Companies Act 2013, If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less. 

Important amendments in Companies (Corporate Social Responsibility Policy) Rules, 2014.

(effective from 20th September, 2022)

Rule 3 of Companies (Corporate Social Responsibility Policy) Rules, 2014.

Corporate Social Responsibility.

The following has added in sub rule 1 of Rule 3 of (Corporate Social Responsibility Policy) Rules, 2014.

[Provided further that a company having any amount in its Unspent Corporate Social Responsibility Account as per subsection (6) of section 135 shall constitute a CSR Committee and comply with the provisions contained in sub-sections (2) to (6) of the said section.

Effect of the above amendment is even though company has CSR obligation does not exceed fifty lakh rupees, it has to constitute CSR committee and comply with the provisions contained in sub-sections (2) to (6) of the said section if there exists unspent CSR.

Sub rule 2 of rule 3 of Corporate Social Responsibility Policy) Rules, 2014 omitted by the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 vide Notification No. G.S.R. 715(E) dated 20th September, 2022, w.e.f. 20.09.2022.

Before omission, the rule is as under:

(2) Every company which ceases to be a company covered under sub-section (1) of section 135 of the Act for three consecutive financial years shall not be required to – (a) constitute a CSR Committee; and (b) comply with the provisions contained in *[sub-section (2) to (6)] of the said section, till such time it meets the criteria specified in sub-section (1) of section 135

Effect of the above amendment is Company has to check eligibility criteria each year. For example, if a company has loss in a particular financial year and other turnover and net worth criteria is not met. It is not required to spend CSR.

Rule 7 of Companies (Corporate Social Responsibility Policy) Rules, 2014.

CSR Expenditure

(1) The board shall ensure that the administrative overheads shall not exceed five percent of total CSR expenditure of the company for the financial year.

(2) 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.

(3) Where a company spends an amount in excess of requirement provided under sub-section (5) of section 135 , such excess amount may be set off against the requirement to spend under subsection (5) of section 135 up to immediate succeeding three financial years subject to the conditions that – (i) the excess amount available for set off shall not include the surplus arising out of the CSR activities, if any, in pursuance of sub-rule (2) of this rule. (ii) the Board of the company shall pass a resolution to that effect.

(4) The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by – (a) a company established under section 8 of the Act, or a Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number under sub-rule (2) of rule 4; or (b) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or (c) a public authority: Provided 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 one hundred and eighty days from such commencement comply with the requirement of this rule, which may be extended by a further period of not more than ninety days with the approval of the Board based on reasonable justification. 

Rule 8 sub rule 1 of Companies (Corporate Social Responsibility Policy) Rules, 2014.

CSR Reporting: –

The Board’s Report of a company covered under these rules pertaining to any financial year shall include an annual report on CSR containing particulars specified in Annexure-I or Annexure-II, as applicable

Rule 9 of Companies (Corporate Social Responsibility Policy) Rules, 2014.

Display of CSR activities on its website: –

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 

Disclaimer: It is purely my understanding of CSR changes in latest rules. If any other opinion or understanding can share by readers.

Author Bio

Qualification: CS
Company: MADHURIMA
Location: Hyderabad, Telangana, India
Member Since: 22 Apr 2022 | Total Posts: 4
Hi, My self Madhurima Sane. I am from Tirupati. I am a CA CS. Tax laws and Company law are my core areas of practice and I love teaching students. View Full Profile

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One Comment

  1. Joseph Koshy says:

    An excellant work useful to every person connected to various aspects of the Companies Act and other matters connected toit

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