Sponsored
    Follow Us:
Sponsored

The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021: How has it affected the Corporate Social Responsibility Regime in India?

On 22 January 2021, the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (2021 Rules) were brought into effect by the Government of India, replacing the Companies (Corporate Social Responsibility Policy) Rules, 2014 (2014 Rules). In order to understand the 2021 Rules, this piece divides them into three sections. Each section will look into a critical aspect of the changes made and explain as to how these changes are different from the 2014 Rules.

The first section looks into the changes of definitions made in the 2021 Rules. Firstly, the 2021 Rules have mentioned a definition for “Administrative Overheads” under Section 2(b). These costs are those related to the general administration and management. As per Rule 7(1) of the 2021 Rules, the Board had to ensure that the costs do not go over 5% of the company’s total Corporate Social Responsibility (CSR) expenditure. The provision of a definition of these costs now clearly shows that they do not include the implementational and monitoring of CSR policies. Secondly, the definition for CSR has been provided in the 2021 Rules under Section 2(d). This definition is especially important since it clearly lays down what activities do not qualify as CSR activities. Activities that the corporation undertakes in the regular working of their business cannot be considered as CSR. The Ministry of Corporate Affairs has issued an exception to this Rule with respect to the COVID-19 situation on 24th August 2020. The notification states that corporations indulging in the development of the vaccine will count as their CSR obligations until 2023, even if it is a part of the regular working of their business. This has been included in the 2021 Rules. They also made it clear that any activity outside India cannot be considered as CSR unless it is for the training of sportspersons representing any state or union territory. Finally, it made it clear that any contribution to a political party will not count as CSR. Thirdly, a definition for the CSR policy has been provided under Section 2(e). The CSR policy is basically just the direction taken by the corporation for meeting their CSR obligations keeping in mind the recommendations of the CSR committee. This had been addressed previously in the 2014 CSR Rules under Rule 6, but the 2021 Rules discuss the development of the CSR policy in a more comprehensive manner. Due to this new mention in the 2021 Rules, the previous Rule 6 has been omitted. Fourthly, the 2021 Rules have introduced and defined the term “International Organisation” under Section 2(g), which related to organizations notified by the Central Government under Section 3 of the United Nations (Privileges and Immunities) Act 1947. There was a High-Level Committee on CSR in 2018, which recommended India’s corporate regime to include International Organisations in aiding the corporations in monitoring and evaluating CSR initiatives. Next, the term “Ongoing project” has been defined under the 2021 Rules. This term had been referred to previously in the 2014 CSR Rules. The definition puts a limit of four years (including the year of commencement as referred to in the 2021 Rules) on multi-year projects undertaken in pursuance of CSR obligations.  Lastly, the term “Public Authority” has been defined to apply in the same sense as the definition provided for the term in Section 2(h) of the Right to Information Act (RTI Act), 2005.

The second section will focus on the changes in Rule 4, which has been changed from “CSR Activities” as it was under 2014 CSR Rules to “CSR Implementation” in the 2021 Rules. As per the new Rule, a company can fulfil their CSR obligation by themselves or with another company registered under Section 8 of the Companies Act. The Draft Rules had not included registered public trusts and societies for implementing the CSR obligations of corporations. This was faced backlash from the stakeholders since it narrowed down the range of entities available for companies to fulfil their CSR obligations, and these had been a part of the 2014 CSR Rules. The 2021 Rules also require all such entities to register themselves with the Central Government. This registration would be done by filing the CSR-1 form, which is available electronically and can be maintained by the Ministry of Corporate Affairs.

The third section is regarding the changes made to Rule 7, wherein the Board has the responsibility to make sure that the administrative overheads as defined in Section 2(b) have to be limited to 5% of the total CSR expenditure in comparison to the draft Rules which mentioned a 10% limit. Under Rule 8(3)(c) of the 2021 Rules, companies that carry out impact assessment have been given a limit of fifty lakhs or 5% (whichever is less). The 2021 Rules also clarify that any CSR surplus is to be put back into a CSR project or transferred to the unspent CSR account. Surprisingly, under the 2021 Rules, a company can also use its CSR amount for the purpose of capital creation or acquisition. The rationale for this was explained in the Report of the High-Level Committee on CSR in 2018, which was not to limit CSR obligations for capital creation which would yield economic benefits in the future.

The 2021 Rules have entirely changed the face of India’s CSR system. One of the significant roles was giving actual effect to Section 135 of the Companies act and the 2019 and 2020 Companies Amendment Act. The 2021 Rules have cleared up issues regarding multiple terms, given many of the definitions and provided required details regarding them. Especially with respect to terms already present in the 2014 Rules, the 2021 Rules provide a comprehensive structure. Although there has been progress with regards to India’s CSR regime, there is still room for more development. Regarding the administrative costs, the Central Government should also provide some examples of what constitutes administrative overheads to understand the term’s scope better. Regarding the term “Ongoing Projects,” providing a definition is a step for the better, but the rules are still vague regarding the projects that go over the stipulate timer period. There have been many concerns regarding the 5% limit on administrative overheads as well. Certain corporations have also asked for amounts spent on vaccination of employees to come under their CSR amount. These issues still require to be addressed. Keeping in mind the overall scheme of things, the 2021 Rules have been a development for the better and have greatly helped India’s CSR system.

Sponsored

Author Bio


Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Sponsored
Sponsored
Sponsored
Search Post by Date
November 2024
M T W T F S S
 123
45678910
11121314151617
18192021222324
252627282930