Q.1 On which companies, Corporate Social Responsibility Policy (CSR) provisions specified under section 135 of the Companies Act, 2013 are applicable?
A company satisfying any of the following criteria during the immediately preceding financial year has to comply with CSR provisions specified under section 135 of the Companies Act, 2013 read with the CSR Rules made thereunder:
i. Net Worth of rupees five hundred crore or more, or
ii. Turnover of rupees one thousand crore or more or
iii. Net Profit (as calculated under Section 198 with other adjustments as referred in Rule 2(h) of CSR Rules.) of rupees five crore or more.
Q.2 Which companies are not required to constitute CSR Committee?
Generally, The Companies fulfilling the criteria under Section 135(1) needs to constitute a CSR Committee of the Board
But, a new sub-section (9) inserted by Companies (Amendment) Act, 2020 provides that where the amount to be spent by a company 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 shall be discharged by the Board of Directors of such company.
If CSR Committee is applicable then, Composition of CSR Committee:-
| Listed Companies | Three or more directors, out of which at least one should be independent. |
| Unlisted Public Companies | Three or more directors, out of which at least one should be independent, however if there is no requirement of having independent directors in the company under Section 149 (4), then two or more directors |
| Private
Companies |
Atleast two directors |
| Foreign Company | At least two persons out of which-
(a) one shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and (b) another shall be nominated by the foreign company |
Q.3 Whether the ‘average net profit’ criteria mentioned under section 135(5) is Net profit before tax or Net profit after tax?
Computation of net profit for section 135 is as per section 198 of the Companies Act, 2013 which is primarily PROFIT BEFORE TAX (PBT) with other adjustments as referred in Rule 2(h) of CSR Rules. [Clarified by MCA vide General Circular No. 1/2016 dated 12th January, 2016]
Q.4 If a company seizes to comply with applicability in immediately preceding year, does it need not to comply CSR provisions?
As per Rule 3 of The Companies (Corporate Social Responsibility Policy) Rules, 2014, every company which ceases to be a company covered under subsection (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.
Q.5 If a company has not completed the period of three financial years since incorporation, is it required to comply with the CSR provisions?
As per the provisions of section 135(5), if the Company has not completed the period of three financial years since incorporation, but it satisfies any of the criteria mentioned in section 135(1), then it has to comply with CSR provisions. The Company will be required to constitute a CSR committee and comply with other requirements of section 135 including spending of at least two percent of the average net profits of the company made during such immediately preceding financial years since the date of incorporation.
Q.6 Whether reporting of CSR is mandatory in Board’s Report?
As per Rule 8(1) of The Companies (Corporate Social Responsibility Policy) Rules, 2014, the Board’s Report of a company covered under CSR rules pertaining to any financial year shall include an Annual Report on CSR containing particulars specified in Annexure I or Annexure II, as applicable.
Q.7 If a CSR project was planned for a certain amount to be executed during specified period by the Board and the CSR project is completed before the prescribed time with funds remaining unutilised. In such case, is the Board free to use the unutilised amount in other project or it has to transfer the same to fund specified in Schedule VII after 3 years or completion of the project?
In terms of the provisions of Rule 5(2) of The Companies (Corporate Social Responsibility Policy) Rules, 2014, the CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy which shall specifically include:
a) the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;
b) the manner of execution of such projects or programmes;
c) the modalities of utilisation of funds and implementation schedules for the projects or programmes
d) monitoring and reporting mechanism for the projects or programmes; and
e) details of need and impact assessment, if any, for the projects undertaken by the company.
It is further provided that the Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect.
Accordingly, in the given case if the CSR project could be completed and the amount of money left unutilised, be considered by the Board for spending for other CSR projects / activities after amending the Annual Action Plan accordingly. This fact should also be disclosed in the CSR Report.
Q.8 If a company has unspent CSR amount for the financial years 2014-15, 2015-16, 2016-17, 2017-18,2018-19 and 2019-20, is the company required to transfer the entire unspent amount for the said years in the financial year ended 31st March, 2021?
Section 135 of Companies Act, 2013 was amended w.e.f 22nd January 2021 by inserting a new sub-section (6) which states the treatment of unspent amount of CSR in case of on-going projects. The second proviso to Sub section (5) of section 135 was also amended w.e.f 22nd January 2021, which now states that if the Company fails to spend the amount prescribed in Section 135(5) and unless the unspent amount relates to any on-going project referred to in sub-section (6), the Company shall transfer such amount to a Fund specified in Schedule VII, within a period of 6 months of the expiry of the financial year. The applicability of this amendment is prospective and therefore the unspent amount for the financial year 2020-21 onwards shall be transferred to the fund specified in Schedule VII within six months of the expiry of the said financial year, unless the same pertains to any ongoing project.
Q.9 Does the term ‘ongoing project’ mean projects involving capital assets like Building, Hospital and any other Infrastructure related CSR Project which generally takes more than a year to complete?
Ongoing project has been defined under the Rule 2(i) of the amended Rules so as to mean 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. Such ongoing project may or may not involve capital assets or development of any other infrastructure.
Q.10 Can a company open one unspent CSR account for all its projects?
The terms used in section 135 of the Act are “Any amount remaining unspent, pursuant to any ongoing project/ relates to any ongoing project………special account to be opened by the company in that behalf for that financial year”. Hence, if the company opens one bank account for the unspent amount on the ongoing projects for that financial year, it would be necessary compliance. However, though it is not mandatory, to have transparency and in order to have a clear project wise demarcation of the amount unspent, the company may open separate unspent CSR accounts for separate projects.
Q.11 Can the Board, for sufficient cause and reasons, change the ongoing project completely within 3 years’ of time? E.g. If the Board approved a project of Rs. 80 lacs for Rain water harvesting for 3 years but after 2 years, the Company which has already spent Rs. 40 lacs on Rain water harvesting is not satisfied with the outcome. Can the Board divert the remaining funds of Rs. 40 Lacs to different project say related to Health and Medical for remaining one year?
As per the amended Rules, the Board shall be competent to make modifications, if any, for smooth implementation of the project within the prescribed time period. The Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect, change the ongoing project partially or wholly. However, changing the allocation completely would not be viable.
Q.12 Rule 3(2) of the Companies (CSR Policy) Rules, 2014, requires that even those companies which ceases to be a company covered under subsection (1) of section 135 of the Act shall continue with its CSR Committee and comply with the provisions of Sec 135 related to activities of the CSR Committee and spending of 2% average profits, at least for three consecutive financial years. A Company which is covered under Sec 135, having established a CSR Committee, and which is required to spend less than Rs. 50 Lacs in a year on its CSR activities in a year or say upto three consecutive financial years, decides to avail the option under Sec 135(9) as amended, and thus disband/ suspend its CSR Committee and carry out its CSR obligations directly through the Board, for the said FY or for each of the said three consecutive FYs. Will such disbanding/ suspending of the CSR Committee by the Company under Sec 135(9) be deemed to be a violation of Rule 3(2) of the Companies (CSR Policy) Rules, 2014?
No. Such disbanding/ suspension of the CSR Committee by the Company u/s 135(9) during the FYs when its total amount required to be spent u/s 135(5) in a year is less than Rs. 50 lacs will not amount to violation of Rule 3(2) of the Companies (CSR Policy) Rules, 2014, in view of the fact that, while Rule 3(2) as a whole, talks about the requirement to continue with compliance of relevant provisions of Sec 135, and Sec 135(9) is only a procedural relaxation given to the certain Companies (which are required to spend an amount of not more than Rs. 50 Lacs on its CSR activities in a year) and all the functions of the CSR Committee would still be discharged by the Board.
Q.13 How Company can claim set off of any additional CSR Amount spent in the previous year?
For Claiming set off of any CSR Expenditure Company needs to pass a Board Resolution.
Q.14 Is CFO certification on utilisation of CSR funds applicable for the funds spent in FY 2020-21 onwards?
In terms of the provisions of Rule 4(5) of the amended Rules, it is the responsibility of the Board to satisfy itself that the CSR funds disbursed to various implementing agencies and on various projects are being utilised for the given purpose. Since the modified Rules came into force effective January 22, 2021 the Chief Financial Officer or the person responsible for financial management shall certify such utilisation of the funds for FY 2020-21 onwards.
Q.15 What are the penal provisions for not complying with the provisions of transferring unspent amount of a CSR project?
The following non-compliance may attract the following penalties as per section 135(7):
Company – Twice the amount required to be transferred to a fund specified in Schedule VII or Unspent CSR account, as the case may be or one crore rupees, whichever is less.
Every Officer in Default – 1/10th of the amount required to be transferred to a Fund specified in Schedule VII or Unspent CSR account or two lakh rupees, whichever is less.
Q.16 What is the responsibility of the Board in case of ongoing projects?
In case of ongoing project, the Board of a Company shall:
> approve a project as a multi-year on-going project, i.e., extend the duration beyond one year, based on reasonable justification,
> monitor the implementation of the project with reference to the approved timelines and year-wise allocation ,
> shall make modifications, if required, for smooth implementation of the project within the overall permissible time period.
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Explained in detail, very informative
Can a company form a trust for csr purpose
For ongoing project
Contribute to trust every year
Yes, Company can form a trust for CSR Purpose but that trust needs to be get registered under section 12A and 80 G of the Income Tax Act, 1961
Very informative blog
very informative plus explained well..