Section 135 of the Companies Act, 2013 (Act) read with Companies (Corporate Social Responsibility Policy) Rules, 2014 (CSR Rules) mandates every company having net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more or a net profit of Rs. 5 crore or more during the immediately preceding financial year to constitute a Corporate Social Responsibility (“CSR”) Committee of the Board and spend, in every financial year, at least 2% of the average net profits of the company made during the 3 immediately preceding financial years on CSR activities.
The Ministry of Corporate Affairs (“MCA”) vide notification dated 22/01/2021 amended the CSR Rules and notified Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (hereinafter referred to as “Amended CSR Rules”). The major amendments brought in by Amended CSR Rules are as follows –
|S. No.||Particulars||Details of the amended provisions|
(Rule 2 )
|Under the Amended CSR Rules, following new definitions have been introduced –
“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 (46 of 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 ‘Public Authority’ as defined in clause (h) of section 2 of the Right to Information Act, 2005 (22 of 2005).
♦ Further, certain definitions have been revised under Amended CSR Rules. The revised definitions are as follows –
“Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act 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 (29 of 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.
|♦ Mandatory Registration
a) a company established under Section 8 of the Act 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;
b) a company established under section 8 of the Act, or a registered trust or a registered society, established by the Central Government or State Government; or
c) any entity established under an Act of Parliament or a State legislature; or
d) a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.
It is pertinent to note the following –
– Earlier the companies were allowed to undertake the CSR activities through registered trust. Now, the Companies can undertake the CSR activities through registered public trust only, except in case established under an Act of Parliament or a State legislature.
– In addition to registration under the respective Act, registration under the provisions of section 12A & 80 G of the Income Tax Act, 1961 is mandatory now.
♦ Engagement of International Organisation
♦ Monitoring the implementation of CSR Policy
|♦ Annual Action Plan
(a) list of CSR projects or programmes approved to be undertaken;
(b) manner of execution of such projects or programme;
(c) modalities of utilisation of funds and implementation schedules for projects or programmes;
(d) monitoring and reporting mechanism for projects or programme;
(e) 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, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect.
(Rule 7 )
|♦ Limit on Administrative Expenses
♦ Treatment of surplus arising out of the CSR activities
The surplus 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
– transferred to a Fund specified in Schedule VII, within 6 months of the expiry of the financial year.
♦ Set off of excess CSR Expenditure
(a) the excess amount should not include surplus arising out of the CSR activities;
(b) the board shall pass a resolution to this effect.
♦ Creation/ Acquisition of Capital Assets
a) a company established in section 8 of the Act or a Registered Public Trust or Registered Society, having charitable objects and having CSR Registration number;
b) beneficiaries of the said CSR project in the form of self-help groups, collectives, entities;
c) a public authority.
Further, any capital asset created by a company prior to the commencement of the Amended CSR Rules, shall comply with the above requirement within a period of 180 days, which may be further extended upto 90 days with the approval of the Board based on reasonable justification.
|♦ Disclosure in Board Report
♦ Impact assessment
|6.||Display of CSR activities on its website
|♦ Disclosure on Website
> composition of CSR Committee;
> CSR Policy;
> projects approved by the Board, if any.
Previously, in the CSR Rules, the Board of the Companies was required to disclose only the approved CSR Policy on the website of the Company.
|7.||Transfer on unspent CSR amount
|♦ Transfer on unspent CSR amount