Ministry of Corporate Affairs (MCA) has amended the CSR provisions by notifying the following w.e.f. 22.01.2021:

a. The Companies [Corporate Social Responsibility (CSR) Policy] Amendment Rules, 2021.

b. Section 27 of the Companies (Amendment) Act, 2020.

c. Section 21 of the Companies (Amendment) Act, 2019.

Key highlights of these amendments are as follows:

♦ Exemption from forming CSR Committee: Where the CSR amount to be spent by a company does not exceed fifty lakh rupees, the requirement for constitution of the CSR Committee shall not be applicable and the functions of such Committee provided under the provisions of the Companies Act, 2013 shall, in such cases, be discharged by the Board of Directors of such company.

♦  Transfer of unspent CSR expenditure: Any amount remaining unspent, pursuant to any *ongoing project, undertaken by a company in pursuance of its CSR Policy, shall be transferred by the company 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.

Further, if the Company does not have any ongoing project it must within a period of six months of the expiry of the previous financial year transfer the unspent amount to a #fund specified in Schedule VII.

*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.

#Funds specified under Schedule-VII

1. Contribution to the prime minister’s national relief fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women.

2. Contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

3. Contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation.

♦ Certification of CSR fund utilisation: Funds disbursed and utilized towards CSR activities shall now be certified by CFO or Financial Head.

♦ Website Disclosure: 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.

♦ Setting off excess CSR expenditure: If the Company spends an amount in excess of the requirements provided under Section 135 of the Act (i.e., two percent of the average net profits of the company made during the three immediately preceding financial years), such company may set off such excess amount against the spending requirements of succeeding years subject to the following:

a. Setoff shall not include surplus arising out of CSR Profits.

b. the Board of the company shall pass a resolution to effect setoff.

c. Setoff has to be done within succeeding three financial years.

♦  Activities not included in CSR activities:

(i) activities undertaken in pursuance of normal course of business of the company:

However, 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 section 2(k) 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;

♦   Impact Assessment of CSR Projects: Every company having average CSR obligation of ten crore rupees or more in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study.

A Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed five percent of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is less.

♦  CSR Reporting: CSR Reporting format has been changed which will be effective for the FY 2020-21 onwards.

♦  CSR Implementation. – (1) The Board shall ensure that the CSR activities are undertaken by the company itself or through –

(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 (43 of 1961), established by the company, either singly or along with any other company, or

(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.

♦  CSR Registration : the eligible intermediaries through which the company shall undertake the CSR Project or Programme will require to register itself with the Central Government by filing the Form CSR-1 electronically with effect from April 01, 2021. A unique CSR Registration Number will be generated by the system automatically.

♦  Penalty for non-compliance: If a company is in default in complying with the provisions of the CSR, 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.

(Author – CS Avinash Saini and can be contacted at [email protected])

DISCLAIMER

The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice.

I assume no responsibility for the consequences of use of such information. In no event I shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

This is only a knowledge sharing initiative and author does not intend to solicit any business or profession.

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3 Comments

    1. avi_saini01 says:

      Tara Ji,

      While calculating net profit for section 135, some credits and expenses are allowed, some are not, which have to be added back or subtracted accordingly.

      Computation of net profit for section 135 is as per section 198 of the Companies Act, 2013 which primarily is Net profit Before Tax.

      As per Section 198(4) Directors Remuneration expenses are allowed.

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