MCA has introduced Companies (Corporate Social Responsibility Policy), Amendment Rules, 2021. And importantly CSR Spending made mandatory from voluntary w.e.f. financial year 2020-21.
Date of Effectiveness of Companies (Corporate Social Responsibility Policy), Amendment Rules, 2021:
 Companies (Corporate Social Responsibility Policy), Amendment Rules, 2021 came into effect on 22 January 2021, as the same has been published in the official gazette on the same date. Therefore, these amended rules are applicable on the financial year 2020-21 (subject to specific date of some rules).
Table of Amended CSR Rules
|Old Rule No.
|Old Rule Name||Effect||New Rule No.||New Rule name|
|Rule 4||CSR Activities||Fully substituted||Rule 4||CSR Implementation|
|Rule 5(2)||CSR Committees||Sub rule 2 substituted||Rule 5(2)||CSR Committees|
|Rule 6||CSR Policy||Omitted|
|Rule 7||CSR Expenditure||Fully substituted||Rule 7||CSR Expenditure|
|Rule 8||CSR Reporting||Fully substituted||Rule 8||CSR Reporting|
|Rule 9||Display of CSR
Activities on website
|Fully substituted||Rule 9||Display of CSR
Activities on website
|Rule 10||There was no rule 10||Newly inserted Rule||Rule 10||Transfer of unspent CSR Amount|
Introduction of Definition Of “Corporate Social Responsibility” & List of Activities not includible in CSR.
Earlier the Inclusive definition of CSR was given in the Act. Now that Inclusive definition has been amended as Exclusive definition and such Exclusive definition clearly specifies the activities which is not considered as CSR. CSR means the activity undertaken by the company under Section 135 of the instant act, read with these rules, but shall not include the following:
List of Activities not included in CSR.
|Normal Course of Business||Activities undertaken in pursuance of the normal course of business of the company.
However, in this point, MCA has exempted the Companies engaged in the research and development activity of the new vaccine, drugs and medical device related to the COVID 19 for the F.Y.. 2020-21, 2021-22, 2022-23 subject to the certain conditions.
|Outside India Activity||Any activity undertaken by the company outside the India (except for the training of the Indian sports personnel representing any State or Union territory at the national level or India at International level);|
|Political contribution||Contribution of any amount directly or indirectly to any political party under section 182 of the Act.|
|Benefit of Employee||Activities that significantly benefit the employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);|
|Benefit to its Product||Activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services|
|Other obligation in Law||Activities carried out for the fulfillment of any other statutory obligations under any law in force in India.|
UNIQUE CSR REGISTRATION NO:
Every entity who is covered under these rules, who intends to undertake any CSR activity, shall register itself with the CG by filing the e-form CSR-1 with the ROC w.e.f. 01 April 2021. On filing of CSR -1, one ‘Unique CSR Registration Number’ shall be generated by the system automatically.
From 1st April 2021, it is mandatory for every implementing agency to register itself with the ROC by filing the e-form CSR-1. If any implementing agency fails to file CSR-1, they shall not be eligible to continue as the Implementing agency.
PROVISIONS ON CSR EXPENDITURE (RULE 7):
As Companies on which provisions of Section 135 is applicable needs to spend 2% of the average net profit of the previous three financial years on the CSR Activity.
What if Company spent excess amount in any financial year?
As per the Amendment Rules, 2021, Rule 7 sub rule 3:
If a Company spent on CSR in excess of the requirement (i.e. 2%), such excess amount may be set-off against the requirement of the CSR Spending u/s 135(5) upto the immediate succeeding 3 financial year subject to the conditions that:
The Board of Directors shall pass a resolution to that effect.
Administration Over Head:
The administration over head shall not exceed 5% of the total CSR Expenditure of the Company for the financial year.
Definition of administration over head added Rule 2(b): Means the expenses incurred by the Company for ‘general management and administration’ of CSR functions in the Company. It does not include:
The expenses directly incurred for the designing, implementation, monitoring, ad evaluation of a particular CSR project or program
Treatment of Surplus arising out of CSR amount: (Rule 7(2)): Any Surplus arising out of the CSR activity shall not be a part of the business profit. Such surplus shall be used on the following within a period of 6 months of the expiry of the financial year.
Spending on Capital Assets:
The CSR amount may be spent by a Company for the creation or acquisition of a capital asset, which shall be held by:-
Note: Any CSR asset created prior to these Rules, required to comply within a period of 180 days (Board may extend by 90 days).
TREATMENT OF UNSPENT AMOUNT:
If the Company fails to spend 2% of the Average net profit, then the following shall be the treatment of the unspent amount.
|If unspent amount not relating to an ongoing project
|the Board shall, in its report, shall specify the reasons for not spending the amount; and’ unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year||Impact:
Amount remaining unspent for the F.Y. 2020-21 shall be transferred toSchedule VII fund latest by September 30, 2021.
|If unspent amount relating to an ongoing project||The amount be transferred 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 (UCSRA).||Impact:
The amount remaining unspent (on ongoing project) for the F.Y. 2020-21 shall be transferred to UCSRA latest by April 30, 2021
The amount remaining unspent transferred for F.Y. 2020-21 to UCSRA, has to be utilized for the project upto F.Y 2023-24,
|If fails to spend on the ongoing Project||If Company Fails to spend in 3 years, 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||Impact:
The unspent amount shall be transferred to a fund specified in Schedule VII.
REPORTING OF CSR DISCLOSURE:
The Company shall annex with its Board Report an annual report on CSR in format of Annexure-I (for FY 2020-21) or in Annexure II (w.e.f. FY 2021-22).
In case of a Foreign Company:
The Balance sheet filed u/s 381 shall contain ‘an annual report on CSR in the format of Annexure I (for F.Y 2020-21) or in Annexure-II (w.e.f. F.Y 2021-22).
Impact Assessment: It is a new concept introduced through these rules.
According to Rule 8(3) of the Amended Rules requires following class of Companies to conduct impact assessment:
a) Companies with minimum average CSR Obligation of Rs. 10 Crore or more in the immediately preceeding Financial Years; and
b) Having CSR projects of outlays of minimum of Rs. 1 Crore and which have been completed not less than 1 year before undertaking impact assessment.
Rule 8(3) of the Amended Rules requires that the Impact assessment shall be done by an independent impact assesment agency.
The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR. Impact assessment expenditure for a financial year shall not exceed five percent of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is less.
Website Disclosure: (Rule 9): The Board of Directors of the Company shall mandatorily disclose the followings on its website (if any):
IMPLEMENTATION OF CSR SPENDING:
The CSR activities can be undertaken by the company itself or through the followings implementing agencies:
It shall be noted that the eligible intermediaries through which the company shall undertake the CSR Project or Programme will require registering itself with the Central Government by filing the Form CSR-1 electronically with effect from April 01, 2021.
♦ Further on filing the Form CSR-1 with the Central Government, a unique CSR Registration Number will be generated by the system automatically.
♦ International Organization as defined in Rule 2 of the Rule can also be engaged for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR.
♦ Further, it is the responsibility of the Board of the Company to monitor the implementation of ongoing projects and to ensure that the funds are utilized for approved purpose and shall be certified by the Chief Financial Officer (CFO) or Person in charge of finance.
♦ The Board shall have a power to make modifications in such projects to ensure smooth implementation of the project within permissible time limit
A Company may also collaborate with other companies for undertaking the projects or programs or to carried CSR activities subject to following conditions.
a. The Organization or institution must mentioned in Item (ix) of schedule VII to the Act.
Details of the activity shall be disclosed separately in the Annual Report on CSR included in the Board Report.
Engage International Organization:
A company may engage the international organizations for designing, monitoring and evaluation of the CSR projects or programs as per its CSR policy as well as for the capacity building of their own personnel for CSR. Only the Central Government notified organizations shall qualify as International Organization.
CSR COMMITTEE: (Rule 5(2)– Committee shall formulate and recommend to the Board, an annual action plan in pursuance to its CSR Policy, which shall include the following:
a. The list of CSR projects or programmes that are approved to be undertaken in the area of Schedule VII
b. Manner of the execution of such projects.
c. Modalities of utilization of funds and implementation of schedule for the projects;
d. Monitoring and reporting mechanism for the projects or programme; and Details of need and impact assessment, if any, for the project undertaken by the Company.
RESPONSIBILITIES OF BOARD: (Rule 4(5-6))
a. The Board shall satisfy itself that the funds so disbursed have been utilized for the purpose and in the manner as approved by it.
b. The CFO or the person responsible for the financial management shall certify to the effect.
In case of an ongoing project, the board shall monitor the implementation of the project with reference to the approved timelines and year-wise allocation and shall be competent to make modification, if any required
Following are the actionable arising out of the Act and the Amendments Rules:
|Rule No.||Actionable||Time for actionable|
|2(f)||To amend CSR Policy-Recommendation of CSR Committee (CSRC) and approval of the BoD will be required||Immediate|
|2(f)||To formulate an annual action plan for FY 21-22-Recommendation of CSRC and approval of the BoD will be required||In the first meeting of CSRC & BoD for 2021-22|
|2(i)||1.To calculate the minimum CSR Spending to be done for FY 2020-212.
2. To check the current CSR activities for FY 2020-213.
3.To see if there will be any deficit in the spending
4. If yes, then to identify if there is any “ongoing project”
5. If there is any such ongoing project, then open a bank account (Unspent CSR Account) and transfer the deficit amount to within 30 days of end of FY 20-21
6.If there is no such ongoing project, then transfer the deficit amount to Sch. VII Fund within 6 months from end of FY 20-21 read with Rule 10.
To be discussed both at CSRC & BoD meetings
|4(1)||To check the type of implementing agency through which CSR activities are undertaken. Also, to ensure their registration under section 12A and 80 G of the Income Tax Act, 1961 as required under Rule 4(1).||Immediate|
|4(2a)||The implementing agencies will be required to be registered with CG w.e.f 1.4.2021. The Company may intimate the existing implementing agencies.||Immediate|
|4(5) &(6)||New items before BoD:a.Confirmation by the Board with respect to utilization of the CSR expenditure;b.Monitoring of “on-going” projects, if any, as per approved timelines and year wise allocation;c.Placing of certificate of CFO/ person responsible for financial management about utilisation of CSR fund||Immediate|
|5||CSR Committee to revisit its budget for FY 2020-21 so as to align with the requirements of the annual action plan as mentioned in Rule 5(2)||Immediate|
|7(2)||To check if there is any profit arising out of CSR expenditure –the same is to be (i) ploughed back into the same project or (ii) shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the company or (iii) transfer such surplus amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year||In the first meeting of CSRC and BoD for 2021-22|
|7(3)||To check if there is any excess spent done – then the same is to be set off within three immediate subsequent FYs – a board resolution has to be passed. Should be placed before CSRC as well.||In the first meeting of CSRC and BoD for 2021-22|
|7(4)||To check if there is any capital asset created by the company for undertaking CSR expenditure –the same has to be held by such entities as mentioned in Rule 7(4) –this has to be complied within 180 days i.e by 21st July, 2020 or additional period of 90 days with the approval of Board.||Immediate|
|8(1)||Annual CSR Report to be prepared as per the revised format along with the Impact Assessment Report as required under Rule 8(3)-to be placed before CSRC as well as the BoD||In the meeting held for the purpose of approving the Board’s Report.|
|8(3)||To check if the provisions with respect to impact assessment will be applicable on the company –the provisions are three-fold:
a. The average CSR Obligation of the company for past 3 FY (FY 2017-18, 18-19, 19-20) is Rs 10 cr or more;
b. The project outlay is 1 cr or more; and
c. The project should have been concluded one year ago