Corporate Social Responsibility (CSR)

{Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021}

Corporate Social responsibility (CSR) is continuing commitment by businesses to integrate social and environmental concerns in their business operations. On April 1, 2014, India became the first country to legally mandate corporate social responsibility. Recently Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 has made some significant amendments relating to CSR w.e.f. 22-1-2021, which has been discussed here:

 1. Applicability of Corporate Social Responsibility Policy (CSR)

Every 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:

a) Net Worth of Rs. 500 crore or more, or

b) Turnover of Rs. 1000 crore or more, or

c) Net Profit of Rs. 5 crore or more

Note: Net profit should be calculated under Section 198 which is primarily Profit before Tax (PBT) with other adjustments as referred in Rule 2(h) of CSR Rules.

Applicability of CSR in the case of Holding or Subsidiary company: Applicability of CSR provisions are company Specific and therefore every company whether holding or subsidiary individually satisfying the prescribed criteria is required to comply with the CSR provisions. Mere relationship between two companies as Holding and Subsidiary, will not extend the applicable provisions to the other company.

Example- Company X is satisfying any of the above criteria and Company Z is holding company of company X. Here Company Z itself does not satisfy any of the criteria mentioned in section 135, therefore Company Z is not required to comply with the provisions of section 135.

In Case of Section 8 Company: Section 8 companies are also required to comply with the CSR provisions, if it fulfills the criteria of section 135(1) of the Act.

In case of foreign branch/ project office of foreign company: If Foreign company having branch office or project in India and fulfils criteria specified under section 135, then CSR provision has to be complied.

2. Spending at least 2% of average net profits of CSR

The Board of Directors of every companies for whom CSR criteria is satisfied,  shall ensure that at least 2% of average net profits of 3 immediately preceding financial years are spent on CSR.

In case company has not completed the period of 3 financial years since incorporation: If such company fulfils criteria specified under section 135, then required to constitute a CSR committee 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.

3. When CSR spending not required

Every company which ceases to be a company covered under section 135(1) (i.e, if net worth, turnover and net profit falls below prescribed limit for 3 consecutive years) shall not be required to— (a) constitute a CSR Committee; and (b) comply with the provisions contain in section 135 till such time it meets the criteria specified in section 135(1) of Companies Act.

4. Corporate Social Responsibility Committee

Company satisfying any of the above criteria shall constitute a Corporate Social Responsibility Committee except those companies where amount to be spent under CSR does not exceed Rs 50 lakhs per annum and in such case functions of CSR Committee shall be discharged by the Board of Directors of such company.

Composition of CSR Committee

Sl. No Company No. of Members
1. Listed Companies Three or more directors, out of which at least one should be independent.
2. 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, then two or more directors.
3. Unlisted Private Companies Any two directors.
4. Foreign Company At least two persons out of which-

  • one shall be the persons resident in India as per section 380(1)(d) of the Act and
  • another shall be nominated by the foreign company.

5. Methods by which CSR projects can be implemented by a company

Implementation of CSR projects can be undertaken through

a) Undertaking CSR activities by company itself

b) Company established under Section 8 of the Companies Act, 2013 or Registered Trust or Registered Society with Section 12A and Section 80G registrations under the Income Tax Act, 1961 established by the company, either singly or along with any other company or

c) 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

d) Entity established under an Act of Parliament or State Legislature.

e) Company established under Section 8 of the Companies Act, 2013 or Registered Public Trust or Registered Society with Section 12A and Section 80G registrations under the Income Tax Act, 1961 and having an established track record of at least three years in undertaking similar activities.

6. Spending of CSR for capital assets

The CSR amount may be utilised by a company for creation or acquisition of a capital asset, but such capital asset shall be held by anyone of the following:

a) a company established under section 8 of the Act, or a Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number; or

b) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or

c) a public authority:

Capital asset created by a company prior to commencement of this rule:-

If any capital asset has been created by a company prior to the commencement of the CSR Amendment Rules, 2021 then the company shall comply with the above rule within a period of 180 days from such commencement and such period may be extended for a further period of not more than 90 days with the approval of the Board based on reasonable justification.

7. Activities which are not eligible as Corporate Social Responsibility

As per Rule 2(d) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021, “Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Companies Act, 2013, 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.

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 Schedule VII(ix) 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.

Further, the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities

8. CSR spending pertaining to COVID-19

  • Contribution to ‘PM CARES Fund’ shall qualify as CSR expenditure.
  • Contribution made to Chief Minister’s Relief Funds’ or State Relief Fund for COVID-19′ shall not qualify as CSR expenditure.
  • Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure.
  • Contribution to any fund set up by the Central Government for socio-economic development and relief qualifies as CSR expenditure
  • Payment of salary/wages to employees and workers and casual/daily workers, including contract labour, during the lockdown period cannot be adjusted against the CSR expenditure of the company, as it is moral obligation of employer.
  • Spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure. Funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care and sanitation, and disaster management. As per MCA circular No. 21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be interpreted liberally for this purpose.
  • Establishment of medical oxygen generation and storage plants, manufacturing and supply of Oxygen concentrators, ventilators, cylinders and other medical equipment for countering COVID-19’ or similar such activities are eligible CSR activities under item nos. (i) and (xii) of Schedule VII of the Companies Act, 2013 relating to promotion of health care, including preventive health care, and, disaster management respectively.
  • Contribution to specified research and development projects as well as contribution to public funded universities and certain Organisations engaged in conducting research in science, technology, engineering, and medicine as eligible CSR activities
  • Payment of ex-gratia to temporary /casual /daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, shall be admissible towards CSR expenditure as a one-time exception, provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

9. Impact assessment of CSR expenditure

Every company having average CSR obligation of 10 crore rupees or more in the 3 immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of 1 crore rupees or more, and which have been completed not less than one year before undertaking the impact study.

The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR

A Company undertaking impact assessment may book the expenditure towards CSR for that financial year, which shall not exceed 5% of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is less.

Example: If CSR projects implemented during FY 2018-19 or prior to that up to FY 2020-21, then company is required to undertake impact assessment of the CSR projects taken up or completed on or after January 22, 2021.

10. Calculation of Net Profit

Calculation of Net Profit

11. Administrative Overheads Expenditure

The board shall ensure that the administrative overheads shall not exceed 5% of total CSR expenditure of the company for the financial year.

Administrative Overheads Expenditure

12. Transfer of unspent CSR amount

A) In Case of Ongoing Project

In Case of Ongoing Project

“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.

 B) Other than in case of ongoing Project

Other than in case of ongoing Project

Above activity shall be done within a period of six months from the expiry of the financial year.

13. Can a company open one unspent CSR account for all its projects

It is not mandatory, to open single CSR account for its entire project. To have more 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.

14. Set off of excess CSR expenditure

Where a company spends an amount in excess 2% of the average net profit , such excess amount may be set off against the requirement to spend to immediate succeeding three financial years subject to the conditions that –

(i) the excess amount available for set off shall not include the surplus arising out of the CSR activities,

(ii) the Board of the company shall pass a resolution to that effect.

15. Responsibility of the Board in case of ongoing projects

Responsibility of the Board in case of ongoing projects

16. Can CSR expenditure claimed as a business expenditure

The amount spent by a company towards CSR cannot be claimed as business expenditure. However, such expenditure may be claimed as deduction under any other section, if otherwise applicable.

17. Can contribution in kind to be shown as CSR expenditure

Section 135 prescribes “….shall ensure that company spends.” Hence contribution in kind is not CSR expenditure. Further, One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of programmes etc. shall not qualify as CSR activities. Therefore, the company has to spend the amount.

Further expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act

18. CSR expenditure Outside India

Projects undertaken outside India will not be considered for CSR expenditure. However, some expenditure outside India is permitted.

19. Reporting of CSR is mandatory in Board’s Report

In case of Indian Companies:- 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 II.

In case of foreign company:- the balance sheet filed under 381(1)(b) of the Act, shall contain an Annual Report on CSR containing particulars specified in Annexure I or II as applicable.

20. Disclosure requirements at the website of the company

Board of Directors of the Company shall mandatorily disclose

  • the composition of the CSR Committee;
  • CSR Policy and
  • Projects approved by the Board on their website, if any, for public access.

Note: As a good governance practice, the Impact Assessment Report may also be disclosed at the website.

21. Penalty for non-compliance

A) With provisions of transferring unspent amount of a CSR project

With provisions of transferring unspent amount of a CSR project

B) Any other non-compliance relating to CSR provisions

In case of any other non-compliance/default under any other provision of the section, or Rules, then the provisions of general penalty under section 450 of the Act shall be applicable.

C) Non-mandatory CSR expenditure

Penal provisions for transfer of unspent amount shall not be applicable on non-mandatory CSR expenditure.

22. Surplus from CSR project

Surplus from CSR projects may be generated in various forms, for e.g. interest on temporarily parked funds, revenue received from the completed CSR projects, etc. The said surplus arising out of CSR activities has to be utilised for CSR activities only. Such expenditure can’t be set off against future CSR expenditure

23. Other aspects that may be kept in mind while undertaking CSR

A) CSR activities shall not include any activity benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019. Hence medical camp exclusive for the unskilled labour hired by the company shall not be permitted as a CSR activity.

B) Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure.

C) Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.


Disclaimer: Nothing contained in this document is to be construed as a legal opinion and based on the understanding and interpretation of author which is to be used for educative purposes only.

[The author is a Company Secretary and can also be reached at [email protected]]

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Qualification: CS
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Location: Raipur, Chhattisgarh, India
Member Since: 02 May 2021 | Total Posts: 3

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