CSR Amendments in Companies (Amendment Act), 2020 and CSR policy (Amendment rules),2021
February 02, 2021
CSR amendments in Companies ( Amendment Act), 2020 and CSR policy ( Amendment rules ),2021
The Ministry of Corporate Affairs (MCA) has amended the Companies (Corporate Social Responsibility Policy) Rules, 2014 through notification dated January 22, 2021 and notified the major changes in the Companies (Corporate Social Responsibility) Rules, 2014 (‘the Rules’) through the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 and have also notified provisions of Sub Section 5, 7 and 9 of Section 135 of Companies Act 2013.
With the notification of these amendments, the penal provisions for non-compliance of CSR provisions have come into force which changes the very nature of the CSR provisions. Earlier the provisions provide that non-spending of the CSR amount was required only to be reported by the Company in the board’s report of the Company.
Further, the amendment in the Rules are not just limited to the changes made in the CSR provisions, rather, it extends to make substantial changes in the implementation of the entire CSR activity. Infact, couple of fresh concepts have also been introduced in the Rules like registering of implementing agencies by filing e-form CSR-1 with the MCA, CFO certificate, mandatory impact assessment.
The following amendments have been made through the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021:
INTRODUCTION OF NEW DEFINITIONS
- “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.
- “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.
- “International Organization” means an organization notified by the Central Government as an international organization 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.
MODES OF IMPLEMENTING CSR ACTIVITIES
- The Board shall ensure that the CSR activities are undertaken by the Company itself or through –
- a Company established under section 8 of the Companies Act, 2013, 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
- a Company established under section 8 of the Companies Act, 2013, or a registered trust or a registered society, established by the Central Government or State Government; or
- any entity established under an Act of Parliament or a State legislature; or
- 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 atleast three years in undertaking similar activities.
FILING OF FORM CSR-1 EFFECTIVE FROM 01 APRIL, 2021
- Every entity who intends to undertake any CSR activity, shall register itself with the Central Government by filing the form CSR-1 electronically with the Registrar.
- On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically.
- The administrative overhead ≤ 5% of total CSR expenditure of the Company for the financial year is permitted.
- The surplus out of CSR activity was anyway prohibited to form part of business profits of the Company and shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy, within a period of six months of the expiry of the financial year.
- Where a Company spends an amount in excess of requirement, such excess amount may be set off against the CSR spending requirement up 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.
- The CSR amount may be spent by a Company for creation or acquisition of a capital asset, which shall be
held by -
- a Company established under section 8 of the Act, or a Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number under sub-rule (2) of rule 4; or
- beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or
- a public authority:
- For existing capital assets -this has to be complied within 180 days i.e. by 21st July, 2021 or additional period of 90 days with the approval of Board
- Every Company shall undertake impact assessment through an independent agency:
- If the average CSR obligation of the Company, in the 3 immediately preceding financial years is Rs10 crores or more;
- The activity or the CSR project has an outlay of Rs1 crore or more;
- Since the requirement applies immediately, the CSR target for FY 2017-18, 18-19 and 19-20 will be relevant, to see the impact assessment requirement for FY 20-21.
- CSR Impact Assesement Report shall form part of the board’s report
- In case of foreign Company, the balance sheet filed under clause (b) of sub-section (1) of section 381 of the Act, shall contain an annual report on CSR.
WHAT WILL NOT BE CONSIDERED AS “CSR”
A list of six (6) activities have been mentioned in the negative attributes of what would not include to be a CSR activity. This includes:
- Activities undertaken in normal course of business;
Exclusion for three year till FY 2022-23, 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;
- Activity undertaken outside India;
Exclusion – training of Indian sports personnel representing any State or Union territory at national level or India at international level.
- Contribution to political party under section 182 of the Companies Act, 2013;
- Activities benefitting the employees;
- Sponsorship activities which help the Company in deriving marketing benefits;
- Activities carried out for fulfiling statutory obligation under any law in force in India.
DISCLOSURES ON WEBSITE
The Board of Directors of the Company shall mandatorily disclose the following on their website, if any, for public access:
- The composition of the CSR Committee
- CSR policy
- Projects approved by the Board.
CSR projects are approved on ongoing basis and it will be reasonable for the board to make a policy and disclose only material projects as some of the CSR projects are minor in terms of expense.
The following provisions of the Companies Act, 2013 related to CSR have been notified:
CARRYFORWARD OF EXCESS CSR CONTRIBUTION (SECTION 135(5))
In case a Company spends an amount in excess of the statutory requirements of the CSR obligation then such Company may set off such excess amount against the requirement to spend under this sub-section upto immediate succeeding three (3) financial years and in such manner, as prescribed in CSR.
TRANSFER OF UNSPENT CSR AMOUNT (SECTION 135 (5) and (6))
If the Company fails to spend the CSR obligation then the Board shall specify the reasons for the same and:
- Analyse the “unspent” amount:
- If and to the extent it pertains to “ongoing project” – transfer the unspent amount in a separate bank account [unspent CSR account] –within 30 days of the end of Financial Year
- Or else, transfer unspent amount to National Unspent Fund, within 6 months of the end of the financial year
RELAXATION IN CONSTITUTION OF CSR COMMITTEE
Where the CSR amount to be spent by a Company does not exceed fifty Lakh rupees then requirement 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.
PENAL Provision: MCA has introduced new penal provisions as per below:
- For Company: In case Company failed to spent the CSR amount then Company shall be liable for a penalty upto twice the amount required to be transferred to fund specified in Schedule VII or unspent CSR amount Or Rs. 1 Crore (whichever is lower);
- For Officer in default: Officer in default shall be liable for a penalty of 1/10th of amount required to be transferred to the fund specified in Schedule VII or Unspent CSR account or Rs. 2 lakhs (whichever is lower)
The Complete text of the amended rules can be viewed at below link:
Last updated: 02/02/2021
Article contributed by: Avi Sangal
Manager- Corporate Secretarial