Companies (CSR Policy) Amendment Rules, 2021
The Ministry of Corporate Affairs has notified the Companies (CSR Policy) Amendment Rules, 2021 vide a notification dated 22nd January 2021, which seeks to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014. As per the amendment rules, the entity intends to undertake the CSR activity need to register itself with the Central Government by filing the form CSR-1 electronically with the Registrar. The current article briefs the Companies (CSR Policy) Amendment Rules, 2021.
Synopsis of Companies (CSR Policy) Amendment Rules, 2021
- From 1 April 2021, Entities carrying out CSR activities are required to file with the Central government, an e-form namely CSR -1to generate Unique registration number.
- To ensure transparency, 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 for public access
- Every company having average CSR obligation of Rs.10 Crore 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
- The board shall ensure that the administrative overheads shall not exceed 5% of total CSR expenditure of the company for the financial year
- The CSR amount may be spent by a company for creation or acquisition of a capital asset, which can be held by following 3 entities only:
- Mandatory transfer of unspent CSR amount is required.
Companies (CSR Policy) Amendment Rules, 2021
The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 has amended the Rules majorly concerning the following facets:
Rule 12: Definition
Rule 4: CSR Implementation
Rule 5: CSR Committee
Rule 7: CSR Expenditure
Rule 8: CSR Reporting
Rule 9: Website Disclosure
Rule 10: Transfer of unspent CSR
Corporate Social Responsibility (CSR)
As per the Companies (CSR Policy) Amendment Rules, 2021, Corporate Social Responsibility (CSR) is defined as the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Companies Act following the provisions contained in the Companies (Corporate Social Responsibility Policy) Rules, 2014.
The following activities of the company will not be included in the Corporate Social Responsibility (CSR).
- Activities are undertaken in pursuance of the normal course of business of the company
Note: If a company engaged in research and development activity of new vaccine, drugs and medical devices in the normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-2021, 2021-2022, 2022-2023.
- Any activity is undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at a national level or India at international level
- Contribution of any amount directly or indirectly to any political party under section 182 of the Companies act
- Activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019)
- Activities supported by the companies on a sponsorship basis for deriving marketing benefits for its products or services
- Activities carried out for the fulfilment of any other statutory obligations under any law in force in India
Amendment in Rule 12 – Definition
Definition of Administrative overheads
Administrative overheads mean 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.
Definition of CSR Policy
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 the formulation of the annual action plan
Definition of International Organization
International Organization defined as 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.
Definition 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.
As per definition, Ongoing project = Project already commenced + multi-year project whose duration is not less than one year but not exceeding 3 years
Definition of Public Authority
“Public Authority” means ‘Public Authority’ as defined in clause (h) of section 2 of the Right to Information Act, 2005.
Definition of CSR Committee
CSR Committee means the Corporate Social Responsibility Committee of the Board referred to section 135 of the Companies Act
Amendment in Rule 4: CSR Implementation
The board of the company will ensure that the CSR activities are undertaken by the company itself or through any of the following entity:
- 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,
- 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;
- Any entity established under an Act of Parliament or a State legislature
- 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 has an established track record of at least three years in undertaking similar activities
Procedure to file the form CSR-1
Every entity who intends to undertake any CSR activity needs to register itself with the Central Government by filing the form CSR-1 electronically with the Registrar, with effect from 01.04.2021.
- Form CSR-1 will be signed and submitted electronically by the entity and shall be verified digitally by a Chartered Accountant in practice or a Company Secretary in practice or a Cost Accountant in practice.
- On the submission of the Form CSR-1 on the MCA portal, a unique CSR Registration Number will be generated by the system automatically.
Note: This rule will not affect the CSR projects or programmes approved before the 01.04.2021.
Other Condition for CSR Implementation
- A company may engage international organizations for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for the capacity building of their own personnel for CSR.
- A company may also collaborate with other companies for undertaking projects or programmes or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programmes following these rules.
- The Board of a company shall satisfy itself that the funds so disbursed have been utilized for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect.
- In case of an ongoing project, the Board of a Company shall monitor the implementation of the project concerning the approved timelines and year-wise allocation and shall be competent to make modifications, if any, for smooth implementation of the project within the overall permissible time period
Amendment in Rule 4: CSR Implementation
As per the Companies (CSR Policy) Amendment Rules, 2021, CSR Committee will formulate and recommend to the company’s Board, an annual action plan in pursuance of its CSR policy, which shall include the following.
- The list of CSR projects or programmes that are approved to be undertaken
- The manner of execution of such projects or programmes
- The modalities of utilization of funds and implementation schedules for the projects or programmes;
- Monitoring and reporting mechanism for the projects or programmes
- Details of need and impact assessment, if any, for the projects undertaken by the company:
Note: The board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee
Amendment in Rule 7: CSR Expenditure
According to the Companies (CSR Policy) Amendment Rules, 2021, the administrative overheads should not exceed five per cent of the total CSR expenditure of the company for the financial year
If a company spends an amount above requirement, such excess amount may be set off against the requirement to spend up to immediate succeeding three financial years subject to the following conditions :
- The excess amount available for set-off should not include the surplus arising out of the CSR activities
- The Board of the company shall pass a resolution to that effect
The CSR amount may be spent by a company for the creation or acquisition of a capital asset, which shall be held by the following firms:
- A company established under section 8 of the Act
- Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number
- Beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities
- A public authority
Amendment in Rule 8: CSR Reporting
The Board’s Report of a company about any financial year shall include an annual report on CSR containing particulars as specified in the Annexure.
- In case of a foreign company, the balance sheet shall contain an annual report on CSR
- Every company having average CSR obligation of Rs. 10 Crore or more in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of Rs.1 Crore or more, and which have been completed not less than one year before undertaking the impact study.
- The impact assessment reports need to 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 Corporate Social Responsibility for that fiscal year, which shall not exceed 5% of the total CSR expenditure for that financial year or Rs.50 lakh rupees, whichever is less
Amendment in Rule 9: Website Disclosure
The Board of Directors of the Company need to mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website for public access.
Amendment in Rule 10: Transfer of unspent CSR
The unspent CSR amount will be transferred by the company to any fund included in schedule VII of the Companies Act.