Key Changes to India’s CSR Policy for Companies
Key Changes to India’s CSR Policy for Companies
Corporate Social Responsibility (CSR) is a mandatory requirement in India for companies that meet certain financial thresholds. The Companies (Corporate Social Responsibility Policy) Rules, 2014 outlines the foundational framework for CSR. On September 20, 2022, the Ministry of Corporate Affairs (MCA) introduced significant amendments to these rules, enhancing the CSR regulatory framework. In this article, we will look into the overview of these amendments, highlighting the key changes and their implications for companies engaged in CSR activities in India.
Get Started!Corporate Social Responsibility (CSR)
In India, stringent Corporate Social Responsibility (CSR) regulations require eligible companies to actively participate in CSR endeavours by allocating a minimum of 2% of their average net profit from the preceding three financial years towards CSR projects. The CSR applies to companies that meet any of the following financial thresholds:
- A net worth of at least 500 crore rupees
- Annual turnover surpassing 1000 crore rupees
- Net profits exceeding 5 crore rupees.
Additionally, foreign corporations with a branch or project office in India must meet CSR requirements if their operations fall within these financial criteria.
Constitution of CSR Committee
Under India’s CSR regulations, companies that adhere to CSR norms must constitute a CSR committee. This committee plays a pivotal role in charting the course for the company’s CSR activities. Its responsibilities include formulating and presenting an annual CSR strategy for the board’s approval. Beyond strategy development, the committee is tasked with crafting, endorsing, and overseeing the implementation of the company’s CSR policy, ensuring that the company’s CSR initiatives are aligned with the regulatory framework and effectively contribute to societal welfare.
Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022
Since introducing mandatory CSR expenditure in 2014, various amendments have refined and enhanced the framework governing these activities. The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022, implemented by the Ministry of Corporate Affairs on September 20, 2022, represent a significant update in this evolving landscape. This amendment has introduced several key changes to improve oversight, implementation, and impact assessment of CSR activities.
Establish a dedicated CSR committee.
The Amendment Rules underscore the importance of diligent management of CSR resources by mandating the establishment of CSR committees. These committees oversee the execution of CSR initiatives and, notably, the management of funds within the “Unspent Corporate Social Responsibility Account.”
- Companies are now obliged to earmark unutilized CSR funds in this specific account, ensuring their deployment within a stipulated period of three financial years under the vigilant supervision of the CSR committee.
- Furthermore, the amendments have removed the previous leniency that exempted companies from maintaining a CSR committee once they fell below the requisite CSR eligibility criteria, ensuring consistent oversight across all entities engaged in CSR activities.
Change in Expenditure for Impact Assessment
The recent amendments introduce a significant shift in the budgeting framework for CSR impact assessments. Previously, the CSR Rules permitted an allocation of up to 5% of the total CSR expenditure or Rs. 50 lakh, whichever was lower, towards assessing the impact of CSR initiatives.
- The updated Amendment Rules have revised this stipulation, capping the permissible expenditure on social impact assessments at 2% of the total CSR expenditure for the relevant financial year or Rs. 50 lakh, whichever is higher.
- This adjustment facilitates increased investment in the impact assessment of larger-scale CSR projects, ensuring a more thorough evaluation of their societal contributions and outcomes.
New Limits for CSR Impact Assessment Spending
Another pivotal change concerns the financial cap on social impact assessments, which are critical for evaluating the effectiveness of CSR initiatives.
- Previously, companies could allocate up to 5% of their total CSR expenditure or Rs. 50 lakh (whichever was less) towards these assessments.
- The revised rules now stipulate that the expenditure on impact assessments can constitute up to 2% of the total CSR spend or Rs. 50 lakh, whichever is greater, thereby accommodating more substantial investments in evaluating the impacts of significant CSR projects.
New template for the annual CSR reporting
Furthermore, the Amendment Rules have introduced a new template for the annual CSR reporting, enhancing transparency and accountability.
- Companies must now provide a concise overview of their CSR policy, detailed information about the CSR committee members, including attendance records at meetings, and links to their CSR policy and approved initiatives on their official websites.
- Additionally, an executive summary and impact assessments of CSR projects must be included, offering stakeholders a comprehensive view of the company’s CSR endeavours and outcomes.
Updated Reporting Requirements for CSR Activities
The Amendment Rules introduce a revised structure for the annual CSR activity reports, mandating comprehensive disclosures to enhance transparency and accountability. Companies must now include a succinct description of their CSR policy and detailed information about the CSR committee members in their annual reports.
This includes the names and designations of the directors, the number of CSR committee meetings convened, and the attendance record of each director.
- The report must feature direct links to the company’s website, where information about the CSR committee’s composition, the CSR policy, and the board-approved CSR initiatives can be found.
- An executive summary and web links to the impact assessments of CSR projects are also required.
- The new format extends the disclosure requirements to cover the allocation of CSR funds to both ongoing and non-ongoing projects, detailing any surplus funds available for offsetting and the unspent CSR amounts from the past three fiscal years.
Companies must also report any capital assets acquired or created through CSR expenditures within the financial year. In cases where a company falls short of spending the mandated 2% of the average net profits from the previous three years on CSR activities, an explanation must be provided in the report, ensuring a clear understanding of the company’s CSR financial management and execution.
Form CSR-2
India’s Ministry of Corporate Affairs (MCA) introduced Form CSR-2 on February 11, 2022, to enhance transparency and accountability in companies’ Corporate Social Responsibility (CSR) activities. This move aligns with good corporate governance practices and mandates companies to furnish detailed reports of their CSR expenditure to the Ministry.
form-csr-2Applicability of Form CSR-2
Form CSR-2 applies to all entities that are required to comply with the provisions of Section 135 of the Companies Act 2013. This section mandates certain companies, based on their net worth, turnover, or net profit, to spend a specified percentage of their profits on CSR activities and report them in their annual financial statements.
Filing of Form CSR-2
The introduction of Form CSR-2 signifies a shift from the previous reporting requirements, where companies were only required to annex CSR details to their Board’s Report and disclose them on their website, if available. The new form requires a more detailed reporting, including:
- Details of CSR expenditure for the three preceding financial years and information on all ongoing CSR projects.
- Information about the company’s CSR Committee.
- Disclosure of CSR details on the company’s website, as per Rule 9 of the Companies (CSR Policy) Rules, 2014.
- Net profit and other relevant company financial details for the preceding financial years.
- Details of any capital assets created or acquired through CSR funds, including the location, pin code, amount spent, and the registered owner of the property.
Due Date of Filing Form CSR-2
For the financial year 2020-21, companies were required to file Form CSR-2 by March 31, 2022, after submitting Form AOC-4 or its variants (AOC-4 XBRL or AOC-4 NBFC (Ind AS)), which are used for filing the company’s financial statements. From the financial year 2021-22 onwards, Form CSR-2 will be filed as an addendum to Form AOC-4, aligning with its due date.
Streamline Your CSR Reporting with IndiaFilings
IndiaFilings offers comprehensive assistance for companies seeking to fulfil their company compliance requirements, including filing AOC-4 forms. With expert guidance, businesses can seamlessly navigate the complexities of financial reporting and ensure that their Corporate Social Responsibility (CSR) activities are accurately documented. Whether you’re reporting annual financial statements or detailing CSR expenditures through the addendum of Form CSR-2, IndiaFilings’ team of professionals is equipped to provide the support you need.
Contact our experts today for assistance with AOC-4 filing and simplify your CSR documentation process.
Get Started!