The companies (CSR policy) Amendment Rules 2021
By CS (DR) ASHUTOSH MISHRA
The MCA on 22nd Jan 2021 notified the companies (CSR policy) Amendment Rules 2021. The said amendments have introduced significant changes in carrying out CSR activities in India
Applicability of CSR provisions under companies Act 2013
Section 135 of the companies act 2013 lays down the provisions relating to CSR and it applies to the companies satisfying any of the following criteria during the immediately preceding financial year has to comply with CSR provisions as specified under section 135 of the companies act 2013 read with the CSR rules made thereunder, these are:
(i) Net Worth of Rs 500 crore or more or
(ii) Turnover of Rs 1000 Crore or more or
(iii) A net profit of Rs 5 crore or more (as calculated U/S 198 with other adjustments as referred in rule 2 (h) of CSR Rules)
The central government may give directions to a company or class of companies as it thinks necessary to ensure compliance of the provisions of this section and such companies or class of companies have to comply with such directions. Further, Companies have to spend at least 2% of the average net profit during the immediately preceding the three financial year in order to comply with the CSR provisions.
In accordance with section 135(1) every company satisfying the aforesaid criteria shall constitute a CSR Committee of the board. Further a new sub section (9) inserted by the Companies (Amendment) Act 2020 provides that where the amount to be spent by the company does not exceed 50 lakh the requirement of sub section (1) for constitution of CSR Committee shall not be applicable and the functions of such Committee shall be discharged by the Board of Directors of such company
Highlights of the Amended CSR rules:
Rule2: Definitions: The following new definitions have been added:
- Administrative overheads: means the expenses incurred by the company for general management and administration of CSR functions in the company but shall not include the expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular CSR project or programme;
- International organization: means an organization notified by the central government as an international organization under section U/S 3 of the united nations (privileges and immunities) Act,1947 to which the provisions of the schedule to the said Act apply;
- Ongoing project: means multi-year project undertaken by a company in fulfilment of its CSR obligation having timelines not exceeding 3 years excluding the financial year in which it has 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 section 2(h) of the RTI Act, 2005
The following definitions have been substituted:
- Corporate social responsibility (CSR): means the activities undertaken by a company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these rules, shall not include the following,
(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 following conditions that:
(a) Such research and development activities shall be carried out in collaboration with any of the institutes or organization’s mentioned in item (ix) of schedule VII to the Act;
(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 product or services;
(vi) activities carried out for fulfilment of any other statutory obligations under any law in force in in India
- CSR policy: means a statement containing the approach and directions 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
RULE 4: CSR IMPLEMENTATION
- As per the amended rules, now the board of the company can undertake the CSR activities through the registered public trust (instead of any registered trust) and registered society which is registered under section 12A & 80 G of the income tax Act (instead of any registered society) established by the company, either singly or along with any other company or having an established track record of at least 3 years in undertaking similar activities through the following entities:
- Section 8 company established by the company either singly or along with any other company
- Section 8 company or any registered trust or any registered society established by the central government or state government; or
- Any entity established under an act of parliament or state legislature; or
- Section 8 company having an established track record of at least 3 years in undertaking similar activity
- Now, every aforementioned entity, which intends to undertake any CSR activity, shall register itself with the central government by filing the form CSR-1 with the registrar, w.e.f. 01/04/2021. However this amendment shall not affect the CSR projects or programmes approved prior to 01/04/2021
- Now, a company may engage international organisations 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
- Now the board of a company shall satisfy itself that the funds so disburshed 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 that effect.
- In case of ongoing project, the Board of a company shall monitor the implementation of the project with reference to 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
RULE 5 CSR COMMITTEE l
- Now , the CSR committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following, namely-
- The list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in schedule VII of the Act;
- The manner of execution of such projects or programmes as specified in the rule 4 (1)
- The modalities of utilization of funds and implementation schedules for the projects or programmes;
- Monitoring and reporting mechanism for the projects or programmes; and
- Details of need and impact assessment, if any for the projects undertaken by the company.
However, the Board may alter such plan at any time during the financial year, as per the recommendation of the CSR Committee, based on the reasonable justification to that effect
RULE 7: CSR EXPENDITURE:
- Any surplus arising out of the CSR activities shall not form part of the business profit pf a company and shall be ploughed back in to the same project or shall be transferred to the unspent CSR account and spent in pursuance of CSR policy and annual action plan of the company or transfer such surplus amount to a fund specified in scheduled VII, with in a period of 6 months of the expiry of the financial year.
- Where a company spends an amount in excess of 2% of average net profit, such excess amount must be set-off up to immediate succeeding three financial years subject to the following conditions:
(i) The excess amount available for set-off shall not include the surplus arising out of
CSR activities, if any
(ii) The Board of the company shall pass a resolution to that effect
- The CSR amount may be spent by the company for creation or acquisition of a capital asset, which shall be held by-
(a) A section 8 company or registered public trust or registered society, having
Charitable objects and CSR registration number (after filing Form CSR-1); or
(b) Beneficiaries of the said CSR project, in the form of self-help groups, collectives,
(c) A public authority
However, any capital asset created by a company prior to the commencement of this amendments rules, shall with in a period of 180 days from such commencement comply with the requirement of this rule, which may be extended by a further period of not more than 90 days with the approval of the Board based on reasonable justification.
RULE 8 CSR REPORTING:
- A new detailed Annual Report on CSR Activities to be included in the Board’s Report for F/Y 2020-21 onwards has been prescribed in Annexure II under the rules. However for F/Y prior to 2020-21, old Annual Report on CSR Activities will continue.
NEW CONCEPT OF IMPACT ASSESSMENT
- Every company having average CSR obligation of Rs 10 crore or more, in the 3 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 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 the CSR for that financial year, which shall not exceed 5% of the total CSR expenditure for that financial year or Rs 50 lakh, (whichever is less).
RULE 10 TRANSFER OF UNSPENT CSR AMOUNT:
- Until a fund is specified in Schedule VIII for the purposes of Section 135(5) & (6) of the Act, the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VIII of the Act (I.e. PM NATIONAL RELIEF FUND, PM CARES FUND etc.)
Corporate social responsibility (CSR) encourages businesses accountability to a wide range of stakeholders, shareholders, and investors. The key of concerns are the environment protection, and the social wellbeing of people in society, both now and in the future. CSR has a variety of policies such as giving to organization, providing products and services to consumers, reducing harmful waste, and treating their employees with moral ethics. Corporate social responsibility is the best thing that was implemented into businesses both large and small, in this way the environment
And society can be treated the way it supposed to, with respect. CSR is something that everyone can benefit from, when businesses adopt its policy.
CS (DR) ASHUTOSH MISHRA
ACS LLB MBA (FIN) PhD M.COM
ASHUTOSH MISHRA & ASSOCIATES
(PRACTICING COMPANY SECRETARIES)