CSR Amendment Rules, 2021

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Any Corporation that satisfies the requirements or circumstances outlined in Section 135 of the Companies Act, 2013 (the “Act”) is required to allocate at least 2% of their average net earnings from the preceding three fiscal years to Corporate Social Responsibility (CSR) in the current fiscal year.

In accordance with the Act’s requirements and the CSR Policy Regulations, the corporations must spend money on CSR. The Businesses (CSR Policy) Amendment Rules, 2021 (the “Rules”) were published in a notification from the Ministry of Corporate Affairs (MCA) on January 22, 2021. The Businesses (Corporate Social Responsibility Policy) Regulations, 2014 are amended by these rules. This is a list of the Rules’ modifications.

Amendment in Definitions-

There are few definitions were amended in the Rules. The Definitions after Amendment are as mentioned below:

1. Administrative Overheads-

Administrative overheads refer to the costs incurred by the business for “general management and administration” of its CSR initiatives; they do not, however, include costs directly associated with the planning, execution, monitoring, and assessment of a specific CSR project or programme.

2. CSR Policy-

CSR Policy is a declaration that includes the strategy and direction adopted by a company’s board while taking into account the suggestions made by its CSR Committee. It also includes guiding principles for the selection, implementation, and monitoring of activities as well as the creation of an annual action plan.

3. International Organization-

An organisation designated as an international organisation under section 3 of the United Nations (Privileges and Immunities) Act of 1947 is referred to as an international organisation (46 of 1947), which the rules set forth in the aforementioned Act’s schedule apply.

4. Ongoing Project-

It comprises initiatives whose length has been extended past a year by the board based on good reasoning but which were initially not approved as multi-year projects. An ongoing project is a multi-year project undertaken by a company in fulfilment of its CSR obligation with timelines not exceeding three years excluding the financial year in which it was initiated.

As per definition, Ongoing project is equal to Project already commenced plus multi-year project whose duration is not less than one year but not exceeding 3 years.

5. Public Authority-

Under the Right to Information Act of 2005, section 2’s clause (h) defines “Public Authority” as “Public Authority.”

6. CSR Committee-

The term “CSR Committee” refers to the Board’s Corporate Social Responsibility Committee as described in section 135 of the 2013 Companies Act.

Amendment in CSR Implementation-

The company’s board will make sure that the CSR initiatives are carried out either directly by the company or through one of the organisations listed below:

1. A company created under Section 8 of the Act, or a registered public trust, or a registered society, created by the company, either alone or in conjunction with any other company, and registered under Sections 12A and 80 G of the Income Tax Act, 1961 (43 of 1961);
2. 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;
3. any organisation created by a state or a parliamentary act;
4. a business that was created in accordance with Section 8 of the Act, a registered public trust, or a registered society that was registered in accordance with Sections 12A and 80G of the Income Tax Act of 1961 and has a proven history of performing such activities for at least three years.

• Procedure to file the Form CSR-1

With effect from 01.04.2021, every entity that wishes to engage in any CSR activity must register with the Central Government by submitting the form CSR-1 electronically to the Registrar.

1. i. The entity will electronically sign and submit Form CSR-1, and a Chartered Accountant in practise, a Company Secretary in practise, or a Cost Accountant in practise will digitally verify it.
2. ii. The system will immediately produce a distinct CSR Registration Number upon receipt of the Form CSR-1 on the MCA portal.

*Important Note: Prior to April 1, 2021, CSR initiatives and programmes that were approved will not be impacted by this rule.

• Conditions for CSR Implementation-

1. A corporation may work with foreign organisations to plan, oversee, and assess CSR initiatives or programmes in accordance with its CSR strategy as well as to develop the CSR skills of its own employees.
2. A company may also work in conjunction with other businesses to carry out projects, programmes, or CSR initiatives as long as the CSR committees of the participating businesses can provide separate reports on these actions in accordance with the guidelines.
3. The Chief Financial Officer or the person in charge of financial management must attest that the monies so disbursed have been used for the purposes and in the manner that have been approved by the Board of a company.
4. In the case of an ongoing project, the Board of a Company shall monitor the project’s implementation with regard to the approved timelines and year-by-year allocation and shall have the authority to make changes, as necessary, to ensure that the project is carried out smoothly and within the overall allowable time frame.

The following will be included in the yearly action plan that the CSR Committee develops and recommends to the company’s Board in accordance with its CSR policy, as per the Companies (CSR Policy) Amendment Regulations, 2021.

1. The list of CSR initiatives that have been given the go-ahead to be implemented
2. The manner in which such projects or programmes are carried out
3. The ways in which funding will be used and when the projects or programmes will be implemented;
4. For the projects or programmes, a framework for monitoring and reporting
5. Specifics of the company’s initiatives’ need and impact assessments, if any:

*Important Note- During the course of the fiscal year, the board may modify such a strategy based on the advice of its CSR Committee.

Amendment in CSR Expenditure-

The Businesses (CSR Policy) Amendment Regulations, 2021 provide that administrative costs cannot be more than 5% of the company’s overall CSR spending for the fiscal year.

If a corporation spends more than is necessary, that extra money may be deducted from the amount that must be spent over the course of the next three fiscal years, provided that certain conditions are met :

• The surplus resulting from CSR efforts shouldn’t be included in the excess available for set-off

• The company’s Board must adopt a resolution to that effect

A corporation may use the CSR amount to create or purchase a capital asset, which must be held by one of the following companies :

• A company established or founded under section 8 of the Act

• Registered Public Trust or Registered Society with charity purposes and CSR Registration Number

• Recipients of the aforementioned CSR project, include self-help organisations, collectives, and entities

• A public authority

Amendment in 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.

1. In case of a foreign company, the balance sheet shall contain an annual report on CSR
2. Every company that had an average CSR obligation of at least Rs. 10 crore over the three financial years prior shall carry out impact assessment of their CSR projects with outlays of at least Rs. 1 crore and which have been completed not less than one year before carrying out the impact study, through an independent agency.
3. The Board must be presented with the impact assessment studies, which must be annexed to the annual CSR report.
4. A company conducting an impact assessment may record corporate social responsibility expenses for that fiscal year, but they must not exceed 5% of all CSR expenses for that fiscal year or $50,000, whichever is less.

Website Disclosure-

The CSR Committee’s membership as well as the CSR Policy and Projects approved by the Board of Directors must be made publicly available on the company’s website by the board of directors.

Amendment in Transfer of Unspent CSR Amount-

Until a fund is designated in Schedule VII in accordance with Sections 135(5) and Section 135(6) of the Act, the Company shall transfer the Unspent CSR Amount, if any, to any Fund contained in Schedule VII of the Act.

Conclusion-

Along with Section 135 of the Act, the new CSR Rules establish a rigid regulatory framework for CSR activities in India. To ensure compliance with the new regulatory framework, businesses must maintain thorough records of CSR Committee meetings, CSR budget allocations, and initiatives carried out through implementing partners.

The original CSR requirement under Section 135 was built on the “comply or explain” principle, according to which a firm could either participate in CSR activities or provide an explanation for why it had not spent the required amount. The voluntary nature of Section 135 compliance was intended by the legislature.

There has been a complete change away from the initial goal over the course of seven years. With the release of the new CSR Rules, the switch from the “comply or explain” system is now complete. There is a widespread perception among the corporate community that the new system has become unduly prescriptive.