Authors: Adv. Shikha Prabhakar and CS Sandeepta Bose
Date: January 2021
The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021
The Ministry of Corporate Affairs introduced The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (CSR Rules) to be effective from January 22, 2021.
The highlights of the changes introduced in the CSR Rules are as under:
- The amended CSR Rules under Rule 2(1)(b) define the term “Administrative Overheads” which clearly refer to expenses incurred by the Company for ‘general management and administration’ of Corporate Social Responsibility functions in the Company and specifically excludes expenses directly incurred for the designing, implementation, monitoring and evaluation of a particular CSR project or programme.
- The definition of Corporate Social Responsibility (CSR) stands amended.
CSR Inclusions:
- 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 Companies (CSR Policy) Amendment Rules, 2021;
- Activities undertaken in pursuance of normal course of business of the 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 3 financial years i.e. 2020-21, 2021-22, 2022-23 in collaboration with any of the institutes or organisations mentioned in item (ix) of schedule VII of the Act and a separate disclosure to that effect shall be made in the Annual Report on CSR included in the Board report;
Any activity undertaken by the company outside India for training of Indian sports personnel representing any State or Union territory at national level or India at international level.
CSR Exclusions:
- Activities undertaken in pursuance of normal course of business of the company;
- Any activity undertaken by the Company outside India;
- Any amount of contribution, directly or indirectly given to any political party under section 183 of the Companies Act, 2013;
- Activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019;
- Activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services;
- Activities carried out for fulfilment of any other statutory obligations under any law in force in India;
The definition of CSR Policy stands substituted in entirety to include:
- A statement containing approach and direction given by the Board of the Company taking into account the recommendations of its CSR Committee;
- Guiding principles for selection, implementation and monitoring CSR activities as well as the formulation of the annual action plan.
- The definition of CSR Policy stands substituted in entirety to include:
- A statement containing approach and direction given by the Board of the Company taking into account the recommendations of its CSR Committee;
- Guiding principles for selection, implementation and monitoring CSR activities as well as the formulation of the annual action plan.
- Introduction of definition of the term “Ongoing Project” to mean a multi-year project 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.
- Rule 4 (“CSR Activities”) of the old rules has been substituted in entirety with new Rule 4 (“CSR Activities”). In terms of Rule 4(1) of the new Rules, CSR Activities shall be undertaken by the Company either by itself or through any of the following implementing agencies:
- A section 8 Company or registered public trust or a registered society registered under section 12A and section 80G of the Income Tax Act, 1961, established by the Company either singly or along with any other Company;
- A section 8 Company or registered public 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; or
- A section 8 Company or registered public trust or a registered society, registered under section 12A and section 80G of the Income Tax Act, 1961 with an established track record of at least years in undertaking similar activities.
- Now, a company may engage international organizations for designing, monitoring, and evaluation of the CSR projects or programs as per its CSR policy as well as for the capacity building of their personnel for CSR. {Rule 4(3)}.
- Now, a company may also collaborate with other companies for undertaking projects or programs 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 programs in accordance with these rules {Rule 4(4)}.
- Registration for CSR Activity: Every entity who intends to undertake any CSR activity, shall register itself with the Central Government by filing duly signed e-form CSR-1 with the Registrar of Companies, with effect from the 01st day of April 2021 and verified digitally by a Chartered Accountant in practice or a Company Secretary in practice or a Cost Accountant in practice. Post submission, a unique CSR Registration Number shall be generated by the system automatically. However, the referred provisions shall not affect the CSR projects or programs approved prior to the 01st day of April 2021 {Rule 4(2)}.
- Certification by Chief Financial Officer: The new Rule 4(5) mandates certification of utilization of CSR funds for the purposes approved by Chief financial officer or the person responsible for financial management.
- Annual Action Plan {Rule 5(2)}: The CSR Committee shall formulate and recommend to the Board, an annual action plan, which may be modified on the reasonable justification by the CSR Committee, in pursuance to its CSR Policy, which shall include the following:
- The list of CSR projects or programmes that are approved to be undertaken out of the areas specified under Schedule VII and manner of execution;
- Modalities of utilization of funds and implementation of schedule 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 project undertaken by the Company.
- Treatment of Surplus arising out of CSR amount {Rule 7(2)}: The rules now provide for utilization of any surplus arising out of the CSR activities within a period of 6 months of the expiry of the financial year only for the purposes specifically provided thereunder.
- The CSR amount may be spent by a Company for the creation or acquisition of a capital asset provided that the capital asset so created shall be held either by a Section 8 Company, or a Registered Public Trust, or registered society with the charitable objects, having CSR registration number or beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities or a public authority. Any capital asset created prior to the notification of the amendment rules shall comply with the requirements specified hereof within a period of 180 days which may be further extended by the Board by 90 days.
- Impact Assessment {Rule 8(3)} – Every company having an average CSR obligation of Rupees 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 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.
- CSR Reporting {Rule 8(1)} – For financial year onwards 2020-2021, CSR report shall be in Annexure – II to the CSR Rules, which includes additional disclosures as to impact assessment, amount available for setoff, CSR amount spent on on-going projects/other projects, details regarding capital assets etc. The CSR reporting for previous years shall continue to be in Annexure – I of the CSR Rules.
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