The Companies (CSR Policy) Amendment Rules 2021 has overhauled India’s Corporate Social responsibility (CSR) mechanism. The new rules have initiated new prerequisites like impact assessment of CSR contribution, the involvement of International Organisations for the purpose of CSR Projects in a limited manner, and so on.
Concepts included within the domain of 2014 Rules, such as the meaning of CSR, CSR Implementation, CSR Policy, the provisions of the New Rules have become structured and more detailed.
The aforesaid step has been appreciated as it has put a limit on the too much discretion in the hands of a company, brought some uniformity by introducing the mechanism to be followed in certain respects. Besides, some rules are still vague to an extent like Rule 10 not including the issue of establishing a new Fund for Section 135(5) and 135(6) of the Companies Act.
Latest Update
14th February 2022
- “Form CSR-2 (Report on Corporate Social Responsibility) notified vide Companies (Accounts) Amendment Rules, 2022 dated 11th February 2022 is available for filing purposes now under MCA Services -Company services-CSR-2” View More
26th August 2021
- “MCA department has circulated circular no.14 related to FAQs on Corporate Social Responsibility (CSR) for section 135 under the Company ACT 2013.” Read PDF
Moreover, concerns about the ‘5 percent limit on administrative overheads under the New Rules’ have been raised and companies may find it difficult to follow such provisions.
In conclusion, we see a lot of promises in India’s new CSR regime.
Background Information
Corporate Social Responsibility was, for the first time, introduced as a statutory obligation for all the companies by enacting the Companies Act 2013 (Section 135 is related to CSR).
The Companies Amendment Acts of 2019 
Companies (CSR) Amendments Rules 2021
Effective date of Rules: On the date of publication of the aforesaid notification in the Official Gazette i.e. 22.01.2021.
What is New Under Aforesaid Notification?
New Definitions
Administrative Overheads: Expenses incurred by the company for ‘general management and administration of CSR duties in the company. It does not include expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular CSR project or programme;
Latest/New Definition of CSR
It includes within its purview activities that have been performed by company/corporates that is subject to section 135 of the Companies Act, 2013 and its rules.
The definition of CSR does not include the following activities:
- Activities that have been undertaken under the normal course of the business. However, the companies that are involved in the Research & Development work of new vaccination, medicine/drug, and medical equipment in their normal course of business might perform R&D activity of new vaccination, medicine/drug, and medical equipment related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that-
- Such Research &Development work shall be performed in alliance with any institute or organization given in item (ix) of Schedule VII.
- All the details of the activity shall be elaborated in the Annual report on CSR included Board Report.
- Any activity done by the company outside India except the following: providing training to personnel of Indian sports that is representing any State or Union territory at the national level or representing India at international level.
- Political Contribution as per section 182 of the Income Tax Act
- Those activities that are providing advantage/ benefit to employees of the company as described in clause (k) of section 2 under the Code on Wages, 2019.
- Activities that are supported by the companies on a sponsorship basis for the purpose of taking the marketing benefits of its products or services;
- activities that are performed for the fulfillment of any other statutory obligations as per any law in force in India;
CSR Policy
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;
Net Profit
It includes within its purview the profits of the company as per financial Statements as per section 198 of the Companies Act, 2013. Net profit excludes the followings:
- Any profit that arises from any overseas(abroad) branch or branches of the company, whether operating as a distinct company or otherwise; and
- Any dividend that has been received from other companies located in India that are cover and comply with the clauses/provisions of section 135 of the Act:
However, it is provided that in the case of a foreign company that is covered under these rules, net profit means the net profit as per profit and loss account prepared in compliance with clause (a) of sub-section (1) of section 381, read with section 198 of the Companies Act, 2013.
CSR Implementation (Rule-4)
- The Board shall make sure that the activities of CSR activities are performed by the Company itself or through-
- a. Registered Trust, Section 8 Company, Registered Society as per section 12A, and 80G of Income Tax Act, 1961 that is established by the Company solely or along with any other Company.
- b. Registered Trust, Section 8 Company, Registered Society that has been established by the Central Government or State Government.
- c. Any institution/entity that is registered as per the act of Parliament or State Legislature.
- d. A company established under Registered Trust, Section 8 Company, Registered Society.
- As per section 12A and 80G of Income Tax Act 1961, and possessing an established track record of at least three years in performing the same activities.
- Every institution/entity that is covered under rule 4(1), who has an intention to perform any CSR activity shall enroll/register itself with the Central Government by filling e-form CSR-1 with the Registrar with effect from 01.04.2021. The Provision of this sub-rule shall not have an effect on the CSR Project/ or CSR Programmes that have been or will be approved before 01.04.2021. The form shall be signatured and presented/submitted by the company and shall be digitally verified by the PCWA/PCS/PCA. After presenting/submission of the CSR-1 form on the web portal, a unique CSR registration No. shall be created automatically by the system.
- A Company may employ/involve any international organization for designing, regulating, and assessing CSR projects or programmes as per its CSR policy.
- A company may also forge alliances with other companies for performing projects or programmes or CSR activities in such a way that the CSR committees of respective companies have the authority to report separately on such projects or programmes in harmony with these rules.
- The Board of a company shall assure /satisfy itself that the funds that have been distributed have been utilized for the objectives and in the way as agreed/approved by it and the CFO or an individual who is responsible for financial management shall certify it,
- Board shall regulate the execution of the project with regard to the approved timelines and shall be capable to make modifications, if any, for the purpose of smooth execution of the project within the permitted time period.
Rule-6 (Omitted)
CSR Expenditure (Rule-7)
- The Board shall ensure that the expenses under administrative overheads shall not be more than 5% of the total CSR expenditure of the company for a particular financial year.
- Any excess amount arising from performing CSR activities-
- a. shall not become a component of the business profit of a company
- b. and the funds be plowed back into the same project and
- c. shall be carried to Unspent CSR account and yearly action plan of the Company
- d. transfer such excess amount to the fund specified in schedule VII, within six months of the expiry of the particular financial year.
- Where a company spends an amount that is in excess of the requirement provided as per sub-section 135(5), then such surplus amount might be set off against the necessity to spend as per sub-section (5) of section 135 up to instant/ immediate succeeding 3 financial years subject to the prerequisite that –
- a.The surplus amount that is available for set-off shall not include within its purview excess amount generated from the CSR activities, if any, as per sub-rule (2) of this rule.
- b. the Board (of the company) shall enact a resolution to that effect.
- The CSR amount might be spent by a company for the purpose of creating or acquiring a capital asset that shall be held by –
- Registered public trust, Section 8 Company,or registered society that has the motive of charity and CSR enrollment/registration no.
- Recipient of the aforesaid CSR project, in the way of self-help groups, entities, or collectives.
- A public authority.
Given the condition that any capital asset that has been created by the company before enacting of the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, shall in a period of 180 days from such enactment obey the requirement of the aforesaid rule that can be extended by time period of not more than 90 days along with the authority of the board that has a reasonable justification.
CSR Reporting (Rule-8)
The Board’s Report of a company covered under these rules pertaining to any financial year shall include an annual report on CSR containing particulars specified.
Every company that has an average CSR commitment/obligation of Rs.10 Cr. or more as per subsection (5) of section 135 of the Act,(in the three immediately/instantaneous preceding financial years) shall perform impact assessment (via an independent agency,) of their CSR projects (having expenditure of 1 crore rupees or more) and have completed not less than one year before performing the impact study.
The impact assessment reports shall be presented before the Board and should be annexed to the annual report on CSR.
A Company performing impact assessment might book the expenditure of Corporate Social Responsibility for a financial year, that shall not be more than 5% of the total CSR expenditure or fifty lakh whichever is less.
Display of CSR Activities on its Website (Rule-9)
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, if any, for public access.
Transfer of Unspent CSR Amount (Rule-10)
Unless and until a fund is particularly mentioned in Schedule VII for the purposes of subsection (5) and (6) of section 135 of the Act, the amount not spent on CSR shall be transferred to any fund that is included in schedule VII of the Act.
