Jan 23, 2021

CSR Rules Amended

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Rule 2: 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 Organisation: means an organisation notified by the Central Government as an international organisation under section 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 a multi-year project undertaken by a Company in fulfilment of its CSR obligation 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;
  • 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, but shall not include the following, namely:-
      • (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 conditions that-

          (a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act;

          (b) details of such activity shall be disclosed separately in the Annual Report on CSR included in the Board’s Report;

        (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 products or services;

        (vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India;

    • CSR Policy: means 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 formulation of the annual action plan.

    Rule 4: CSR Implementation

    • Now, the Board of the company can undertake the CSR activities through the registered public trust (instead of any registered trust) and registered society registered under section 12A & 80G 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. However, the company can still undertake the CSR activities through the following entities:
      • Section 8 Company established by the company, either singly or along with any other company; or
      • 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 a State legislature; or
      • Section 8 Company having an established track record of at least 3 years in undertaking similar activities.
    • 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 disbursed have been utilised 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 the 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

    • 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: –
      • (a) the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;

        (b) the manner of execution of such projects or programmes as specified in rule 4(1);

        (c) the modalities of utilisation of funds and implementation schedules for the projects or programmes;

        (d) monitoring and reporting mechanism for the projects or programmes; and

        (e) 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 its 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 of a company and shall be ploughed back into 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 Schedule VII, within a period of 6 months of the expiry of the financial year.
    • Where a company spends an amount in excess of 2% average net profit, such excess amount may 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 the CSR activities, if any.

        (ii) the Board of the company shall pass a resolution to that effect.

    • The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by –
      • (a) a Section 8 Company, or a 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, entities; or

        (c) a public authority:

      However, any capital asset created by a company prior to the commencement of this Amendment Rules, shall within 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 FY 2020-21 onwards has been prescribed in Annexure II under the Rules. However, for FY 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 three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of Rs. one 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 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 VII 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 VII of the Act (i.e. PM National Relief Fund, PM CARES Fund etc.).

    Click here to view Rules

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