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Corporate Social Responsibility Amendment Rules 2021

Corporate Social Responsibility Amendment Rules 2021

The Ministry of Corporate Affairs (MCA) has recently notified amendment to   Corporate Social Responsibility (CSR) provisions. These were introduced through the Companies (Amendment) Act, 2019, the Companies (Amendment Act), 2020 and also introduced Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021.
All these amendments are effective from 22nd January, 2021.

Key Amendments Impact of amendments
Few New definitions 1.    What is not Corporate Social Responsibility activity is now defined in the Rules. A snapshot of which is given below:
(i)  activities undertaken in pursuance of normal course of business of the company, except R &D activities of new drug, vaccine related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the some conditions.
(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 clause (k) of section 2 of the Code on Wages, 2019 (29 of 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
2.  Net Profit as per the New Rules is to be calculated as per 198 of the Companies Act, 2013. The said amount shall not include (i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; (ii) any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act: Provided that in case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of sub-section (1) of section 381, read with section 198 of the Act;
3.  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
4. “Administrative overheads” means the expenses incurred by the company for ‘general management and administration’ of Corporate Social Responsibility functions in the company but shall not include the expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project or programme;
Eligible implementing agencies for CSR Implementation The Company can undertake CSR Activities through itself or through :
1.    a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company, or
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; or
3.    any entity established under an Act of Parliament or a State legislature; or
4.    a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities
Exemption from forming CSR Committee ·         If amount to be spent by a company, in a year, does not exceed Rs. 50 lacs then constitution of CSR Committee is not required. , The Board of Directors shall discharge all functions of CSR Committee.
Accordingly, if CSR liability, in a year, is below Rs. 50 lacs, CSR committee can be dissolved.
Treatment to be given to Unspent CSR ·      Any amount of CSR which has remained unspent (other than ongoing project) now will be required to be  carried forward to a Fund specified in Schedule VII, within 6 months of close of financial year.
Accordingly, unspent CSR amount (other than ongoing project) for the F.Y. 2020‐21 shall be transferred to Schedule VII fund latest by September 30, 2021.
·      Unspent CSR amount related  to Ongoing Project  to   be transferred within a period of 30 days from the end of the financial year to a special account. Such an account to be opened by the company for that financial year in any scheduled bank, named as ‘Unspent Corporate Social Responsibility Account (UCSRA) Year 2020-21’.  Accordingly, amount remaining unspent (ongoing project) for the F. Y. 2020- 21 shall be transferred to UCSRA Year 2020-21 latest by April 30, 2021.
·      Such transferred amount shall be spent within a period of 3 financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
Fund specified in Schedule VII Presently no specific fund has been set up by the Central Government for unspent CSR hence Companies can refer following funds specified in Schedule VII
·         Swach Bharat Kosh – set-up by the Central Government for the promotion of sanitation
·         Clean Ganga Fund
·         Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows];
·         Prime Minister’s National Relief Fund
·         Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)]
·         any other fund set up by the Central Govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
Excess CSR amount can be set off Excess  amount, spent on CSR in the previous year,   may   be  set off  against CSR liability of immediate succeeding 3 financial years subject to the conditions that –
·         excess amount available for set off shall not include the surplus arising out of the CSR  activities,
·         the Board of the company shall pass a resolution to that effect.
Penalty Imposed for non-spending of CSR •     Company will be liable to a penalty of twice the amount of unspent CSR liability or Rs. 1 crore, whichever is less.
•     Every officer in default is liable to a penalty of  10% of unspent CSR  liability or Rs. 2 lacs, whichever is less
Registration for CSR implementing agencies w.e.f 1st April, 2021 ·         A Company can undertake CSR Activities either on its own or through Implementing Agency. W.e.f. 1st April 2021 registration of such entity shall be mandatory by filing form CSR -1. Unique CSR Registration Number shall be generated for each entity.
·         In addition to registration under respective act, registration of such agency under the provisions of Section 12A & 80 G of the Income Tax is made mandatory.
Disclosure on Company’s website If Company is having website, 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
New Annexure II to be annexed to Directors Report for F Y 2020-21 New Annexure II with additional disclosures to be annexed to the Directors report for F Y 2020-21. Details are prescribed in amended CSR Rules.
Annual Action Plan Formulation of Annual Action Plan for determining list of projects, manner of implementation, monitoring mechanism to be placed in the Board/ Committee (as applicable) Meeting
Mandatory certification by Authorised person of Financial Management of the company Certification by Chief Financial Officer (CFO) or person responsible for financial management, to the effect that that the funds so disbursed have been utilised for the purposes and in the manner as approved by the Board. This certificate to be presented to the Board for their assurance.
Limit on Administrative Overheads The expenses incurred by the company for general management and administration of CSR functions are defined as Administrative overheads. It shall not include expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular project.
The administrative overheads not to exceed 5 % of total CSR expenditure of the company for that financial year.
Impact assessment of CSR projects introduced where CSR obligation is Rs. 10 crores or more
  • A company having the obligation of spending average CSR amount of Rs 10 Crore or more in the three immediately preceding financial years shall undertake impact assessment.
  • Impact assessment to be done by an independent agency.
  • Impact assessment to be done in respect of 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.
  • Impact assessment expenditure for a financial year shall not exceed five percent of the total CSR expenditure for that financial year or Rs. 50 lacs, whichever is less.