MCA has notified section 21 of the Companies (Amendment) Act, 2019  with effect from 22 January 2021. Section 21 amends section 135 of the Companies Act 2013 (CSR) to  provide for transfer of any unspent amount into a Fund specified under Schedule VII. In case of ongoing projects, transfer of such amount to a special account, to be spent within three financial years and thereafter transferred to the Fund specified in Schedule VII. Contravention of these provisions are liable to a fine of fifty thousand rupees up to twenty-five lakh rupees and every officer of such company who is in default is punishable with imprisonment or fine or both. To refer to the gazette notification dated 22 January 2020, click here.

Companies (Corporate Social Responsibility) (Amendment) Rules, 2021

MCA has notified amendments to the Companies (Corporate Social Responsibility) Rules, 2014 to provide for the following significant changes:

• New definitions of  “administrative overheads”, “corporate social responsibility”, “net profit” and “ongoing project”; “public authority” , “international organisation” and “CSR Policy”.

“corporate social responsibility” shall not include :

• activities undertaken in pursuance of normal course of business of the company: Provided that 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;
• 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;
• contribution of any amount directly or indirectly to any political party under section 182 of the Act;
• 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;

“Net profit” shall not include:

• any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise;
• 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;

“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;

2. Substituted Rule 4 provides for implementation of CSR policy :

• The Board must ensure that CSR activities are only carried out by the company itself or through :
• a company registered 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, established by the company, either singly or along with any other company;
• 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;
• any entity established under an Act of Parliament or a State legislature;
• 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.
• Every entity who wishes to undertake any CSR activity is required to register itself with the Central Government, by filing the CSR-1 form electronically with the Registrar, with effect from 1 April, 2021. CSR projects or programmes approved prior to 1 April, 2021 are not affected by this. The CSR-1 form is to be verified digitally by a practising Chartered Accountant, Company Secretary or Cost Accountant, and is to be submitted electronically by the entity
• Companies are permitted to engage international organisations for designing, monitoring and evaluation of CSR projects or programmes, as well as to build capacity of their own personnel for CSR.
• Companies may collaborate with other companies for undertaking projects or programmes on CSR activities, so that the CSR Committees of each of the companies can report separately on such projects or programmes.
• The Board is responsible for satisfying itself that disbursed funds have been utilised for the purposes and in the manner approved, and the Chief Financial Officer is required to certify to such effect.
• For ongoing projects, the Board is required to monitor implementation with reference to approved timelines and year-wise allocations, and is allowed to make modifications for smooth implementation of the project, within the overall permissible time period.

3. Rule 5 pertaining to CSR Committees amended : The CSR Committee shall formulate and recommend to the Board an annual action plan which includes: (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; (c) modalities of utilisation of funds and implementation schedules; (d) monitoring and reporting mechanism; and (e) details of need and impact assessment.

The Board may alter such plan during the financial year, on the recommendations of its CSR Committee, based on reasonable justifications to that effect.

4. Rule 7 pertaining to CSR Expenditure substituted to provide that:

• Administrative overheads shall not exceed five percent of total CSR expenditure for the financial year
• Any surplus arising out of the CSR activities shall not form part of business profits and  is to be ploughed back into the same project or transferred to the Unspent CSR Account and spent in pursuance of CSR policy and annual action plan, or transferred to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year.
• Where a company spends an amount in excess of requirement provided under sub-section (5) of section 135 of the Act, this can be set off against the requirement to spend under sub-section (5) of section 135, subject to certain specified conditions.
• CSR Funds may be spent for creation or acquisition of a capital asset. Such asset is to be held by – (i) a company established under section 8 of the Act, or a Registered Public Trust or Registered Society, having charitable objects and a CSR Registration Number; (ii) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or (iii) a public authority (as defined under the RTI Act).

Any capital asset created by a company prior to the commencement of the Amendment Rules, shall, within a period of 180 days, comply with the requirement of this rule, which can be extended by a further period of not more than 90 days with Board approval, based on reasonable justification.

5. Rule 8 pertaining to CSR reporting substituted to provide that:

• The Board Report for any financial year shall include an annual report on CSR containing particulars specified in Annexure I (Format For The Annual Report On CSR Activities To Be Included In The Board’s Report For Financial Year Commencing Prior To 1st Day Of April, 2020) or Annexure II (Format For The Annual Report On CSR Activities To Be Included In The Board’s Report For Financial Year Commencing On Or After 1st Day Of April, 2020);
• For foreign companies, the balance sheet filed under clause (b) of sub-section (1) of section 381 shall contain an annual report on CSR containing particulars specified in Annexure I or Annexure II,
• Every company having average CSR obligation of 10 crore rupees or more under sub-section (5) of Section 135 of the Act in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of CSR projects having outlays of 1 crore rupees or more, which have been completed not less than one year before undertaking the impact study;
• Impact assessment reports are to be mandatorily placed before the Board and annexed to the annual CSR report.

6. Rule 9 pertaining to display of CSR Activities on Website substituted; new Rule 10 pertaining to transfer of unspent CSR amount, introduced:

• The Board 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;
• Until a fund is specified in Schedule VII for the purposes of sub-sections  (5) and (6) of Section 135  of the Act, unspent CSR amounts (if any) shall be transferred to any fund included in schedule VII of the Act.

To refer to the gazette notification dated 22 January 2021 of the Companies (Corporate Social Responsibility) (Amendment) Rules, 2021, click here.