The Ministry of Corporate Affairs has released a new order notifying the amendments in the CSR rules for companies. It comes into effect starting Jan 22, 2021.
The government amended various rules pertaining to the corporate social responsibility (CSR) regime, including allowing corporates to undertake multi-year projects and making registration compulsory for agencies implementing CSR activities on behalf of companies.
The move was aimed at improving the ease of doing business and the quality of CSR projects while enhancing disclosures and transparency under the new framework.
The provisions of the 2019 Amendment to the Companies Act, 2013 pertaining to Corporate Social Responsibility (CSR) came into force on January 22.
“These rules may be called the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021,” a gazetted order released by the Ministry of Corporate Affairs (MCA) of the Government of India stated.
As per the new provisions, every entity that intends to undertake any CSR activity will have to register itself with the Central Government by filing the form CSR-1 electronically with the Registrar of Companies, with effect from April 1, 2021. “Form CSR-1 shall be signed and submitted electronically by the entity and shall be verified digitally… On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically,” MCA added.
Besides this, companies undertaking CSR activities will have to share:
Impact Assessment for big CSR projects
Carry forward and set off of CSR expenditure
Annual action plan for CSR by Board every year in addition to CSR policy
Tweaks in reporting formats of Board Report
Mandatory disclosure of CSR projects and activities on company website
Capital Asset acquisition and its holding restricted to three bodies broadly
Transfer of unspent amount to government notified fund
Companies have been allowed to set the excess amount spent under CSR up to three succeeding financial years.
Non-compliance with CSR provisions has been decriminalised by shifting such offences to penalty regime
To enhance transparency, the ministry has mandated that firms hired as implementing agencies of CSR projects, such as trusts or societies, should get registered with the ministry’s MCA-21 portal which will generate a CSR registration number, the deadline for which was April 1, 2021.
Further, while international organisations cannot act as implementing agencies, they can be hired to design, monitor and evaluate CSR projects, which the official said would bring in international best practices into the sector.
Non-compliance with these rules has been decriminalised, with the punishment shifted to a penalty. It is balanced because decriminalisation has been balanced with improved disclosures.
In the event of the company failing to spend the earmarked two percent of net profits towards CSR, it will “have to specify the reasons for not spending the amount” and, unless the unspent amount relates to any ongoing project, transfer it to a government notified fund. Sign up for our exclusive newsletters.
Companies “may also 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,” MCA stated in the order.
It added, “Any surplus arising out of the CSR activities shall not form part of the business profit and shall 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 of the company within six months of the expiry of the financial year.”
Companies having a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during the last three fiscals, have to spend at least 2% of the average net profits made during those years on CSR.
Regarding the impact assessment, companies with an average CSR obligation exceeding Rs 10 crore in the three preceding fiscals will have to employ an independent agency to assess the CSR impact.
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