It has been seven years since amendment to the Companies Rules, 2014 that made mandatory Corporate Social Responsibility spending for certain size of the companies in India. There have been multiple short amendments in the past.
The Ministry of Corporate Affairs has amended the Companies Rules, 2014 through a notification dated January 22, 2021. The amendment is specific to Corporate Social Responsibility Policy called the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. The Amendment is significant in terms providing clarity, guidance and reporting. The amendment was due ever since March 2020 as draft rules were open for public inputs and here’s a summary of Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 for quick reading:
Rule 2, Definitions: Redefines ‘Administrative Overheads’; Addition and meaning of, ‘International Organisation’; Clarity on ‘Ongoing Project’ that means a multi-year project.
Rule 4, CSR implementation: Addition of implementation mode by a section 8 Company or Trust or Society by the company either singly or along with any other company; Registration of the project details with the Central Government by filing CSR-1 Form to generate a unique registration number; Inclusion of international organisations for designing, monitoring and evaluation of the CSR projects.
Rule 5, CSR Committees: Inclusion of need and impact assessment for the projects undertaken by the company.
Rule 7, CSR Expenditure: Retains Administrative Overheads not to exceed five percent as earlier; Any surplus arising out of the CSR activities transferred to the Unspent CSR Account and spent in pursuance of CSR policy; Clarity on excess spent stating that such amount can be set off against the requirement up to immediate succeeding three financial years; A significant clarity on creation and acquisition of a capital asset that has to held with implementation agency, or collective of beneficiaries or to a public authority.
Rule 8, CSR Reporting: Significant enhancement with respect to filing of the Board’s Annual Report on CSR with addition of Impact Assessment Reports as annexure; A company with average CSR ten crore rupees or more to undertake impact assessment; A further note on expenditure of the Impact Assessment not to exceed five percent of the total CSR expenditure or fifty lakh rupees.
Rule 9, Website Disclosure: A further note to add more to company’s website about the CSR Committee, CSR Policy and Projects approved by the Board.
Rules 10, Unpsent CSR: It details about the transfer of unspent CSR by the company to any fund included in schedule VII of the Act.
It is heartening to note that the various rules of the Amendment that certainly strengthen CSR ecosystem. The Amendment is progressive and in the right direction clearing air around ambiguities and simplifies the norms. However, given the detailing on reporting, addition of disclosure templates and registration of projects means increased administrative hassles.