The Ministry of Corporate Affairs ( MCA ) has announced new Corporate Social Responsibility (CSR) rules which shall be known as Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 on 22nd January 2021.
Here are a few significant highlights which a company undertaking CSR must take note of:
1. Compulsory registration with MCA by filing Form CSR-1
Every Company established under section 8, Registered Trust and Registered Society having charitable objects, shall register itself with the Central Government by filing the e-form CSR-1 with the ROC w.e.f. 01 April 2021.
It shall be signed and submitted electronically by the entity and shall be verified digitally by a Chartered Accountant or a Cost Accountant or a Company Secretary in practice. On submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically.
In the event of failure to file CSR-1, they shall not be eligible to continue as the Implementing Agency, meaning, they will not be eligible to get any CSR Funding.
2. Activities Included in CSR
Activities that can be considered as CSR Activities can include Activities undertaken in the normal course of business of the company engaged in research and development activity of new vaccine, drugs and medical devices 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.
3. Activities Excluded from CSR
The activities undertaken in pursuance of normal course of business of the company,
Any activity undertaken by the company outside India,
Contribution of any amount directly or indirectly to any political party under section 182 of the Act;
Activities benefiting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 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, are not included in the CSR Activities.
4. Changes in CSR Reporting
The Rules have altered the CSR reporting mechanism to include an annual report on CSR by the Board.
Companies having an average CSR obligation of Rupees Ten Crore or more are required to undertake an impact assessment for their CSR projects via an independent agency.
Further, a company is permitted to book expenditure arising from undertaking an impact assessment up to Rupees Fifty Lakh or five per cent of the total CSR expenditure (whichever amount to less)
5. Entities to specify the reasons on failure to spend the earmarked 2% of net profits towards CSR
All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2% of their average profits of the previous three years on CSR activities every year.
As per the new rules, if the company fails to spend the earmarked two per cent of net profits towards CSR, it will have to specify the reasons for not spending the amount , unless the unspent amount relates to any ongoing project.
Companies are now allowed to set off CSR expenditure above the required two per cent expenditure in any financial year against the required expenditure for up to next three financial years . However, the excess amount available for set-off shall not include the surplus arising out of the CSR activities if any.
The amended Rules also allows companies to spend the CSR amount for creation of capital asset or acquisition of one, to be held by either the beneficiaries of the CSR project such as entities, collectives or self-help groups; a public authority; or a company incorporated under Section 8 of the Act or a registered public trust, registered society with a charitable objective.
6. CSR Admin Expenditure
The board shall ensure that the administrative overheads shall not exceed 5% of the total CSR expenditure of the company for the financial year. Any surplus arising out of the CSR activities shall not form part of the business profit and should be ploughed back into the same project or transferred to the Unspent CSR Account within six months of the expiry of the financial year.
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