Companies (CSR Policy) Amendment Rules, 2021

The Ministry of Corporate Affairs vide Notification No. G.S.R. 40(E) dated 22nd January, 2021 issued the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. The same has been made effective from the date of their publication in the Official Gazette i.e. 22nd January, 2021.

Key Indicators introrduced by CSR Amendment Rules, 2021 are as follows:

– Requirement for registration with Central Government

As per recent amendments rules, every Company who intends to undertake CSR activity  need to register itself with the Central Government by filing the E-Form CSR-1 with the Registrar with effect from 01st April, 2021.

On Submission of the Form CSR-1, a unique CSR Registration Number will be generated by the system automatically.

– Key Definitions

i) Administrative Overheads:

The latest amendment introduces definition on ‘Admisinistrative Overheads’. This 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.

The Company shall ensure that such admisinistrative overheads shall not exceed 5% of the Total CSR Expenditure of the Company for the financial year.

ii) CSR Policy:

CSR Policy means a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as the formulation of the annual action plan

iii) International Organization

International Organization defined as an organization notified by the Central Government as an international organization under section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply.

iv) Ongoing Project

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.

As per definition, Ongoing project = Project already commenced + multi-year project whose duration is not less than one year but not exceeding 3 years 

v) Public Authority

“Public Authority” means ‘Public Authority’ as defined in clause (h) of section 2 of the Right to Information Act, 2005.

vi) CSR Committee

CSR Committee means the Corporate Social Responsibility Committee of the Board referred to section 135 of the Companies Act.

vii) CSR Activities:

“Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these rules, but shall not include the following, namely:-

i. 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

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.

Rule 5: CSR Committee

Pursuant to the New Rules, If a Company CSR spend is less than Rs. 50,00,000 (Rupees Fifty Lakhs only), then such Company is not required to create a CSR Committee. The board of directors will perform the functions of the CSR Committee in such a case.

The CSR Committee has been given the task of formulating and recommending to the Board an annual action plan in pursuance of its CSR policy. The aforesaid plan shall include the following:

i. list of CSR projects to be undertaken under Schedule VII of the Companies Act;

ii. manner of execution of such projects;

iii. modalities of utilisation of funds and implementation schedules;

iv. monitoring and reporting mechanism for the projects; and

v. details of need and impact assessment, if any, for the projects undertaken.

The Board has also been given the power to alter the annual action plan in accordance with the CSR Committee’s recommendation based on reasonable justification.

– Rule 8: CSR Reporting requirements

a) The Board report shall additionally include a Report on CSR along with the Board Report containing prescribed details.

b) Impact Assessment is mandated for companies having average CSR Obligation of Rs. 10 crores Rupees or more in the three immediately preceding Financial Years shall undertake impact assessment of their CSR project outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study.

– Rule 9: Website Disclosure

The composition of CSR Committee has to be displayed on the website of the Company if any, including the Policy and Projects approved by the Board.

– Rule 10: Transfer of unspent CSR funds

The 2021 Amendment has introduced a New Rule 10 requiring Companies to transfer the unspent CSR amount in below manner:

a) If unspent amount not relating to an ongoing project

i. The Board shall, in its report, shall specify the reasons for not spending the amount; and

ii. unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year

IMPACT: Amount remaining unspent for the F.Y 2020-21 shall be transferred to Schedule VII fund latest by September 30, 2021.

b) If unspent amount relating to an ongoing project

i. be transferred within a period of thirty days The amount from the end of the financial year to a special account to be opened by the Company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account (UCSRA).

IMPACT: Amount remaining unspent for the F.Y 2020-21 shall be transferred to any scheduled bank to be called the Unspent Corporate Social Responsibility Account (UCSRA) latest by April 30, 2021.