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.
Here are a few significant highlights which a company undertaking CSR must take a note:
1. Compulsory registration with MCA by filing Form CSR-1 electronically
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. It is a one-time registration in a simple single-page form where details of the members, PAN number etc. has to be provided which can help us identify the implementing agencies on the MCA21 portal.
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.
2. Entities undertaking CSR activity to Share information
Every entity undertaking CSR activity has to share the details related to 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, and Transfer of unspent amount to government notified fund.
3. 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 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.
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.
4. Entities with CSR obligation of Rs 10 crore or more to hire an independent agency
The amended rules require that any corporation with a CSR obligation of Rs 10 crore or more for the three preceding financial years would be required to hire an independent agency to conduct impact assessment of all of their project with outlays of Rs 1 crore or more. Companies will be allowed to count 5% of the CSR expenditure for the year up to Rs 50 lakh on impact assessment towards CSR expenditure.
5. Activities included in CSR
The activities undertaken by entities in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in Companies (CSR Policy) Amendment Rules, 2021.
Activities undertaken in pursuance of the normal course of business of the 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.
6. 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, and activities carried out for fulfilment of any other statutory obligations under any law in force in India, are not included in the CSR Activities.
7. CSR 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 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.
Article Credit: taxscan