Friday, January 22, 2021

Amendment in CSR Provisions 2021

The Companies (Corporate Social Responsibility Policy) Rules 2014 have been amended by the Amendment Rules 2021 through a Notification to that effect dated 22-Jan-2021.

A few highlights from the Notification are reproduced below with a link to the detailed document.

Applicability of CSR Provisions (No Change)

CSR provisions of The Companies Act, 2013 are applicable to companies registered under The Companies Act, which satisfy any of the following conditions in any of the three preceding financial years.

a) Net Worth of Rs. 500 crore, or more; or
b) Turnover of Rs. 1000 crore, or more; or
c) Net profit of Rs. 5 crore, or more

Filing of Form CSR-1 by Not-for-Profit/Charitable Institutions, Trusts, Societies and Companies

With effect from 01-Apr-2021, every entity that carries out CSR activities shall register itself with the Central Government through an e-Form CSR-1. This requirement shall not affect CSR projects or programs approved prior to 01-Apr-2021.

The following entities would require such registration if they wish to be eligible to undertake CSR activities for companies.

a) Company established under section 8 of the Companies Act, 2013 with section 12A and section 80G registrations under the Income Tax Act, 1961.

b) Registered Public Trust with section 12A and section 80G registrations under the Income Tax Act, 1961.

c) Registered Society with section 12A and section 80G registrations under the Income Tax Act, 1961.

d) Company established under section 8 of the Companies Act, 2013 or Registered Trust or Registered Society established by the Central Government or State Government.

e) Entity established under an Act of Parliament or State Legislature.

The form seeks the following information:

(i) Type of Entity
(ii) Registration Number
(iii) Date of Incorporation
(iv) Address
(v) Email (verified through OTP)
(vi) PAN (copy to be attached as well)
(vii) Details of Directors, Board of Trustees with Designation, DIN/PAN and Email ID
(viii) Copy of Certificate of Registration

Format for Annual Report on CSR Activities to be included in the Board's Report for the Financial Year commencing on or after 1st April 2020

The Director's Report should have an annexure giving details of the CSR Activities undertaken during the year. The format of the report is given in the Notification linked below, and the contents are briefly listed as under.

1. Brief outline of the CSR Policy

2. Composition of the CSR Committee

3. Web-link where Composition of CSR committee, CSR Policy and CSR projects approved by the Board are disclosed on the website of the company.

4. Amount available for set-off and required to be set-off

5. Average net profit of the company as per section 135(5) and 2% thereof

6. Surplus arising out of CSR activities

7. CSR amount spent or unspent during the year with details of transfer of unspent CSR amount as per section 135(6)

8. Details of CSR amount spent against ongoing projects

9. Details of CSR amount spent against other than ongoing projects.

10. Amount spent in Administrative Overheads

11. Amount spent on Impact Assessment, if applicable

12. Excess amount for set off, if any

13. Details of unspent CSR amount for the preceding three financial years.

14. Details of CSR amount spent in the financial year for ongoing projects of the preceding financial years.

15. Reasons if the company has failed to spend 2% of the average net profit as per section 135(5).

Other Notes

Transfer of unspent CSR amount: Until a fund is specified in Schedule VII , the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act.

CSR Policy shall mean 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 formulation of the annual action plan.

Administrative Overheads: The Board of Directors to ensure that the administrative overheads shall not exceed 5% of total CSR expenditure of the company for the FY, and adds that any surplus arising out of CSR activities shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be transferred to the unspent CSR Account.

Exclusion of Sponsorship Activities by a company for the purpose of deriving marketing benefits from CSR activities.

The Board has the responsibility to ensure that funds are utilized for approved purposes only and a certification on the same by the CFO or any other personnel responsible for financial management.

Any excess amount spent shall be set-off within immediate 3 succeeding financial years subject to the conditions. The CSR amount can also be spent for creation/acquisition of capital asset to be held in the manner provided.

Companies with average CSR obligation of minimum Rs. 10 crores in 3 immediately preceding years to undertake impact assessment through an independent agency for projects of Rs. 1 crore or more which have been completed not less than 1 year before impact study.