The Ministry of Corporate Affairs (MCA), amended the provisions of Companies (Corporate Social Responsibility Policy) Rules 2014 to bring more transparency and increase accountability among corporates. The rules are now known as Companies (Corporate Social Responsibility Policy) Amendment Rules 2021 and have come into effect from 22nd Jan 2021, i.e. the date of its publication in the Official Gazette.

Let’s discuss the Companies (CSR Policy) Amendment Rules 2021 notified by MCA.

Concept of Corporate Social Responsibility

Corporate social responsibility (CSR) means that a business is socially accountable to itself, its stakeholders, and the public. By implementing CSR policies a business becomes conscious of the kind of impact they leave on society, which includes economic, social, and environmental aspects.

Through CSR programs companies can benefit society as well as boost their brands. CSR activities can help in boosting employee morale and make both employers and employees connect with the world around them.

Sec 135 of the Companies Act 2013 deals with the CSR activities and the provisions are based on the globally accepted principles of COREX i.e. Comply or Explain.

Provisions of Companies (CSR Policy) Amendment Rules 2021

The key provisions of the Companies (CSR Policy) Amendment Rules 2021 are as follows:
• Rule 2: Definitions;
• Rule 4: CSR Implementation;
• Rule 5: CSR Committees;
• Rule 7: CSR Expenditure;
• Rule 8: CSR Reporting;
• Rule 9: Website Disclosure;
• Rule 10: Transfer of Unspent CSR

The summary of the changes made in Companies (CSR Policy) Amendment Rules 2021 are as follows:

Compulsory Registration of CSR Entity

From 1st April 2021, any business that wishes to start CSR Activity needs to get registered by filing form CSR 1 duly signed and verified by a Practicing Chartered Accountant, Company Secretary, or Cost Accountant in practice. A unique CSR Registration Number is generated, that will assist the business to identify other CSR activities run by other companies enhancing the transparency in the industry.

Support of International Organizations

Sub-rule (3) of Rule (4) of the Companies (CSR Policy) Amendment Rules 2021 states that a business entity can appoint international organizations for designing, monitoring, and evaluating the CSR programs and projects.

Collaboration with Other Companies

Sub-rule (4) of Rule (4) of the Companies (CSR Policy) Amendment Rules 2021 states that different companies can collaborate to undertake a single project as long as they can file separate reports of the activities they have done as per the rules passed.

Certification by CFO

As per the sub-rule (4) of Rule (4) of the Companies (CSR Policy) Amendment Rules 2021, CFO must sign the certificate mentioning that theta the funds allocated for CSR have been utilized in CSR activities only.

Formulation of the Annual Action Plan (Rule 5)

Rule (5) of the Companies (CSR Policy) Amendment Rules 2021, states the duties of the CSR Committee of the company. This Committee should formulate the action plan and recommend the same to the Board of Directors as per the CSR Policy which must include the following details:

• List of the approved CSR project, based on schedule VII
• The methods and working for executing these CSR projects
• The modes of utilizing the allocated funds
• The monitoring and reporting mechanism for the CSR projects;
• Details of the need and impact of the CSR projects

The Board of Directors can modify any of the actionable plans during the financial year through the same recommended by the committee with reasonable justification.

Omission of (Rule 6)

Rule 6 of the Companies (Corporate Social Responsibility Policy) Rules 2014, has been completed omitted by the MCA in the Companies (CSR Policy) Amendment Rules 2021.

CSR Expenses (Rule 7)

• Administrative overheads (AO) should not exceed 5% of total CSR expenditure in the financial year.

• Surplus arising out of the CSR activities –

1) cannot be added business profit of the company,
2) cannot be reallocated into the same project and
3) can only be transferred to the Unspent CSR account of the annual action plan

• Surplus arising out of the CSR activities should be transferred to the fund as specified in schedule VII within 6 Months of the completion of the financial year.

• If a company spends an extra amount than as mentioned in subsection 135(5), such amount may be set off against three immediate succeeding financial years subject to

1) the excess amount spent should be set off against surplus available.
2) the Board of the company shall pass a resolution to that effect.

Acquiring or Creating an Asset

If a company wants to acquire or create a capital asset with CSR money, the same is possible with the following conditions:
• Section 8 Company Registration
• Trust Registration
• Society Registration
• When the beneficiaries of the CSR project are SHGs (Self Help Groups)
• A Public Authority

Impact Assessment of CSR

Clause (A) of the sub-rule (3) of Rule 8 of the Companies (CSR Policy) Amendment Rules 2021, states that if the obligation for CSR is Rs 10 crores or more the company needs to undertake an impact assessment conducted by an independent agency.

Display of CSR Activities on Website

The company must display the following details on the official website:
• Composition of the CSR Committee
• CSR Plans and Policy approved by the BOD
• CSR Policy