By Samhita Social Ventures
February 23, 2021
Read Time: 10 mins
The Ministry of Corporate Affairs, on 22nd January 2021, updated the Companies Corporate Social Responsibility Rules. These CSR law amendments bring several significant changes to the national CSR policy including an increased focus on impact assessment, decriminalisation of non-compliance, greater inclusion of international organizations, and provisions altering the guidelines for management of excess funds and surplus expenditures.
Here are the answers to some frequently asked questions (FAQ) about the CSR Amendment Rules 2021:
According to the latest amendment, the following expenditure will now be included in the list of CSR activities:
According to the latest amendment, the following expenditure will NOT be included in the list of CSR activities:
A company’s CSR Policy needs to mandatorily include:
Under the new rules, “Administrative Overheads” will only include expenses directly incurred by the company on “ general management & administration” of CSR functions.
Therefore, the expenses incurred by the company on designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project will not be included as part of the administrative overheads but as a CSR expenditure.
Also, the board shall ensure that the administrative overheads shall not exceed five percent of total CSR expenditure of the company for the financial year.
A significant departure from the erstwhile CSR policy, non-compliance to the CSR rules and obligations will no longer be treated as a criminal offence. These will now be treated as civil wrongs.
The 2021 CSR amendment mandates that every company must disclose the following:
Impact assessment is only mandatory for companies with CSR obligations of INR10 crore or more of any and all projects with outlays of INR1 crore or more. These Impact assessments must be undertaken by an independent agency.
A company may engage International Organisations for designing, monitoring and evaluation of the CSR projects and for capacity building of their own personnel for CSR.
“International organization” means an organisation notified by the Central Government as an international organization under section 3 of the United Nations (Privileges and Immunities) Act, 1947.
Any surplus income being generated through a company’s CSR activities can not form part of the company’s profit. The surplus shall be reinvested into the same project or shall be transferred to the Unspent CSR Account.
Any CSR expenditure that exceeds the required amount can be carried forward to the next three years.
CSR funds may be spent on creating or acquiring capital assets. Although, these capital assets can not be held by the company. They must be held by any one of the following entities:
A new concept of an “ongoing project” has been added to the rules. ‘Ongoing Project’ means a multi-year project undertaken by a Company in fulfilment of its CSR obligation having timelines not exceeding three years. These can include projects that were initially not multi-year projects but were extended based on reasonable justification.
A Utilization Certificate must now be presented by the CFO to the Board, certifying that all the funds allocated by the Board have been utilized in a manner approved by the board.