The CSR activities of Indian companies have to be in line with the provisions of Section 135 with Schedule VII to the Companies Act, 2013. The act aims to align CSR initiatives of companies (both private as well as public and also government undertakings) thrust on creating value in the lives of the communities around its areas of business and manufacturing operations. The practice of CSR is not new to companies in India. However, what this Act does is bring more companies into the fold.
What’s going to change from new Financial Year 2021-22 (w.e.f. April 1, 2021)?
1) From 1 April 2021, Entities carrying out CSR activities are required to file with the Central government, an e-form namely CSR -1 to generate Unique registration number. Experts may be aware that earlier, no requirement of mandatory registration was required to be taken by entities carrying out CSR activities.
2) In order to ensure transparency, The Board of Directors of the Company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access. Earlier, no such mandatory requirement to disclose the projects on the website existed.
3) Every company having average CSR obligation of ten crore rupees or more in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study. Till now, there was no requirement of impact assessment by any independent agencies whatsoever.
4) Limit of administrative expenditure in overall outlay was not defined till now and this was a big bone of contention as organisations loved to spend a large chunk of their CSR spends onto their employees to enhance their moral. As per the new amendments, the administrative overheads shall not exceed 5% of total CSR expenditure of the company for the financial year. It is yet not clear though if the salaries of the staff that is recruited to undertake CSR activities within an organisation can be booked in this 5% or not.
5) The new rules require companies to transfer any capital asset created or acquired by using CSR money to the beneficiaries of the project, charitable company or a public authority. If such capital expenditure was incurred as part of CSR in the past, the assets need to be transferred within six months. This deadline can be extended by a maximum of 90 days with the approval of the board after providing reasonable justification.
6) Previously, carry forward or set off in case expenditure more than 2% in any financial year was not allowed. The new rules now allows carry forward and set off such excess amount against the requirement to spend for immediately succeeding three financial years.
7) And finally, the unspent amount that was not required to be transferred to any fund; is now required to be transferred to a special fund as specified in Schedule VII, within a period of six months of the expiry of the financial year. The companies will still have to specify the reasons for not spending the amount for CSR. The special account to be opened by the company in that behalf for that financial year in any scheduled bank will be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy. If a company contravenes the provisions of sub-section (5) or sub-section (6), the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to to five lakh rupees, or with both.
If you need any help with establishment/ management of CSR at your organisation or the impact assessment as in point 3 above, do get in touch with me.