The powerful Ministry of Corporate Affairs (MCA) has announced a slew of amendments to CSR provisions that will ensure stricter compliance by the companies and streamlined implementation for agencies. They will also ensure that companies will have a harder time wiggling out of compliance and actual spending year on year. From the activities that are off-limits for being eligible as Corporate Social Responsibility to the concept of an ‘ongoing project’ to dealing with unspent CSR funds, there is a lot to unpack.
So, here is an FAQ on the latest amendments to the Companies Act 2013 and the Companies (Corporate Social Responsibility Policy) Rules 2014.
FAQ on the latest amendments
1. What does NOT constitute CSR?
According to the amended definition, the following activities will NOT be counted as CSR:
– direct or indirect contributions to any political party.
– activities undertaken in the normal course of business;
– those undertaken to meet statutory requirements;
– those which benefit employees;
– sponsorship that derives marketing benefits for a company’s products;
– activities outside India (barring training in Indian sports)
2. What is the new definition of Administrative Overheads?
The amended definition of ‘Administrative Overheads’ is expenses incurred by a company for general management and administration of CSR functions. These expenses exclude expenses directly incurred for designing, implementation, monitoring, and evaluation of a particular CSR project. Administrative Overheads can’t exceed 5% of the company’s CSR spend in one financial year.
3. What does CSR Policy mean?
The new definition of ‘CSR Policy’ means a statement containing the approach and direction given by the company’s Board, which takes the recommendations of the CSR committee into account. This includes guiding principles for the selection, implementation and monitoring of activities, as well as formulation of the annual action plan.
4. What does ‘Ongoing Project’ mean?
The Ministry has introduced the new term ‘Ongoing Project’ in CSR law. ‘Ongoing Project’ means a multi-year project undertaken by a company in fulfilment of its CSR obligation with timelines not exceeding three years. An Ongoing Project can include programmes that were initially not intended to be multi-year projects, but were extended based on a reasonable enough justification.
5. New amendment on CSR committees
For companies whose CSR expenditure does not exceed Rs. 5 million, the MCA has removed the requirement to form a CSR committee. The Board of directors in such companies can fulfill the duties of the CSR committee.
6. Amendments in implementation of CSR activities
As of 1 April 2021, entities undertaking CSR activities must register with the MCA by filing a CSR-1 Form. A company may involve international organisations to design, monitor and evaluate CSR programmes as per its CSR Policy and to build personnel capacity for corporate social responsibility.
7. What is a Utilization Certificate?
A Utilization Certificate confirms that all the funds allocated by the Board of directors have been utilized in an approved manner. It needs to be presented to the Board by the CFO (Chief Financial Officer).
8. What are the new rules on reporting?
Impact Assessment is compulsory for every company having average CSR obligation of Rs. 10 crores or more – with reference to subsection (5) of section 135 of the Act – in the three preceding financial years, of CSR projects having outlays of Rs. 1 crore or more. An independent agency must be hired for impact assessment, not less than one year before undertaking the impact study. The impact assessment reports are to be presented before the Board and annexed to the annual report on CSR.
9. What happens to surplus CSR funds?
Any surplus arising from a company’s CSR activities can be used for CSR purposes only. It cannot form part of the company’s business profits. Companies can offset any excess CSR expenditure against the amount required to be spent on CSR activities in the immediately succeeding three financial years by passing a Board resolution to this effect.
10. Where is the unspent amount transferred?
Companies must transfer any unspent amount relating to an ongoing CSR project to a special account called ‘Unspent CSR Account’ in any scheduled bank. The amount transferred to this account must be spent on the company’s CSR activities within three financial years from the date of transfer.
Any other unspent CSR amount in a financial year must be transferred to a fund specified in Schedule VII of the Companies Act 2013 within six months of the end of the financial year.