Every company having –
Net worth of rupees five hundred crore or more (500 Cr) or
Turnover of rupees one thousand crore or more (100Cr) or
Net Profit (as calculated in Section 198) of rupees five crore or more during (5cr)
the immediately preceding financial year (2019-20) shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years.
Important amendment applicable from FY 2020-21 –
Until the PY 2019-20, the companies which didn’t spend the prescribed percentage of profits are required to disclose the same in Board’s Report. Due to such lenient rule non compliance was found to a large extent. Even large corporates such as TCS, Airtel, ICICI Bank did not spend the prescribed percentage and disclosed the same in Board’s Report.
Amendments were made in the provisions of CSR with effect from FY 20-21 and now CSR is a Mandatory provision that is to be complied by applicable companies.
Following are the 10 Important points that merit consideration –
- CSR Committee – Where the amount of CSR to be spent by the Company does not exceed 50 lakh, the requirement of CSR Committee is not applicable and the functions of CSR Committee shall be discharged by Board of Directors.
- PM Cares Fund – Contribution to PM Cares Fund shall qualify as CSR Expenditure
- Impact Assessment – Impact assessment is mandatory for companies with a CSR budget of INR 10 crore or more in the three immediately preceding financial year for projects having outlay of INR 1 crore or more. These impact assessments must be undertaken by an independent agency.
- Unspent CSR (Ongoing Project) – Unspent CSR Amount has to be categorized into CSR for Ongoing Project/Other. If CSR Amount pertains to an Ongoing Project then such amount has to be transferred to a separate bank account within 30 days i.e (30.04.2021) from the end of F.Y. And the amount transferred has to be utilized within 3 years from the date of transfer. If company fails to spend the amount within 3 years the unspent amount in the bank a/c has to be transferred to fund Specified in Schedule VII.
- Unspent CSR (Other than Ongoing Project) – If the unspent CSR pertains to other than Ongoing Project then the same has to be transferred to fund specified in Schedule VII within 6 months from the end of FY (30/09/2021). Unspent amount for the Financial year 2020-21onwards shall be transferred to the fund specified in Schedule VII within six months of the expiry of the said financial year, unless the same pertains to any ongoing project. However, if the Company has created a provision for unspent CSR obligation for the financial years 2014-15, 2015,-16, 2016- 17, 2017-18, 2018-19 and 2019-20, and if such provision remains outstanding as on 31st March, 2021, such amount should be transferred to separate bank account or Fund specified in Schedule VII, as the case may be
- Ongoing Project – A multi-year project undertaken by a company in fulfilment of its CSR obligation having timelines not exceeding three years excluding the financial year in which it was commenced and shall include such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the board based on reasonable justification. Such ongoing project may or may not involve capital assets or development of any other infrastructure.
- Surplus – Surplus from CSR projects may be generated in various forms, for e.g. interest on temporarily parked funds, revenue received from the completed CSR projects, etc. The said surplus arising out of CSR activities has to be utilised for CSR activities only. Such expenditure can’t be set off against future CSR expenditure.
- Excess Amount – If a Company spends an amount in excess of requirement provided, such excess amount may be set off against the CSR Obligation for the immediately succeeding three financial years subject to a board resolution to that effect. While the excess amount spent, if any against the prescribed CSR dues of the FY ending 31st March, 2021 may be carried forward for being set off during next three FYs, the said carry forward shall not be allowed for excess amounts spent, if any during any previous years (2019-20, 2017-18 ,2016-17)
- Provision for Unspent Liability – After going through the point no 4 & 5, it is clear that irrespective of the CSR Policy/Action Plan-CSR obligation for the year has to be discharged either through transferring to a separate bank A/c or to a Fund. And hence Provision has to be created for the Unspent Amount as per IND AS 37/AS 29. Such provision has to be classified as Current Liability.
- Asset for Excess Amount – As discussed in point no 8, as the excess spent amount can be utilized for the succeeding three years, the same has to be recognized as Prepaid Asset in the Books of A/c’s. And regarding classification of Current / Non-Current the guidelines as given under Schedule III apply.