Ministry of Corporate Affairs made an announcement vide General Circular no. 14/2021 and E-file no.CSR-05/01/2021-CSR-MCA dated 25th August, 2021 with an aim to bring in greater transparency and clarity. The Ministry has notified the amendments in Section 135 of the Act as well in the CSR Rules on 22nd January 2021 with an aim to strengthen the CSR ecosystem, by improving disclosures and by simplifying compliances. In response to such amendments, Ministry has received several references and representations from stakeholders seeking clarifications on the various issues related to CSR.
A number of significant developments have taken place in CSR related provisions and therefore a set of FAQs along with response of the Ministry is provided herewith for better understanding and facilitating effective implementation of CSR
Acompanysatisfyinganyofthefollowingcriteriaduring theimmediatelyprecedingfinancialyear isrequired to comply with CSR provisions specified undersection 135(1) of the Companies Act, 2013 read with theCompanies(CSRPolicy)Rules, 2014made thereunder: networthofrupeesfivehundredcroreormore, orturnoverofrupeesonethousand croreor more,ornetprofit ofrupeesfivecroreor more.
1.2
Whetheraholdingorsubsidiaryofacompanyfulfilling the criteria undersection135(1)hastocomply with the provisionsof section 135, even if theholding or subsidiary itselfdoesnotfulfilthecriteria?
No, the compliance with CSR requirements is specific toeachcompany.Aholdingorsubsidiaryofacompanyisnotrequired to comply with the CSR provisions unless theholdingorsubsidiaryitselffulfilstheeligibilitycriteriaprescribedundersection135(1)stated above. Example:CompanyAiscoveredunderthecriteriamentionedinsection135(1).CompanyBisholdingcompanyof company A. If Company B by itself does not satisfy any ofthecriteriamentionedinsection135(1),CompanyBisnotrequiredtocomplywiththeprovisionsofsection135.
WhetherCSRprovisionsapplytoacompanythathasnotcompletedtheperiodofthreefinancialyears since itsincorporation?
Yes. If the company has not completed three financial years since its incorporation, but it satisfies any of the criteria mentioned in section 135(1), the CSR provisions including spending of at least two per cent of the average net profits made during immediately preceding financial year(s) are applicable. Example: Company A is incorporated during FY 2018-19, and as per eligibility criteria the company is covered under section 135(1) for FY 2020-21. The CSR spending obligation under section 135(5) for Company A would be at least two per cent of the average net profits of the company made during FY 2018-19 and FY 2019-20.
2.0
CSRFramework
WhatisthecompositionoftheCSRCommittee?
ThecompositionoftheCSRCommitteeforvariouscategoriesofcompaniesisas under: Where the amount required to be spent by a company on CSR does not exceed fifty lakh rupees, the requirement for constitution of the CSR Committee is not mandatory and the functions of the CSR Committee, in such cases, shall be discharged by the Board of Directors of the company. Listedcompanies Threeormoredirectors,outofwhichatleastoneshallbean independentdirector. Unlisted publiccompanies Three or more directors, out ofwhich at least one shall be anindependentdirector. However,ifthereisnorequirementofhavinganindependentdirectorinthecompany,twoormoredirectors. Privatecompanies Twoormoredirectors.Noindependentdirectorsarerequiredasmentionedintheprovisoundersection135(1). Foreigncompany Atleasttwopersonsoutofwhich: oneshallbeasspecifiedunder clause (d) of sub-section(1)of section380oftheAct,andanothershallbenominatedbytheforeigncompany. (Referrule5(1)oftheCompanies (CSR Policy) Rules,2014)
2.2
WhatarethefunctionsoftheCSRCommittee?
TheCorporateSocialResponsibilityCommitteeshall— formulateandrecommendtheCSRpolicytotheBoard;recommend the amount of expenditure to be incurredonCSRactivities;monitor the CSR policy of the company from time totime;andformulate and recommend to the Board, an annualaction plan in pursuance of its CSR policy, which shallinclude the items as mentioned inrule 5(2) of theCompanies(CSRPolicy)Rules,2014. For companies covered under Section 135(9) of the Actand not required to have CSR Committee, these functionsshallbecarriedoutby theBoarditself.
2.3
What are theresponsibilitiesoftheBoardinrelationtotheCSRprovisions?
CSR is a Board-driven process. The responsibilities of theBoard of a CSR-eligible company, inter-alia, include thefollowing— approvetheCSRpolicy;disclose contents of such policy in its report and alsoplaceitonthecompany’swebsite,ifany;ensurethattheactivitiesincludedintheCSRpolicyareundertakenbythecompany;ensure that the company spends, in every financialyear, at least two per cent of the average net profits ofthecompanymadeduringthethreeimmediatelyprecedingfinancialyears;satisfy itself regarding the utilisation of the disbursedCSRfunds; andif the company fails to spend at least two per cent oftheaveragenetprofitsofthecompany,theBoardshall,initsreportmadeunderclause(o)ofsub-section(3)ofsection 134, specify the reasons for not spending theamountandtransfertheunspentCSRamountasper provisionsofsections135(5)and135(6)oftheAct.
2.4
WhatistheroleoftheGovernmentintheapproval and Implementation of the CSRprogrammes/projectsof acompany?
Provisionsofsection135,readwithScheduleVIIoftheActandCompanies(CSRPolicy)Rules,2014providethebroadframeworkwithinwhichtheeligiblecompaniesarerequiredtoformulatetheirCSRpoliciesincludingactivitiesto be undertaken and implementation of the same. CSR isa board-driven process, and the Board of the company isempowered to plan, approve, execute, and monitor theCSRactivitiesofthecompanybasedontherecommendationofitsCSR Committee. The Government has no direct role in the approval andimplementation of the CSR programmes /projects of acompany.
2.5
What are the mechanismsformonitoringtheCSRprocess?
CSRisaBoard-drivenprocess,andtheBoardofthecompanyisempoweredtoplan,decide,execute,andmonitor the CSR activities of the company based on therecommendationofitsCSRCommittee.TheCSRarchitectureisdisclosure-basedandCSR-mandatedcompanies are required to file details of CSR activitiesannually in MCA21 registry. Companies are required tomake necessary disclosures in the financial statementsregardingCSRincludingnon-compliance.Theexistinglegalprovisionssuchasmandatorydisclosures,accountability of the CSR Committee and the Board, andprovisions for audit of accounts of the company providesufficientmechanismsformonitoring.
2.6
WhatistheroleoftheGovernment in monitoringcomplianceofCSRprovisionsbycompanies?
TheGovernmentmonitorsthecomplianceofCSRprovisionsthroughthedisclosuresmadebythecompanies in the MCA 21 portal. For any violation of CSRprovisions,actioncanbeinitiatedbytheGovernmentagainst such non-compliant companies as per provisionsoftheCompaniesAct,2013afterdueexaminationofrecords,andfollowingdueprocessoflaw.Non-compliance of CSR provisions has been notified as a civilwrongw.e.f.22nd January,2021.
3.0
CSRExpenditure
3.1
How is average net profitcalculated for the purposeof section 135 of the Act?Whether ‘profit before tax’or ‘profit after tax’ is usedforsuch computation?
The average net profit for the purpose of determining thespendingonCSRactivitiesistobecomputedinaccordance with the provisions of section 198 of the Actand will also be exclusive of the items given under rule2(1)(h)oftheCompanies(CSRPolicy)Rules, 2014.Section 198oftheActspecifiescertainadditions/deletions(adjustments) to be made while calculating the net profitofacompany(mainlyitexcludescapitalpayments/receipts,incometax,set-offofpastlosses).
What is the meaning of theterm ‘administrativeoverheads?Whatisthemaximum permissible limitfor administrativeoverheads?
Administrativeoverheadsaretheexpensesincurredbythecompany for ‘general management and administration’ ofCSR functions. However, the expenses which are directlyincurred for the designing, implementation, monitoring,and evaluation of a particular CSR project or programme,shallnotbeincludedintheadministrativeoverheads. Administrativeoverheadsgenerallycompriseofitemssuchasemployeecosts,utilities,officesupplies,legalexpenses, etc. However, expenses which are attributed tothe project implementation shall be included in projectcostonly. Example: Salary and training for the employees workingintheCSRdivisionofacompany,stationerycost,travellingexpenses,etc.maybecategorisedasadministrativeoverheads. However, salary of school teachers or otherstaff,etc.foreducation-relatedCSRprojectsshallbecoveredundereducation projectcost. Themaximumpermissiblelimitforadministrativeoverheads is five per cent of the total CSR expenditure ofthecompanyforthefinancialyear.
3.3
Are administrativeoverheadsapplicableonlyforexpensesincurredbythe company, or can theybeappliedtoexpensesincurred by theimplementingagencyaswell?
According to rule 2(1)(b) of the Companies (CSR Policy)Rules, 2014, administrative overheads mean the expensesincurred by the company in the general management andadministrationofCSRfunctionsinthecompany.Therefore, expenses incurred by implementing agencieson the management of CSR activities shall not amount toadministrative overheads and cannot be claimed by thecompany.
Surplus refers to income generated from the spend on CSRactivities, e.g., interest income earned by the implementingagencyonfundsprovidedunderCSR,revenuereceivedfromtheCSRprojects,disposal/saleofmaterialsusedinCSRprojects,and othersimilarincomesources. The surplus arising out of CSR activities shall be utilised onlyforCSR purposes.
3.5
Whether contribution to thecorpusofanentityisanadmissibleCSRexpenditure?
Whetherexpensesrelatedto transfer of capital assetas provided under rule 7(4)of Companies (CSR Policy)Rules,2014,willqualifyas admissibleCSRexpenditure?
Yes, the expenses relating to transfer of capital asset suchasstampdutyandregistrationfees,willqualifyasadmissibleCSRexpenditureintheyearofsuchtransfer.
3.7
If a company spends morethantherequirementprovidedundersection135,canthatexcessamount be set off againstthemandatory2%CSRexpenditure in succeedingfinancialyears?
Yes,theexcessamountcanbesetoffagainsttherequired2% CSR expenditure up to the immediately succeedingthreefinancialyearssubjecttocompliancewiththeconditions stipulated under rule 7(3) of the Companies(CSR Policy) Rules, 2014. This position is applicable from22ndJanuary, 2021 and has a prospective effect. Thus, nocarryforwardshallbeallowedfortheexcessamountspent,ifany,infinancialyears priortoFY2020-21.
3.8
If a company cannot takethebenefitofsetoffofexcess amount spent in thepreviousfinancialyearbecauseofnon-applicabilityofCSRprovisions,willtheexcessamountlapse?
Yes, the law states that the excess CSR amount spent canbe carried forward up to immediately succeeding threefinancial years; thus, in case any excess amount is left forsetoff,itwilllapseat theend ofthesaidperiod. Example:InFY2020-21acompanyhadspentRs.2croresin excess. In FY 2021-22, it sets-off Rs. 50 lakhs from suchexcess. However, from FY 2022-23, the company is nolonger subject to CSR provisions under section 135(1). Insuchcase,thecompanymaycontinuetoretaintheremainingexcessCSRofRs.1.50 croresuptoFY2023-24, andthereafterthesameshalllapse.
The first proviso to section 135(5) of the Act provides thatthe company shall give preference to local areas and theareasaroundwhereitoperates.SomeactivitiesinSchedule VII such as welfare activities for war widows, artandculture,andothersimilaractivities,transcendgeographical boundaries and are applicable across thecountry.WiththeadventofInformation&CommunicationTechnology (ICT) and emergence of new age businesseslikee-commercecompanies,process-outsourcingcompanies,andaggregatorcompanies,it is becomingincreasinglydifficulttodeterminethelocalareaofvariousactivities. The spirit of the Act is to ensure that CSR initiatives arealignedwiththenationalprioritiesandenhanceengagement of the corporate sector towards achievingSustainableDevelopment Goals(SDGs). Thus,thepreferencetolocalareaintheActisonlydirectory and not mandatory in nature and companiesneedtobalancelocalareapreferencewithnational priorities.
3.10
Whether CSR expenditure ofa company can be claimedasabusinessexpenditure?
No,theamountspentbyacompanytowardsCSRcannotbeclaimed as business expenditure. Explanation 2 to section37(1)oftheIncomeTaxAct,1961whichwasinsertedthroughtheFinanceAct,2014providesthatanyexpenditureincurredbyanassesseeontheactivitiesrelatingtoCSRreferredtoinsection135oftheCompaniesAct,2013shallnotbedeemedtobeanexpenditureincurredbytheassesseeforthepurposesofthebusinessorprofession.
3.11
WhattaxbenefitscanbeavailedunderCSR?
No specific tax exemptions have been extended to CSRexpenditure.TheFinanceAct,2014alsoclarifiesthatexpenditureonCSRdoesnotformpartofbusinessexpenditure.
3.12
Whethercontributioninkind can be monetized tobeshownasCSRexpenditure?
The requirement comes from section 135(5) that statesthat “The Board of every company shall ensure that itspends…” Therefore, CSR contribution cannot be in kindandmonetized.
No,CSRexpenditurecannotbeincurredonactivitiesbeyond Schedule VII of the Act. The activities undertakeninpursuanceoftheCSRpolicymustberelatabletoScheduleVIIoftheCompaniesAct,2013.TheitemsenlistedinScheduleVIIoftheActarebroad-basedandareintended to cover a wide range of activities. The entries inthesaidScheduleVIImustbeinterpretedliberallytocapturetheessenceofthesubjectsenumeratedinthesaidSchedule.
CSRexpenditurecanbeincurredinmultiplemodes: ‘Activities route’, which is a direct mode wherein acompanyundertakestheCSRprojectsorprogrammes as per Schedule VII of the Act, eitherby itself or by engaging implementing agencies asprescribedinCompanies(CSRPolicy)Rules,2014.‘Contributiontofundsroute’,whichallowsthecontributionstovariousfundsasspecifiedinScheduleVIIoftheAct.Contribution to incubators and R&D projects, asspecifiedinitem(ix)(a)andcontributiontoinstitutes/organisations, engaged in research anddevelopmentactivity,asspecifiedunderitem(ix)(b)ofScheduleVIIofthe Act.
3.15
Whicharethefundsspecified in Schedule VII ofthe Act for the purpose ofCSRcontribution?
ContributionstothefollowingfundsshallbeadmissibleasCSRexpenditure: SwachhBharatKoshCleanGangaFundPrimeMinister’sNationalReliefFund(PMNRF)PrimeMinister’sCitizenAssistanceandReliefin EmergencySituationsFund(PMCARESFund) Any other fund set up by the Central GovernmentandnotifiedbytheMinistryofCorporateAffairs,forsocio-economicdevelopmentandreliefandwelfareofthe ScheduledCastes,theScheduledTribes,otherbackwardclasses,minoritiesandwomen.
3.16
Willcontributiontoanyotherfundsetupforcarryingouttheactivitiesmentioned in Schedule VIIoftheAct,beanadmissibleCSRexpenditure?
No, the Act does not recognise any contribution to anyotherfund,whichisnotspecificallymentionedinScheduleVII,asan admissibleCSRexpenditure.
3.17
Can CSR funds be utilisedtofundGovernmentschemes?
TheobjectiveofCSRprovisionsistoinvolvethecorporatesaspartnersinthesocialdevelopmentprocess.Use of corporate innovations and management skills inthedeliveryof‘publicgoods’isatthecoreofCSRimplementationbythecompanies.Therefore,CSRshouldnot be interpreted as a source of financing the resourcegapsinGovernmentSchemes.However,theBoardoftheeligiblecompanymayundertakesimilaractivitiesindependentlysubjecttofulfilmentofCompanies(CSR Policy)Rules,2014.
3.18
Whetherinvolvementofemployeesofacompanyintheir CSR projects can bemonetizedandaccountedfor under the head of ’CSRexpenditure’?
No,involvementofemployeesinCSRprojectsofacompanycannotbemonetized.ContributionandinvolvementofemployeesinCSRactivitiesofthecompany will no doubt generate interest/pride in CSRwork and promote transformation from Corporate SocialResponsibility(CSR)asanobligationtoSociallyResponsibleCorporate(SRC)inallaspectsoftheirfunctioning.Companies,therefore,shouldbeencouragedtoinvolvetheiremployeesinCSRactivities.
4.0
CSRActivities
4.1
WhichactivitiesdonotqualifyaseligibleCSRactivity?
Rule 2(1)(d) of the Companies (CSR Policy) Rules, 2014defines CSR and the following activities are specificallyexcludedfrombeingconsideredaseligibleCSRactivity: Activitiesundertakeninpursuanceofnormalcourseofbusinessofthe company. However,exemptionisprovidedforthreefinancialyears, till FY 2022-23, to companies engaged in R&Dactivities for new vaccines, drugs, and medical devicesintheirnormalcourseofbusiness,relatedtoCOVID- 19.ThisexclusionisallowedonlyincasethecompaniesareengagedinR&Dincollaborationwithorganisationsasmentioned initem(ix)ofScheduleVIIanddisclosethesameintheirBoardreports. Activities undertaken outside India, except for trainingof Indian sports personnel representing any State orUnionTerritoryatnationallevelorIndiaatinternationallevel;Contribution of any amount, directly or indirectly, toanypoliticalpartyundersection 182oftheAct;Activities benefitting employees of the company asdefinedin section2(k) oftheCodeonWages, 2019;Sponsorship activities for deriving marketing benefitsforproducts/services;Activitiesforfulfillingstatutoryobligationsunderany lawinforceinIndia.
4.2
Whether the companies canundertakeanyCSRactivitymentionedunderScheduleVIIoftheActfortheexclusivebenefitoftheiremployees,workersandtheirfamilymembers?
Rule 2(1)(d)(iv) of the Companies (CSR Policy) Rules, 2014statesthatanyactivitybenefittingemployeesofthecompany shall not be considered as eligible CSR activity. Asper the rule, any activity designed exclusively for the benefitof employees shall be considered as an “activity benefittingemployees”andwillnotqualifyaspermissibleCSRexpenditure. The spirit behind any CSR activity is to benefitthepublicatlargeandtheactivityshouldbenon-discriminatory to any class of beneficiaries. However, anyactivity which is not designed to benefit employees solely,butthepublicatlarge,andiftheemployeesandtheirfamilymembersareincidentalbeneficiaries,then,suchactivitywould not be consideredas“activitybenefittingemployees” andwillqualifyas eligibleCSRactivity.
Sponsorshipactivitiesofaneventaredonewithanaimofderiving marketing benefits for a company’s product orservices. The intent of CSR is to encourage companies toundertake the activities in a project or programme moderather than as a one-off event. Companies shall not useCSR purely as a marketing or brand building tool for theirbusiness, but brand building as a collateral benefit doesnotvitiatethespirit of CSR.
4.4
AreactivitiesundertakenbycompaniesoutsideIndiafor the benefit of residentIndians,permittedaseligibleCSRactivity?
Rule 2(1)(d)(ii) of the Companies (CSR Policy) Rules, 2014clearlystatesthatanyactivityundertakenbythecompanyoutsideIndiashallnotbeaneligibleCSRactivity.TheonlyexceptionistrainingofIndiansportspersonnelrepresenting any State or Union Territory at national orinternationallevel.
4.5
HowcancompanieswithsmallCSRfundstakeupCSR activities in a projectmode?
A well-designed CSR project can be managed with smallCSRfundsaswell. Further, there is a provision in the Companies (CSR Policy)Rules, 2014 that enables such companies to collaboratewith other companies for undertaking CSR activities byway of pooling their CSR resources. (Refer rule 4(4) inCompanies(CSRPolicy)Rules,2014).
Pursuant to rule 4 of the Companies (CSR Policy) Rules,2014 a company may undertake CSR activities throughfollowingthreemodesofimplementation: Implementationbythecompanyitself Implementation through eligible implementingagenciesasprescribedundersub-rule(1)ofrule4.Implementationincollaborationwithoneormorecompaniesasprescribedundersub-rule(4)ofrule4.
5.2
Which entities are eligible toactasanimplementingagency for undertaking CSRactivities?
Rule4(1)oftheCompanies(CSRPolicy)Rules,2014providestheeligibleentitieswhichcanactasanimplementingagencyforundertaking CSRactivities. Theseare: Entityestablishedbythecompanyitselforalongwithanyother company – a company established under section 8of the Act, or a registered public trust or a registeredsociety, registered under section 12A and 80G of theIncomeTax Act, 1961.Entity established by the Central Government or StateGovernment – a company established under section 8 oftheAct,oraregisteredtrust ora registeredsociety.Statutory bodies – any entity established under an Act ofParliamentora Statelegislature.Otherbodies–acompanyestablishedundersection8oftheAct,oraregisteredpublictrustoraregisteredsociety,registered under section 12A and 80G of the Income TaxAct,1961,andhavinganestablishedtrackrecordofat leastthreeyearsinundertakingsimilaractivities.
5.3
Whether all three types ofentities–acompanyestablished under section 8of the Act, or a registeredpublic trust, or a registeredsociety,arerequiredtohave income-taxregistration u/s 12A as wellas80GoftheIncomeTax Act,1961?
Yes,asperrule4(1)allthreetypesofentities–acompanyestablished under section 8 of the Act, or a registeredpublic trust, or a registered society are required to haveincome-tax registration u/s 12A as well as 80G of theIncome Tax Act, 1961to act as implementing agency,except for any entities establishedby Central or StateGovernment.
5.4
Whatismeantby’registered public trusts’ insuchstateswhereregistrationisnot mandatory?
Registered public trust (as referred to in rule 4(1) of theCompanies (CSR Policy) Rules,2014) would include trustsregistered under the Income Tax Act, 1961 in respect ofthosestateswhereregistrationofpublictrustsisnot mandatory.
The identification of suitable implementing agencies is amajorconcernforcompanies.RegistrationofimplementingagenciesonMCA21portalisaimedatcreating a database of such agencies for companies whomaywanttoengagethem.Further,thiswillbringaccountabilityandtransparencyintheimplementationof CSRactivitiesandtherebystrengthentheCSReco-system.
Sincetherequirementofregistrationhascommencedfrom 01stApril, 2021, any ongoing project which has beenapproved between 22ndJanuary, 2021 and 31stMarch,2021, may be carried out by an implementing agencywhichisnot registeredinMCA21portal. However,theunregisteredimplementingagencyisrequiredtoregisterinMCA21portalbeforeundertaking anynewprojectafter 01stApril,2021.
Pursuant to rule 4(3) of the Companies (CSR Policy) Rules,2014, a company can engage international organisationsfor the limited purposes of designing, monitoring, andevaluationoftheCSRprojects orprogrammes,orforcapacitybuildingofpersonnelofthecompanyinvolvedin CSRactivities.
6.0
OngoingProject
6.1
Whatisthemeaningof‘ongoingproject’?Whichprojects can be consideredasongoing?
extended beyond one year by the Board based onreasonablejustification. The project should have commenced within the financialyear to be termed as ‘ongoing’. The intent is to include aprojectwhichhasanidentifiablecommencementandcompletion dates. After the completion of any ongoingproject, the Board of the company is free to design anyother project related to operation and maintenance ofsuch completed projects in a manner as may be deemedfiton acase-to-casebasis. Note:Theterm ‘year’ referstofinancialyear asdefinedin section2(41)oftheAct.
6.2
Whenwillanongoingprojectberegardedas‘commenced’?
Anongoingprojectwillhave‘commenced’whenthecompany has either issued the work order pertaining totheprojectorawardedthecontractforexecutionofthe project.
6.3
Whatisthemaximumpermissible time period forany ongoing project? Canthetimeperiodofanongoingprojectbeextendedbeyondthepermissibleperiod?
As per the definition of an ongoing project, the maximumpermissibletimeperiodshallbethreefinancialyearsexcluding the financial year in which it is commenced i.e.,(1+3)financialyears. Undernocircumstancesshallthetimeperiodofanongoingprojectbeextendedbeyonditspermissiblelimit.
6.4
What are theresponsibilitiesoftheBoardincaseongoingprojects are undertaken bythecompany?
Incaseofongoingprojects,themajorresponsibilitiesoftheBoard,inter-alia,include: identificationoftheongoingprojects;year-wiseallocationoffunds;transferring the unspent money to a separate bankaccount as prescribed under sub-section (6) of section135;monitoring the implementation of the projects withreferencetotheapprovedtimelinesandyear-wiseallocation; andmakingmodifications,ifany,forsmoothimplementationoftheprojectswithintheoverall permissibletimeperiod.
Yes, once the Board approves a project as an ongoingproject,thenitcanchoosetoimplementtheprojecteitheritself, or through any of the implementing agencies asmentionedinrule 4(1) of the Companies (CSRPolicy)Rules,2014.
6.6
DoestheBoardhavethepowertoabandonormodify an ongoing projectwithinthepermissibleperiodofthreeyears?
AsperprovisionsoftheCSRRules,theBoardmayabandonormodifyanongoingproject,partiallyorwholly,under exceptional circumstances, during the prescribedprojectperiodaspertherecommendationofitsCSRCommittee, and by providing reasonable justification tothateffect.Itisimportanttokeepinmindthatthemaximum permissible period for an ongoing project isthreeyearsexcluding theyearof itscommencement.
Yes, the budget outlay dedicated for one project can beusedagainstanotherproject.Insuchacase,theBoardandCSRCommitteeshouldappropriatelyrecordthealterationinthetargetspendingandmodifythesameinaccordancewiththeactuals.
7.0
TreatmentofUnspentCSRAmount
7.1
Whatactionsneedtobetaken if a company spendslessthantheamountrequired to be spent underCSRobligationinaparticularyear?
If a company spends less than the amount required to bespent under their CSR obligation, the Board shall specify thereasonsfornotspendingintheBoard’sreportandshalldealwiththeunspent amountinthefollowingmanner: Nature ofunspentamountActionrequiredTimelines Unspentamountpertains to‘ongoingprojects’ Transfersuchunspentamount to a separatebankaccountofthecompany to be calledas‘UnspentCSR Account’. Within 30 days from theendofthefinancialyear. Unspentamountpertains to ‘otherthanongoingprojects’ Transferunspentamounttoanyfundincluded in ScheduleVII oftheAct. Within 6 monthsfromthe end of thefinancialyear.
7.2
WherethecompanywasunabletomeetitsCSRobligation, but transferredthesaidunspentamounttoanyfundincludedinSchedule VII of the Act, willthe same be considered ascomplianceundersection135?
Thecompliance ofCSRisfulfilledwhenthecompanyspendstheprescribedamountasperitsobligation.However, in case the company fails to spend the requisiteamountwithinthefinancialyear,itshallfulfilitsobligationby transferring the unspent amount to any fund includedin Schedule VII of the Act. The same will be considered ascompliance with section 135(5) of the Act.Further, theBoard of the company is required to give the requisitedisclosureintheBoardreportandannualreportonCSR.
Whether disbursal of fundsbyacompanytotheimplementingagencyfortheimplementationofprojects willbeconsideredasspendundersection135(5)andrulesmadethere under?
Section 135(5) of the Act prescribes minimum spending obligation for the company. The company may fulfil its CSR spending obligation directly by itself or though engaging an implementing agency. The implementing agency acts on behalf of the company and mere disbursal of funds for implementation of a project does not amount to spending unless the implementing agency utilises the whole amount. In the annual action plan, the CSR Committee of the company is required to provide for modalities of utilisation of funds. The CSR Committee shall recommend to the Board on budget allocation for any CSR project including modalities of utilisation of funds in every project. Further, as per rule 4(5) of the Companies (CSR Policy) Rules, 2014, the Board of a company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect.
Accordingly, the CSR Committee and Board should ensurethatCSRfundshouldbedisbursedtoimplementingagencies, partially or wholly, in such a manner so that theycanbeutilisedbythemduringthefinancialyear.Meredisbursal of funds for implementation of a project does notamounttospendingunlesstheimplementingagencyutilisesthewholeamount.
7.5
Should a company open aseparate’UnspentCSRAccount’ for each ongoingproject?
No, a company can open a single special account, called‘Unspent Corporate Social Responsibility Account’, for afinancialyearinanyscheduledbank,totransfertheunspent amount w.r.t ongoing project(s) of that financialyear.A company needs to open a separate ’Unspent CSRAccount’ for each financial year but not for each ongoingproject.
7.6
Cantheamounttransferredto ‘Unspent CSR Account’of the company be utilisedfor regular business of thecompany?
No,theprovisioningofaseparatespecialaccount,namelythe ‘Unspent CSR Account’, in any scheduled bank is toensure that the unspent amount, if any, is transferred tothis designated account and used only for meeting theexpenses of ongoing projects, and not for other generalpurposes of the company. The special account cannot beusedbythecompanyascollateralsorcreatingachargeoranyother businessactivity.
7.7
Cananongoingprojectinitiated by a company inany previous financial year(forinstanceinFY2019-20)be classified as an ongoingprojectundersection135(6)oftheAct.Istheunspentamountofpreviousfinancialyearsalsorequiredtobetransferred to the UnspentCSRAccount?
No, the provisions related to ongoing projects have comeinto effect from 22ndJanuary 2021, i.e., from FY 2020-21onwards. The said provisions are prospective in effect andnotapplicabletoprojectsofpreviousfinancialyears. Further, the Board of the company is free to decide thetreatmentoftheunspentCSRamountofpreviousfinancialyearspriortoFY2020-21.TheBoardcaneithertransfertheamount to ‘Unspent CSR Account’ or continue as per thepreviousaccounting practices adoptedbythe company.
Thesaidnon-complianceisacivilwrongandshallattractthefollowingpenalties: Company Twice the unspent amount required to betransferredtoanyfundincludedinSchedule VII of the Act or Unspent CSRAccount, as the case may be, or one crorerupees,whicheverisless. EveryOfficer inDefault 1/10thoftheunspentamountrequiredtobetransferredtoanyfundincludedinSchedule VII of the Act or Unspent CSRAccount, or two lakh rupees, whichever isless.
8.2
Will the penal proceedingsapplyevenaftertheunspent amount has beentransferred to the UnspentCSRAccountortothefundsmentionedinScheduleVIIoftheAct?
Thepenaltydoesnotrelievethecompanyfromtheobligations under the law, and the penalty is over andabove the obligated amount required to be transferredundersection135(5)or135(6).Thepenaltyistheconsequenceofnotabidingbythelaw,andnotanalternativeforthesame.
Yes, section 135(7) clearly states the penalty for default incomplying with the provisions of sub-section (5) or sub-section(6)only.
8.4
Whatarethepenalprovisions relating to non-compliance with provisionsotherthansection135(5)and135(6)oftheAct?
Incaseofnon-compliancewithanyotherprovisionsofthesectionorrules,theprovisionsofsection134(8)orgeneralpenalty under section 450 of the Act will be applicable.Further, in case of non-payment of penalty within thestipulated period, the provisions of section 454(8) will beapplicable.
The purpose of impact assessment is to assess the socialimpactofaparticularCSRproject.TheintentistoencouragecompaniestotakeconsidereddecisionsbeforedeployingCSRamountsandassesstheimpactoftheirCSRspending. This not only serves as feedback for companiestoplanandallocateresourcesbetterbutshallalsodeepentheimpactofCSR.
Rule8(3)oftheCompanies(CSRPolicy)Rules,2014mandatesfollowingclassofcompaniestoconductimpactassessment: companies with minimum average CSR obligation ofRs. 10 crore or more in the immediately preceding 3financialyears; andcompaniesthathaveCSRprojectswithoutlaysofminimum Rs. 1 crore and which have been completednotlessthan1yearbeforeundertakingimpactassessment. Impact assessment shall be carried out project-wise onlyin cases where both the above conditions are fulfilled. Inother cases, it can be taken up by the company on avoluntarybasis.
Theprovisionsforimpactassessmenthavecomeintoeffectfrom22ndJanuary,2021.Accordingly,thecompanyis required to undertake impact assessment of the CSRprojectscompletedonorafterJanuary22,2021.However,asagoodpracticetheBoardmayundertakeimpactassessment of completed projects of previous financialyears.
9.4
Whocanconductimpactassessment?
Rule8(3)oftheCompanies(CSRPolicy)Rules,2014requires that the impact assessment be conducted by anindependent agency. The Board has the prerogative todecideontheeligibilitycriteriaforselectionoftheindependentagencyforimpactassessment.
Yes, the expenditure incurred on impact assessment isover and above the specified administrative overheads of5%. Expenditure up to a maximum of 5% of the total CSRexpenditureforthatfinancialyearor50lakhrupees(whichever is lower) can be incurred separately for impactassessment.
Rule 8(3)(b) of the Companies (CSR Policy) Rules, 2014provides that impact assessment reports shall be placedbefore the Board and shall be annexed to the report onCSR. It is clarified that web-link to access the completeimpactassessmentreportsandprovidingexecutivesummary of the impact assessment reports in the annualreportonCSR,shallbeconsideredassufficientcomplianceofthesaidrule.
9.7
WhentwoormorecompaniescollaborateforimplementationofaCSRproject, should the impactassessment carried out byonecompanybesharedwithothercompanies?
Yes,incasetwoormorecompanieschoosetocollaboratefor the implementation of a CSR project, then the impactassessment carried out by one company for the commonproject may be shared with the other companies for thepurpose of disclosure to the Board and in the annualreportonCSR.Thesharingofthecostofimpactassessmentmaybedecidedbythecollaboratingcompanies subject to the limit as prescribed in rule 8(3)(c)oftheCompanies(CSRPolicy)Rules,2014foreachcompany.
10.0
CSRReporting&Disclosure
10.1
Whether reporting of CSRismandatoryinBoard’sReport?
Yes, as per rule 8(1) of the Companies (CSR Policy) Rules,2014, the Board’s Report pertaining to any financial year,foraCSR-eligiblecompany,shallincludeanannualreporton CSR containing particulars specified in Annexure I orAnnexureIIofthesaidrules,asapplicable.
10.2
Is it mandatory for foreigncompanies to give reportsonCSRactivities?
Yes, as per rule 8(2) of the Companies (CSR Policy) Rules,2014,incaseofaCSR-eligibleforeigncompany,thebalance sheet filed under clause (b) of sub-section (1) ofsection 381 of the Act, shall include an annual report onCSRcontainingparticularsspecifiedinAnnexureIorAnnexureIIofthesaid rules,asapplicable.
As per rule 9, the Board of Directors of the company shallmandatorilydisclosethefollowingontheirwebsite,ifany,forpublicaccess: CompositionoftheCSRCommittee;CSRPolicy;andProjectsapprovedbytheBoard.
10.4
WhethereveryCSRproject
Yes,asperrule9oftheCompanies(CSRPolicy)Rules,
irrespectiveofoutlayand
2014,allCSRprojectsapprovedbythe Boardarerequired
percentagetothetotalCSR
tobedisclosedonthewebsiteofthecompany,ifany,for
expenditure of the
publicaccess.
company needs to be
disclosedon thewebsiteof
therespectivecompanyin
termsofrule9ofthe
Companies (CSR Policy)
Rules,2014?
Disclaimer: Every effort has been made to avoid errors or omissions in this material. In spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition. In no event the author shall be liable for any direct, indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information.
