Companies (CSR Policy) Amendment Rules, 2021; Important Highlights

The Weekly Insights | Issue 5

What’s the Deal?

The Ministry of Corporate Affairs released an order notifying the enforcement of amendments in CSR rules for corporate companies. The changes have come into effect from 22nd January 2021. These changes have been brought in to provide more transparency as well as providing companies with more flexibility with their CSR plans.

Changes as per the New Rules

According to the Ministry of Corporate Affairs, these rules will be known as the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. The major changes are as follows:

• Every Company which wants to undertake CSR activities should register itself with the Central Government. It should file the form CSR-1 electronically with the Registrar of Companies, with effect from April 1, 2021 and a unique CSR Registration number will be provided to each company.
• Companies undertaking CSR activities will now have to more transparent by providing the following:

— Impact Assessment for big CSR projects.

— Annual action plan for CSR every year in addition to CSR policy tweaks in reporting formats of Board Report.

— Mandatory disclosure of CSR projects and activities on the company website.

• If a company fails to spend the mandated 2% of net profits towards CSR, they will have to specify the reasons for the same. If the unspent amount does not relate to any ongoing project, then the amount has to be transferred to a government notified fund.
• Earlier, companies spending more than the mandated 2% would not have received any benefits from the government. Now, companies can set off the excess amount spent against the CSR obligation in future years. This will be allowed in perpetuity making the rule flexible for companies.
• Previously, violation in performing CSR activities would be counted as a criminal offence. As per the new rules, it will now be treated as a civil offence. This is a big relief for corporate companies.
• Previously, companies could not fulfill their CSR obligations through charitable institutions. Now, companies are allowed to register projects under public trusts, society or Section 8 companies only. Hence, projects undertaken by charitable institutions will be allowed as a part of the company’s CSR spend, provided the project is registered separately with the Ministry of Corporate Affairs.
• Companies with CSR obligation below ₹50 lakhs will now be exempt from forming a CSR committee. They will now be allowed to fulfill this responsibility through their respective boards.
• Companies can now engage with international organizations for designing, monitoring, evaluation and also to create a team for their CSR projects.
• Companies will now have to put back any surplus amounts from CSR projects into the same project or have it transferred to the Unspent CSR account.

Closing Note…

The new rules have been implemented to increase transparency through necessary disclosure of CSR activities and assessment reports. This is expected to increase the burden of compliance on corporate companies. However, these rules are also expected to provide added flexibility to companies in fulfilling their CSR obligations.