Amendments to CSR provisions

The amendments to the CSR provisions now have been notified and has revamped CSR framework for companies.

MCA issued a notification and notified certain provisions of the Act, one of the provisions relating to CSR. Section 27 of the Amendment Act, 2020 amends section 135 of the Act (relating to CSR). MCA has also issued a notification and amended Companies (CSR) Rules, 2014 (‘CSR Rules’).

Following is the gist of amendments introduced by Companies Amendment Act, 2020 and amendment to the CSR Rules:

1. if the company spends an amount in excess of the requirements provided, such excess amount may be set off against the requirement to spend up to immediate succeeding 3 FYs subject to the conditions
2. if a company is in default in complying with the provisions relating to spending of CSR amount, the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent CSR Account, as the case may be, or Rs. 1 crore, whichever is less, and every officer of the company who is in default shall be liable to a penalty of 1/10th of the amount required to be transferred by the company to such Fund, or the Unspent CSR Account, as the case may be, or Rs. 2 lacs, whichever is less
3. where the amount to be spent by a company for CSR does not exceed Rs. 50 lacs, the requirement for constitution of the CSR Committee shall not be applicable and the functions of such Committee provided under section 135 of the Act shall, in such cases, be discharged by the board of directors
4. following activities shall not qualify as CSR activity:
   (i) Activities undertaken in pursuance of normal course of business of the company,
   (ii) Any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level,
   (iii) Contribution of any amount directly or indirectly to any political party u/s 182 of the Act,
   (iv) Activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019,
   (v) Activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services,
   (vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India
5. research and development activity of new vaccine, drugs and medical devices related to COVID-19 will qualify as CSR activity subject to conditions
6. Concept of ‘Ongoing Project’ introduced meaning, multi-year project undertaken by a company in fulfilment of its CSR obligation.
7. CSR activities are undertaken by the company itself or through:
   (a) Company established u/s 8 of Companies Act, or registered public trust or registered society, registered under section 12A and 80G of Income Tax Act, 1961, established by the company, either singly or along with any other company, or
   (b) Company established under section 8 of Act or registered trust or registered society, established by Central Government or State Government; or
   (c) Any entity established under an Act of Parliament or State legislature; or
   (d) Company established under section 8 of Act, or registered public trust or registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least 3 years in undertaking similar activities.
8. Mandatory Registration of entities undertaking CSR Activities by April 1, 2021
9. the meaning of ‘CSR expenditure’ has been completely revamped.
   (a) Any expenditure on an item not in conformity or not in line with activities which fall within the areas or subjects, specified in Schedule VII of the Act shall not qualify as CSR expenditure.
   (b) Board of Directors shall ensure that administrative overheads shall not exceed 5% of total CSR expenditure of the company for the financial year
   (c) any surplus arising out of CSR activities shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy.
10. CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by:
    (a) Company established u/s 8 of the Act, or Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number; or
    (b) Beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or
    (c) Public Authority.
11. Board’s Report shall include an Annual Report on CSR containing specified particulars
12. Every company having average CSR obligation of Rs. 10 crore or more shall undertake ‘impact assessment’, through an independent agency, of their CSR projects having outlays of Rs. 1 crore rupees or more. A company undertaking impact assessment may book the expenditure towards CSR for that financial year, which shall not exceed 5% of the total CSR expenditure for that financial year or Rs. 50 lacs, whichever is less. This amendment is to ensure effective implementation of CSR spending and activities.
13. Board of Directors shall mandatorily disclose the composition of CSR Committee, and CSR Policy and projects approved by the board of directors on their website, if any, for public access.
14. Statutory Auditors to report on ongoing projects in their report under CARO 2020.

[Extracted from Article authored by Gaurav N. Pingle (CS) and published on taxmann.com]