Dear Friends, today we will be going to dissect the new CSR amendments 2021 and their implication for all the beneficiaries (Registered Trust, Societies, Section 8 companies, etc)
Many of our friends in the NGO industry asked us whether section 8 companies are eligible for getting CSR funding as per the new CSR ACT.
So we are putting down in simple words what we have been able to understand from our legal team.
The New CSR revision rules 2021 says that “Every company that fulfills the criteria set out under Section 135 of the Companies Act, 2013 (‘Act’) has to apply at least 2% of their average net profits made during the three earlier financial years towards the Corporate Social Responsibility (CSR) in the current financial year”
Here it says every company which means all the companies which are under the Ministry of corporate affairs are entitled to receive CSR FUNDING.
The following meanings were amended in the Rules:
Administrative overheads –
Administrative overheads or Managerial Expenses mean the company expenses incurred for administration and general administration of the CSR functions. However, it will not include the straight expenses incurred for executing, designing, assessing, and observing a particular CSR project or program.
Corporate social responsibility- CSR-
CSR means the actions that a company starts in line with the legal duty laid down in Section 135 of the Act and in agreement with the requirements contained in the Instructions, but shall not include the following:
- Actions are undertaken in the normal course of company business. However, a company engaged in the development and research action of new drugs, vaccines, and medical devices in its normal course of business can start the development and research activity of a new drug, vaccine, and medical devices relating to COVID-19 for the financial years 2020-21, 2021-22, 2022-23 subject to the settings that:
- The corporation shall carry out such development and research activities in partnership with any of the organizations or institutes mentioned in Schedule VII item (xi) of the Act.
- In the Board of Directors’ report on CSR, the company must disclose details of the activity separately.
- Activities developed by companies outside of India, except training for Indian sports personnel representing India at an international or state level.
- Contribution of any amount incidentally or straight to any political party under section 182 of the Act.
- Activities helping employees of the company defined in Section 2(k) of the Code on Wages, 2019
- Activities supported by a company on a funding basis to derive marketing aids for its services or products.
- Activities carried out to fulfill other legal duties under any law in force in India.
CSR POLICY
CSR policy means a report containing the direction and approach given by the companies’ board, after taking into thought the approvals of its CSR committee and includes application and monitoring of activities, guiding principles for selection and design of the annual action plan.
NET PROFIT
The net profits of a company are not the same as the net profits stated on the monetary statement prepared under applicable law, as they do not include the following:
- Any profit generated from a foreign branch of the company, regardless of whether they are run as separate companies.
- Any bonus received from another company in India is covered under and obeying Section 135 of the Act.
ONGOING PROJECT
If a company initiates a multi-year project to fulfill its CSR responsibilities within three years, excluding the financial year in which it began, that project is considered ongoing. In addition, it will include projects that were originally not approved as multi-year projects, but whose duration has been extended beyond one year by the board based on a reasonable explanation.
CSR IMPLEMENTATION AMENDMENTS: –
The Board should ensure that the CSR activities are accepted either by the company itself or through:
- Those companies which are recognized under Section 8 of the Act, or society or public trust under Sections 12A and 80G, respectively, of the Income Tax Act, 1961, established by the companies themselves or in conjunction with another company.
- Companies that have been deemed reputable under Section 8 of the Act, as well as registered societies or trusts established by a state or federal government.
- Establishment of an entity by state legislation or federal law.
- If you are a registered public society or registered trust under sections 12A and 80G of the Income Tax Act, 1961, and have a track record of at least three years in undertaking similar activities.
Units wishing to participate in CSR activities should register themselves with the Central Government by filing Form CSR-1 with the Registrar starting on 1 April 2021.
Form CSR-1 must be signed and submitted electronically by the units. In practice, it should be verified by a Company Secretary, Chartered Accountant, or Cost Accountant. The system will automatically generate a unique CSR Registration Number once you submit Form CSR-1 on the MCA portal.
A company can participate in international organizations for monitoring, designing, and evaluating the CSR programs or projects as per its CSR policy and for capacity building of its personnel for CSR.
The Board of a company should satisfy that the funds spent are utilized for the purposes and in the manner as approved by them. The person responsible for financial management or the Chief Financial Officer should certify this. An ongoing project should be monitored by the board within approved timelines and year-by-year allocation. Any necessary changes can be made to ensure that the project is completed within the given timeline.
The CSR Committee should mention and articulate to the Board, an annual action plan in the achievement of its CSR policy, including the following:
- List of the approved CSR programs or projects to be undertaken in subjects or areas specified in Schedule VII of the Act.
- Way of implementation of the CSR programs or projects specified in these Rules
- Modes of implementation schedules and consumption of funds for the projects or programs.
- Reporting and monitoring machinery for the projects or programs.
- Information on the impact and any need assessment of the company’s projects.
CSR EXPENDITURE AMENDMENTS
The Board of directors of a company must ensure that managerial overheads do not exceed 5% of the company’s total CSR expenditures.
Excess income from CSR activities will not be included in the company’s profits and will be transferred to an Unspent CSR Account or reinvested in the same project.
The unused CSR amount should be spent in accordance with the action plan, the company’s CSR policy, or transferred to a Fund specified in Schedule VII within six months of the end of the financial year.
If a company spends more than Section 135(5) requires, the excess can be deducted from the following three financial years. In any case, the surplus arising out of CSR activities should not be included in the excess amount available for set-off, and the Board should adopt a resolution to that effect.
The CSR amount that can be used to purchase or create a capital asset held by the company are:-
- A company recognized under section 8 of the act, or a registered society or public trust with charitable objects and a CSR registration number.
- The beneficiaries of the CSR project are collectives, self-help groups, and entities.
- Public authority.
CSR REPORTING AMENDMENTS
Any annual Board report covered by the Rules relating to any financial year should include a CSR report having the facts specified in Annexure I or Annexure II, as appropriate.
A foreign company’s balance sheet filed under section 381(1)(b) of the Act should include a CSR report containing facts specified in Annexure I or Annexure II, as applicable.
CSR projects with outlays of Rs.1 crore or more should undergo impact assessment through a third-party independent agency within one year of undertaking the impact study for those companies with average CSR responsibilities of Rs.10 crore or more.
Impact assessment reports should be presented to the Board and incorporated into the annual report on CSR. A company undertaking an impact assessment can book CSR expenditures for that financial year, which may not exceed 5% of the total CSR expenditure for that financial year or Rs.50 lakh, whichever is lower.
DISPLAY OF CSR EXERCISE ON THE WEBSITE
The Board of Directors should disclose the CSR Policy and Projects approved by the Board and configuration of the CSR Committee on the company website if any.
CORRECTION IN TRANSFER OF UNSPENT CSR AMOUNT
As of now, any unspent CSR amounts should be transferred by the company to any of the funds included in Schedule VII of the Act until Section 135 (5) and Section 135 (6) is rewritten to show a fund in Schedule VII.
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Disclaimer: – This information piece is just for the purpose of information. Before taking any steps for CSR Funding we suggest first consult your Chartered accountant or lawyer to know your eligibility and compliances.
Authored by Deb, a fundraising strategist and nonprofit growth advisor with over 20 years of experience, this roadmap draws on deep expertise in ethical giving, storytelling, and donor engagement to help mission-driven organizations scale with purpose.