SHORT SUMMARY
The Ministry of Corporate Affairs (MCA) has notified the amendment to the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 mandating the companies having unspent CSR Accounts to form a CSR Committee.
In this editorial, the author shall discuss the amendment made by MCA in CSR Provisions. MCA has made amendments in 3 rules of CSR i.e. Rule 3, 4 and 8.
A. Rule 3: Corporate Social Responsibility
In sub-rule (1) after provision "A new proviso added"
Provided further that a company having any amount in its Unspent Corporate Social Responsibility Account as per sub-section (6) of section 135 shall constitute a CSR Committee and comply with the provisions contained in sub-sections (2) to (6) of the said section.
Implementation
Companies are allowed to keep unspent amounts relating to ongoing project in designated account but have to utilise it within three financial years. Now they have to compulsory CSR Committee and the CSR committee will oversee its utilisation.
Which amount required to transfer in "unspent CSR Account"?
Under the CSR rules, amounts remaining unspent in a financial year relating to an ongoing project as well as any unutilised surplus arising from the CSR activities are required to be deposited by the company in a special bank account called the 'Unspent Corporate Social Responsibility Account.
B. Rule 3: Corporate Social Responsibility
Rule 2 fully omitted: eligibility to be checked every year
Every company which ceases to be a company covered under sub-section (1) of section 135 of the Act for three consecutive financial years shall not be required to -
(a) constitute a CSR Committee; and
(b) comply with the provisions contained in sub-section (2) to (6) sub-section (2) to (5) of the said section, till such time it meets the criteria specified in sub-section (1) of section 135."]
Implementation
After omission of Rule 2, Only a Company fall under Section 135(1) shall required to constitute CSR Committee. Therefore, if CSR applicable on Company for one year, then CSR Committee can be dissolved after one year.
In other words, limits of 135(1) required to check every year to continue the CSR Committee in the Company.
C. Rule 4: CSR Implementations
Following below mentioned shall also be allowed for the purpose of CSR Contribution:
1. a company established under section 8 of the Act, or a registered public trust or a registered society,
- exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 OR
- registered under section 12A and approved under 80 G of the Income Tax Act, 1961 (43 of 1961),
established by the company, either singly or along with any other company; or
2. a company established under section 8 of the Act, or a registered public trust or a registered society,
- exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 OR
- registered under section 12A and approved under 80 G of the Income Tax Act, 1961 (43 of 1961),
and having an established track record of at least three years in undertaking similar activities.
Details of entities fall under Section 10 (23C)
(iv) any other fund or institution established for charitable purposes which may be approved by the Principal Commissioner or Commissioner, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or
(v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the Principal Commissioner or Commissioner, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof;
(vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the 94[Principal Commissioner or Commissioner]; or
(via) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be approved by the 95[Principal Commissioner or Commissioner]
D. Rule 8: CSR Reporting
(c) A Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed two percent of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is higher.
Implementation
The new rule says that the expenditure for impact assessment, which can be included in the CSR spending, shall not exceed 2% of total CSR expenditure for the relevant financial year or ₹50 lakh whichever is higher. The earlier rule had allowed up to 5% of the total CSR spending or ₹50 lakh whichever is less. The change allows higher spending on impact assessment in case of large CSR projects.
E. Amendment in Format of CSR Annexure
(c) The government has released a new format for the annual report on CSR activities which is to be included in the board's report for the financial year commencing on or after April, 2020.
Under the format, the composition of the CSR committee requires the companies to provide the executive summary along with the weblinks of impact assessment of CSR projects carried out.
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