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March 19, 2020

Companies Corporate Social Responsibility Policy Amendment Rules, 2020

by facelesscompliance in Corporate Law

The Ministry of Corporate Affairs, Government of India has invited Public Comments on Draft Companies (Corporate Social Responsibility Policy) Amendment Rules 2020.

In this regard the Ministry of Corporate Affairs, Government of India has issued a Circular which is as follows:

Corporate Social Responsibility (CSR) for companies has been mandated through Companies Act, 2013 which came into effect since 01.04.2014. Section 135 of the Act enumerates the provisions concerning CSR and the Companies (Corporate Social Responsibility Policy) Rules, 2014 prescribes the rules for implementation. All these were notified on 27th February, 2014 and came into effect since 01.04.2014. The Companies (Amendment) Act, 2019 amended section 135 dealing with Corporate Social Responsibility. The Companies (Amendment) Act, 2019 received President’s assent and was published in Official Gazette on 31st July, 2019.

In order to operationalize the Companies (Amendment) Act, 2019, the Companies (Corporate Social Responsibility Policy) Amendment Rules , 2020 has been drafted for carrying out amendments in the Companies (CSR Policy) Rules, 2014.

Following are significant changes

1) Definition of Corporate Social Responsibility changed and new definition is

Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these Rules, but shall not include the following, namely-

i)    Activities undertaken in pursuance of normal course of business of the company.

ii)   Any activity undertaken by the company outside India.

iii)  Contribution of any amount directly or indirectly to any political party under section 182 of the Act.

iv)  activities that significantly benefit the employees of the company and their families. Provided that in case of any activity having less than twenty five percent employees as its beneficiary, then such activity shall be deemed to be CSR activity under these rules

2) The Net Profit for CSR means

“Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely: –

(i)       any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and (ii)      any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act

3) CSR Implementation can be done by Company or Outsourced which requires Registration with Central Government via E Form CSR-1

The Board shall ensure that the CSR activities are undertaken by the company itself or through:

  • a company established under section 8 of the Act, or
  • any entity established under an Act of Parliament or a State legislature.

Provided that such company/entity, covered under clause (a) or (b), shall register itself with the central government for undertaking any CSR activity by filing the e-form CSR-1 with the Registrar along with prescribed fee.

4) CSR Committee shall formulate annual action plan

The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following:

  • the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;
  • the manner of execution of such projects or programmes as specified in sub-rule (1) of Rule 4;
  • the modalities of utilization of funds and implementation schedules for the projects or programmes; and
  •  monitoring and reporting mechanism for the projects or programmes.
  • Details of need and impact assessment, if any, undertaken by the company.

5) Administrative overheads cannot be more than 50% of CSR Expenditure

The board shall ensure that the administrative overheads incurred in pursuance of sub-section (4) (b) of section 135 of the Act shall not exceed five percent of total CSR expenditure of the company for the financial year.

Provided that a company undertaking impact assessment, in pursuance of sub-rule (3) of Rule 8, may incur administrative overheads not exceeding ten percent of total CSR expenditure for that financial year.

6) CSR Surplus should be add back to project not company

Any surplus arising out of the CSR projects or programmes or 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 and action plan of the company.

The CSR amount may be spent by a company for creation or acquisition of assets which shall only be held by a company established under section 8 of the Act having charitable objects or a public authority.

7) CSR Assets created shall only be with Company under section 8 for charitable purpose

The CSR amount may be spent by a company for creation or acquisition of assets which shall only be held by a company established under section 8 of the Act having charitable objects or a public authority.

Provided that any asset created by a company prior to the commencement of Companies (CSR Policy) Amendment Rules, 2020, shall within a period of One hundred and eighty days from such commencement comply with the requirement of this rule, which may be extended by a further period of not more than ninety days with the approval of the board based on reasonable justification.

8) Unspent Corporate Social Responsibility Account’

Unspent balance, if any, towards fulfilment of CSR obligation at the time of commencement of these Rules shall be transferred within a period of thirty days from the end of Financial Year 2020-21 to special account viz., ‘Unspent Corporate Social Responsibility Account’ opened by the company and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year

9) Impact Assessment for all Company spending CSR more than 5 Crore

A company having the obligation of spending average CSR amount of Rs 5 Crore or more in the three immediately preceding financial years in pursuance of sub section 5 of Section 135 of the Act, shall undertake impact assessment for their CSR projects or programmes, and shall disclose details of the same in its Annual Report on CSR

10) Display of CSR activities on its website

The Board of Directors of the company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website for public viewing, as per the particulars specified in the Annexure.

11) Creation of National Unspent Corporate Social Responsibility Fund

The Central Government shall establish a fund called the “National Unspent Corporate Social Responsibility Fund” (herein after referred as “the Fund”) for the purposes of sub-section (5) and (6) of section 135 of the Act. The Fund shall be utilized for the purposes of undertaking CSR projects in the in areas or subjects specified in schedule VII of the Act. Provided that until such fund is created the unspent CSR amount in terms of provisions of sub-section (5) and (6) of section 135 of the Act shall be transferred by the company to any fund as specified in schedule VII of the Act

The manner of administration, authority for administration of the Fund shall be in accordance with such guidelines as may be prescribed by the Central Government from time to time

Download Companies Corporate Social Responsibility Policy Amendment Rules, 2020