CSR policy amendment: No more project-wise reporting for Annual Report, More vigil on unspent CSR fund, Impact assessment expenditure cap changed

New Delhi, September 21, 2022: The government has done away with the requirement of the project wise reporting of CSR activities in the annual report by companies and also changed the expenditure limit on the impact assessment reports for CSR activities carried out by the companies.

The changes have been brought in by the Ministry of Corporate Affairs with Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 on September 20, 2022.

As per the new rules, the government has also sought more transparency by the companies in dealing with the unspent CSR amount and reporting of the impact assessment done for their CSR activities.

CSR Policy Amendments 2022: Key changes

CSR committee to be set up to oversee unspent CSR amount

As per the new official notification issued by the Ministry of Corporate Affairs, the companies having any amount in their unspent corporate social responsibility accounts will need to set up a CSR committee to oversee the spent of the amount even in the case when there is no new CSR obligation for the current fiscal.

Companies are allowed to keep unspent amounts earmarked for CSR in this designated account but have to utilise it within three financial years. The CSR committee will oversee its utilisation. This means that company will have to comply with CSR related obligations, including constituting a CSR committee so long as there is any unspent amount in its Unspent Corporate Social Responsibility Account.

Change in limit for expenditure on impact assessment

The ministry also modified the way companies can calculate the expenditure towards conducting an impact assessment. The law requires large CSR spenders to carry out an independent impact assessment of their activities. This allows companies and investors to understand the impact of their social investments and target it better. Such impact assessment is mandatory for businesses with Rs 10 crore or more CSR budget and for all projects with an outlay of Rs 1 crore or more.

As per the new rules, the expenditure for social impact assessment, which can be included in the CSR spending, shall not exceed 2.5% 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.

Transparency in impact assessment reporting

As per the new rules, companies which are mandated to do impact assessment for their project will have to report the same in the annual report with an executive summary and web links of those impact reports.

This is aimed at bringing more transparency towards gauging the impact of companies CSR activities.

Under the Companies Act, 2013, certain classes of profitable companies are required to spend at least 2 per cent of their average net profit of the preceding three financial years on CSR activities in a particular financial year.  Companies having a net worth of at least Rs 500 crore or a minimum turnover of Rs 1,000 crore or net profit of Rs 5 crore or more during the immediately preceding financial year have to spend on CSR activities, as per the law.