New Delhi, Jan 22, 2021: In a major revamp of CSR rules, Ministry of Corporate Affairs has introduced significant changes in CSR reporting framework, CSR expenditure requirements and CSR disclosure while making it mandatory for big companies to add ‘Impact Assessment Report’ for its major projects.
Further, the companies will now have to display on their website the composition of their CSR committee along with CSR activities and projects. The corporates will also need to deposit their unspent CSR budget to a specified account. Another change in the CSR rule requires the CSR committee to prepare and present an annual CSR action plan to their board for their approval.
However, a big relief comes in the form of option for corporates to offset the excess CSR expenditure in the next three years.
The MCA introduced the changes in CSR rules by notifying Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. Below are the key highlights of CSR rule changes.
Key Highlights- CSR Amendment Rules 2021
- Impact Assessment made mandatory for CSR projects of more than Rs 1 Crore
- Revamping of the reporting formats of the Board report.
- Mandatory disclosure of all CSR projects and activities besides CSR Committee’s composition on the company’s website.
- Annual action plan for CSR has to be presented to the company Board for its approval
- Transfer of the unspent amount to government notified fund
- Excess CSR spent can be offset in the CSR expenditure in the next three years
- All the companies intending to do CSR must register from April 1 in new Form CSR-1
Excess CSR spent can be offset in next 3 years
Giving a much-needed relief to CSR bodies, the government has made a provision that excess CSR spent in a particular year can be offset over the next three succeeding years.
This addresses long-pending corporate demand for more flexibility in project planning irrespective of their prescribed CSR budget.
The provision especially brings relief to the companies which went beyond their prescribed CSR budget to spent generously on COVID relief projects during the ongoing pandemic.
More transparency through website for public access
To make CSR activities more transparent, the MCA has made it necessary for companies to display their key information regarding the CSR committee, CSR projects and CSR activities on the company’s website.
As per the new rules, "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 access."
Fixing accountability through ‘Impact Assessment’
With the amendment in the CSR rules, the government has sought more accountability from corporates on the impact that they bring on ground level through their CSR activities.
The impact assessment reports will have to be presented to the board and it shall have to be reported in the annual report as well.
It is now mandatory for corporates to undertake impact assessment, through an independent agency, of their CSR projects having outlays of Rs 1 crore or more, and which have been completed not less than one year before undertaking the impact study.
However, this is only mandatory for companies having average CSR obligation of Rs 10 crore or more in the three immediate preceding financial years.
The expenditure in the impact assessment can be a part of expenditure towards Corporate Social Responsibility for that financial year. The MCA has specified that this expense "shall not exceed five percent of the total CSR expenditure for that financial year or Rs 50 lakh, whichever is less."
Unspent money goes to specified account
The new CSR rules also make it mandatory for companies to deposit the unspent CSR amount in a specified account. This clearly means that the unspent amount from the CSR prescribed budget can no longer be in the company’s own balance sheet.
The new rules say that "the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act.".
Annual action plan to be created in advance
The new CSR rules emphasise on the proper planning of the CSR activities well in advance so that implementation of the same becomes easier. "The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy," according to the notification.
The action plan must include the following:
- The list of CSR projects or programmes that are approved to be undertaken
- The manner of execution of such projects or programmes
- The modalities of utilisation of funds and implementation schedules for the projects or programmes
- Monitoring and reporting mechanism for the projects or programmes
- Details of need and impact assessment, if any, for the projects undertaken by the company
However, the companies have been allowed the flexibility of changing the course of their CSR planning mid-way, if need be. "The Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect," the notification read.
Having brought the changes in the CSR rules, the government has also made major changes in annual reporting structure to accommodate the changes in the annual report of the companies.
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