The Companies CSR (Corporate Social Responsibility) Rules play a significant role in strategizing a company’s social investment plans and determining how and where to implement the programs to endorse the concept of sustainable development. For example, some of the areas recommended by the government include child health and maternity needs, eliminating poverty and hunger, encouraging gender equality, promoting environmental sustainability, etc.
The MCA (Ministry of Corporate Affairs) has recently amended this act and introduced certain modifications through the Companies CSR Amendment Rules, 2021. As per the MCA notification, some fundamental changes have been incorporated, and they have come into force from January 22, 2021. Read on to know about the new rules introduced through the recent amendment.
Role of the New Rules in Enabling Corporations to Handle Multi-Year CSR Projects
As per the recent changes, any company with total financial assets of Rs. 500 crore or more than that and turnover of Rs. 1,000 or more or a net profit of Rs. 5 crores or more will have to disburse 2 percent of their average profit of the past three years on certain CSR initiatives yearly.
The recent changes have made way for the companies and organizations to keep aside more than 2 percent expenditure as CSR expenditure in any financial year against the required amount for a period of up to three fiscal years. However, certain speculations as to whether this rule would apply to the expenditures handled prior to the amendment.
According to certain reports, there are chances that the government will consider some organizations who have bore good faith and set aside excess CSR expenditures in the previous years to exhibit it against future CSR initiatives.
Key changes in regard to CSR Implementation
As per the new updates, the modifications incorporated regarding the CSR implementation includes:
- The Board set up for the CSR purposes will keep in track to ensure that the company’s CSR initiatives are either handled by the company itself or by Section 8 company or a registered society under Section 12A and 80G of the Income Tax laws, 1961 or a registered Public Trust or any organization that bears an established record of 3 years (at least). Note: A section 8 company is a registered organization that aims to promote charitable initiatives, makes use of profits to implement its goals. Also, a significant trait in these companies is that they cannot distribute dividends among their shareholders.
- The eligible implementing company through which an organization will handle CSR initiatives will have to register itself with the Government of India by duly filling the form CSR-1. This will be in effect from the 1st of April, 2021.
- On filling the CSR-1 and registering with the GOI, the company concerned will receive a unique CSR registration code, which will be automatically generated by the system.
- As defined in Rule 2 of the CSR Amendment Rules, international organizations can also design and implement CSR projects and strategies.
- It will be the Board of the Company’s responsibility to keep track of the programs and ensure that the funds kept aside for CSR initiatives are getting used for the approved purposes. Moreover, the entire process will be certified by the financial head or the CFO (Chief Financial Officer).
- If necessary, the Board will have the power to make essential modifications in the programs and ensure an even implementation of the CSR responsibility within the given time limit.
Modifications pertaining to CSR Expenditure
Given below are some of the significant modifications incorporated by the Companies CSR amendment Rules, 2021 regarding CSR expenditures:
- The Board of the Company will ensure that the administrative costs do not exceed more than 5 percent of an organization’s given CSR expenditures in a financial year.
- Any extra amount emerging out of a CSR initiative will be put back in the same program for further use or can be transferred to the Unspent CSR account. This amount, in turn, needs to be spent for any specific CSR program and yearly action plan of the company, or the surplus amount can be transferred to one of the funds notified under Schedule VII. Note that this transfer of the extra amount needs to be made within a time limit of six months from that fiscal year’s expiry.
- Any surplus amount can be kept aside for use in the succeeding three years; however, this rule is subject to certain conditions.
- Any capital asset made by a certain organization before the commencement of the Companies CSR Act, 2021 will have to comply with the changes within 180 days of the same. This notice period can be further extended to a period of not more than 90 days. The extension of the time shall only be possible if the Board passes an approves it on the ground of proper justification.
Other Key Modifications
Some other significant changes include:
- As per the new updates regarding the CSR policy, an organization with a CSR obligation of an amount of Rs. 5 crores or more than that for three immediately preceding fiscal years will have to conduct an impact assessment of programs that have a budget of Rs. 1 crore or more by hiring an independent agency.
- The impact assessment reports will be assessed by the Board, which will be added to the yearly CSR report.
The CSR policy makes it mandatory for companies to give preference to the areas they function in and ensure environmental sustainability. Therefore, whether a shareholder of a company or any normal citizen, it is crucial that you stay aware of the changes made in these CSR rules by the Government of India. For any further information regarding the changes, get in touch with FinGurus!
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