CSR Advisory: The latest amendments will change the way CSR is conducted in India

February 15, 2021

The Companies (Amendment) Act 2019 & 2020, which came into effect on January 22, 2021, will have a far-reaching impact on the way CSR is planned, executed, and implemented in India. The new reporting system will promote transparency, ensuring greater compliance

Featured image: Karolina Grabowska | Pexels

Quick Take

  • New definitions remove any ambiguity in key areas such as administrative overheads, ongoing projects, and CSR Policy, among others
  • All implementing agencies need to be registered with the government by filing a CRS-1 form, after which they will be allotted a unique CSR number
  • Impact assessment is for any project with an outlay of ₹ 1 crore need to be done by an independent agency
  • It’s now mandatory for companies to include CSR report in the company’s annual report


By Team ContentCraft


n January 22, 2021, the Ministry of Corporate Affairs (MCA), issued a notification, bringing into effect the Companies (Amendment) Act, 2019 & 2020. These amendments will supersede the relevant provisions of the Companies Act, 2013. These amendments will significantly alter the way Corporate Social Responsibility (CSR) activities will be conducted in India in the future. India is the only country in the world where CSR is pencilled into the law as a statutory requirement for companies above a certain revenue or profit threshold.

CSR defined in Companies Act, 2013


ection 135 of the Companies Act, 2013, lays out the provisions for Corporate Social Responsibility, while Schedule VII details the activities that can be undertaken under the ambit of CSR. Accordingly, companies with a turnover of ₹ 1,000 crore or net worth of ₹ 500 crores or an annual profit of ₹ 5 crores and above for the past three financial years are required to spend two percent of their profits towards CSR.

The amended rules, however, allow companies to set off CSR expenditure above the 2 percent limit in a particular fiscal year against planned expenditure for up to three years. However, there is no clarity if this amendment could be availed for ongoing expenditure that is in their third year with retrospective effect.

Changes after the amendment    

Rule 2: Definitions

Various amendments to Rule 2 and its sub-clauses, significantly change the definitions. The incorporation of the definition of ‘administrative overheads’ under Rule 2 (1) (b) removes ambiguities about what qualified as CSR expenses. According to the new and narrower definition, money spent on general management and administration of CSR will not include the expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project or programme.

Under the new Rule 2 (1) (d) six activities by any company have been excluded from under the purview of Section 135. These include any activity undertaken during the normal course of business (except R&D pertaining to Covid-19); any activity is undertaken outside India; contribution to political parties; activities benefiting employees of the company; sponsorships of activities from which marketing benefits can be derived for products or services and any activity carried out for the fulfilment of any other statutory obligation.

Rule 2 (1) (f) further sharpens the definition of “CSR Policy.” The intended purpose is to encourage companies to take a holistic approach towards planning their CSR activities. The new definition of CSR Policy means “a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formulation of the annual action plan”. The new rule eliminates Rule 6 under the old Act.

The other change is the definition of “on-going project,” under Rule 2 (1) (i). It now means, multi-year CSR projects undertaken to fulfil its obligations, but not exceeding a time limit of three years. It will include projects that were not initially conceived as multi-year projects but were extended beyond a year. However, such extensions need to be approved by the board. As per the amendment, any unspent fund from such ongoing projects needs to be transferred to a separate bank account and not back to the fund specified in Schedule VII of the 2013 Act.

Rule 4: Implementation

The comprehensive changes to the various sub-sections under Rule 4 will significantly change the way projects are implemented. Some of these changes are intended to ensure great accountability and transparency.

With effect from April 1, 2021, all implementing agencies (Section 8 companies, registered public trusts and registered societies that have been registered under section 12A and 80G of the Income Tax Act,1961 ) need to be registered with the Government of India (GOI). All such entities need to file form CSR-1 electronically for registration with the GOI after which they will be allotted a CSR number. This will debar many private trusts formed by companies to fulfil their obligations. The Indian Express reported that major private trusts such as the Reliance Foundation, DLF Foundation and Bharti Foundation, which implement CSR for their group companies, will be impacted by this change.

Rule 5: Committee

All companies are required to form a CSR Committee, which will recommend an annual action plan to the board. The plan needs to list CSR projects, how the projects will be executed, modalities for fund utilisation, monitoring and reporting mechanism and details of the need for impact assessment.

Rule 7: Expenditure

The amended rules put the onus on the board to ensure that administrative overheads do not exceed five percent of the total CSR expenses. It also states that any surplus money or profits generated through CSR cannot be treated as business profit and has to be ploughed back into CSR initiatives. The rules also specify that any excess CSR spend can be offset against expenditures for the next three years for ongoing projects. Further, if any company fails to spend the specified two percent for any reason, it must provide reasons for its failure, unless it pertains to any ongoing project.

Rule 8: Reporting

Perhaps, this is the biggest change in the amended rules. From April 1, 2021, impact assessment of any project with an outlay of ₹ 1 crore or companies that have a mandatory obligation of ₹ 10 crores and above need to engage the services of independent agencies for impact assessment. Companies are permitted to spend five percent of their total CSR expenditure or ₹ 50 lakh, whichever is less, towards impact assessment. It is also mandatory for both Indian and foreign companies to include a CSR report as part of their annual report.

Rule 9: Display for activities

The amendments make it mandatory for companies to list their activities, composition of their CSR Committee, CSR Policy and Projects approved by the board on their company website for the general public.

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