Proposed amendments to Corporate Social Responsibility (CSR) Regime
In its continuous endeavour to promote, monitor and control CSR activities in India, the Ministry of Corporate Affairs (MCA) has recently released a draft of new CSR Rules1 for public comments. Stakeholders have been requested to submit their suggestions by April 10, 2020 post which the Ministry will consider the suggestions and make changes to the proposed Rules. While there are many changes outlined in the draft Rules, Sannam S4 has summarized here those amendments that may impact or boost operations and plans of international non-profits and companies operating in India. These include the following:
- The definition of CSR has been specifically amended to exclude activities that are undertaken outside India, contributions to a political party, activities are undertaken as part of the normal business of a Company or the ones that significantly benefit employees. Activities, where less than 25% of the beneficiaries are employees, will be permitted.
- Prescribed International Organizations (notified under the United Nations (Privileges and Immunities) Act, 1947) have been given recognition under the draft Rules whereby such organizations may contribute in designing, monitoring and evaluation of CSR projects or programs as per company’s CSR Policy and capacity building of its own CSR personnel. Additionally, these organizations will also be allowed to directly implement. CSR projects through funding by companies subject to approval by the Government.
- The current Rules permit companies to undertake CSR activities a) itself, b) through corporate non-profits, c) non-profits established by the Central Government or State Government or any entity established under an Act of Parliament or a State Legislature or d) non-profits with a three-year track record in undertaking similar projects or programs. Non-profits refer to Section 8 company, registered Trust or registered Society.
The draft rules propose that companies will be permitted to undertake CSR activity either a) itself, b) through a Section 8 company or c) any entity established under an Act of Parliament or a State legislature. The draft rules have also added that such a company/ entity would be required to register itself with the Central Government for undertaking any CSR activity by filing the e-form CSR-1 with the Registrar along with the prescribed fee.
The proviso that included the condition of independent non-profits should have a three-year track record in undertaking similar projects or programs that have also been removed. While a number of professional bodies are interpreting that Trusts and Societies are covered under ‘entities established under an Act of Parliament or a State legislature’, the same may need to be clarified by the Ministry in the final draft of the rules.
- Changes in the definition for CSR policy, ongoing projects, as well as project period have also been proposed which will impact the way projects and funds are planned and disbursed. Some of the other changes in compliance requirements that have been proposed are:
- The Chief Financial Officer (CFO) or person responsible for the financial management shall have to certify that funds disbursed for CSR activities have been utilized in the manner approved by the Board;
- Companies having the obligation of spending average CSR amount of INR 50 million or more shall undertake impact assessment for their CSR projects or programs and shall disclose details of the same in its Annual Report;
- The Board needs to ensure that the administrative overheads incurred shall not exceed 5% of the total CSR expenditure for the financial year. For impact assessment, the company may incur administrative overheads not exceeding 10% of total CSR expenditure for that financial year;
- The Board shall mandatorily disclose the composition of the CSR committee, CSR Policy, and Projects as approved by the Board on its website in the prescribed format.
- Unspent balances towards the fulfillment of CSR obligation at the time of commencement of these Rules shall be transferred within a period of 30 days from the end of the financial year 2020-21 to a special account opened by the company called ‘Unspent Corporate Social Responsibility Account’. This unspent balance will need to be consumed in accordance with CSR Policy within 3 years from the date of transfer. It is also proposed to establish a fund in the name of ‘National Unspent Corporate Social Responsibility Fund’ where the unspent amount in relation to ongoing projects will need to be transferred if 3 years have expired from the date of transfer in ‘Unspent Corporate Social Responsibility Account’.
- 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. Those companies that have purchased assets prior to the commencement of the Rules, shall within 180 days from such commencement (with a further extension of maximum 90 days with board’s approval) take steps to comply with this new rule.
As the draft of Rules has been released only for public comments, the timeline for the release of new Rules is not known.
1Companies (Corporate Social Responsibility Policy) Amendment Rules, 2020 – http://feedapp.mca.gov.in/csr/pdf/draftrules.pdf