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Regulatory Alert: Amendments to the Companies (Corporate Social Responsibility Policy) Rules, 2014

27 January 2021

The Ministry of Corporate Affairs (“MCA”) has come up with major developments in relation to Corporate Social Responsibility (“CSR”) legislation in India as mentioned hereunder:

  • The provisions of the Companies (Amendment) Act, 2019 pertaining to Corporate Social Responsibility (CSR) have been notified on 22 January 2021.
  • The provisions of Companies (CSR Policy) Rules, 2014 (“Existing Rules”) are significantly amended vide Companies (CSR Policy) Amendment Rules, 2021 (“Amended Rules”).

A comparative analysis of key amendments made in the Existing Rules vis a vis Amended Rules are tabulated hereunder: 


Existing Rules

Amended Rules

Rule 2: Definitions: New inserted / Existing substituted

Administrative Overheads

No such definition

Is defined to mean:

Expenses incurred by the company for ‘general management and administration’ of CSR functions excluding expenses related to designing, implementation, monitoring and evaluation of CSR project or programme.

Corporate Social Responsibility

Is defined as:

1. Projects or programs relating to activities / specified in Schedule VII to the Companies Act, 2013 (“the Act”); or

2. Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per CSR Policy of the company.

Is re-defined to include:

Activities undertaken by a Company in pursuance of its statutory obligation laid down in Section 135 of the Act and related rules.

The new definition specifically excludes the following activities from the definition of CSR.

1. Activities undertaken in pursuance of normal course of business of the company except Research and Development (“R&D”) activity of new vaccine, drugs and medical devices related to COVID-19 for Financial Years (“FY”) 2020-21, 2021-22 and 2022-23, in their normal course of business, subject to the conditions that

i. Such R&D activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act:

ii. Details of such activity shall be disclosed separately in the Annual Report on CSR included in the Board’s Report.

2. Activity undertaken by the company outside India except for training of Indian sports personnel representing at national or international level.

3. Contribution of any amount to any political party.

4. Activities benefitting employees of the company.

5. Activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services.

6. Activities carried out for fulfilment of any other statutory obligations under any law in force in India.

CSR Policy

Relates to activities to be undertaken by the company in areas or subjects specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company except R&D activity of new vaccine, drugs and medical devices related to COVID-19 for FY 2020-21, 2021-22 and 2022-23, subject to the certain conditions.

Is re-defined to mean:

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.

On-going Project

No such definition

Is defined to mean:

A multi-year project undertaken by a Company in fulfilment of its CSR obligation having timelines up to 3 years and shall include such project that was initially not approved as a multi-year project but whose duration has been extended beyond 1 year by the board based on reasonable justification.

Rule 4: Substituted

CSR Activities / Implementation 

CSR Activities:

1. A Company to undertake CSR activities:

i. As per its CSR Policy in the form of projects / programs / activities

ii. As approved by the CSR Committee through

  • Section 8 company or a registered trust/society established by the company, either singly or along with any other company, or
  • Section 8 company or a registered trust / society, established by the Central/State Government or any entity established under an Act of Parliament or a State legislature.

iii. In collaboration with other companies in a prescribed manner.

2. Companies may have their own CSR personnel or those of implementing agencies with established track records of at least 3 FY. Such expenditure shall not exceed 5% of total CSR expenditure in 1 financial year.

3. Following shall not be considered as CSR Activity:

i. Any project/ programme undertaken outside India

ii. Project benefitting company’s employee and its family

iii. Contribution made to any political party

CSR Implementation:

1. The amended rules provide for classes of companies / entities who can undertake CSR activities on behalf of a company (i.e., Section 8 Company / public trust / society / entity established under an Act of Parliament / State Legislature, etc.). Such entities are required to be registered as exempt under Section 12A and Section 80G of the Income-tax Act, 1961.

2. Such entities are required to register themselves with the Central Government by filing the Form CSR-1 electronically with the Registrar, with effect from the 1 April 2021 and such company shall be assigned a unique CSR Registration Number.

3. A company may engage international organisations for designing, monitoring and evaluation of the CSR projects / programmes as per its CSR policy as well as for capacity building of their own personnel for CSR.

4. A company may also collaborate with other companies for undertaking projects / programmes / activities in a manner prescribed

5. The Board shall

i. Satisfy itself that the fund disbursed for CSR is utilised in the approved manner and the person responsible for it must certify the same

ii. Monitor the project for its timely completion and smooth implementation

Rule 5: Modified

CSR Committees

The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects / programs / activities undertaken by the company.

The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy which shall include the following:

1. A list of approved CSR programmes / projects and its manner of execution

2. modalities of utilisation of funds and implementation schedules

3. monitoring and reporting mechanism

4. details of need and impact assessment

Rule 6: Omitted

CSR Policy

The CSR Policy of the company shall include:

1. A list of approved CSR projects / programmes and its manner of execution

2. Monitoring process

3. Confirmation that the activities included in CSR policy pertains to Schedule VII of the Act

4. Confirmation that any surplus arising out of CSR Project shall not form part of business profits


Rule 7: Substituted

CSR Expenditure

1. CSR expenditure shall include all expenditure including contribution to corpus, or on projects or programs relating to CSR activities approved by the Board.

2. CSR expenditure shall exclude any expenditure on an item not in conformity or not in line with activities which fall within the areas or subjects specified in Schedule VII of the Act.

1. The Board shall ensure that the administrative overheads shall not exceed 5% of total CSR expenditure of the company for the FY.

2. Any surplus arising out of the CSR activities shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy and an annual  action plan of the company or transfer such surplus amount to a Fund specified in Schedule VII, within a period of 6 months of the expiry of the FY.

3. Where a company spends an amount more than the requirement, such excess amount to be set off against the requirement to spend up to immediate succeeding 3 FYs subject to prescribed conditions.

4. A company may spend a CSR amount for creation or acquisition of a capital asset, which shall be held by a specified class of companies.

5. Any capital asset created by a company prior to the commencement of the Amended Rules shall comply with the requirement of this rules within the period of 180 days maximum extended up to another 90 days.

Rule 8: Substituted

CSR Reporting

1. The Board’s Report shall include an annual report on CSR containing particulars specified in Annexure.

2. In case of a foreign company, the balance sheet shall include an annexure on report on CSR.

1. The Board’s Report shall include an annual report on CSR.

2. Every company having average CSR obligation of INR 10 Crores or more in 3 immediately preceding FYs, shall undertake an impact assessment, through an independent agency, of their CSR projects.

3. The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR.

4. A Company undertaking impact assessment may book the expenditure towards CSR for that FY up to 5% of the total CSR expenditure for that FY or INR 50 Lacs, whichever is less.

Rule 9: Substituted

Display of CSR activities on company’s website

The content of CSR Policy to be disclosed in the Board’s report and displayed on company’s website.

The Board of Directors of the company shall disclose the composition of the CSR Committee, approved CSR Policy and Projects on company’s website, if any, for public access.

Rule 10: Inserted

Transfer of unspent CSR amount

No such provision

Until a fund is specified in Schedule VII for the purposes of Section 135(5) and (6) of the Act, the unspent CSR amount shall be transferred by the company to Clean Ganga Fund, PM National Relief Fund, PM Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund), Other Fund, as prescribed by National/State Government.


BDO Comments

The amendment aims at making CSR framework more transparent and diligent. The new provision relating to set-off of excess spend would provide flexibility to a company to spend towards CSR based on project needs. Through the cap on administrative overheads, companies would not be required to work upon their expenditure mix and stick to the given limit. Permitting asset creation, specifically is a welcome move and the companies with larger asset project will have to devise the right strategy to control the asset. Another significant move to boost transparency is that agencies implementing CSR projects for companies should get registered with the MCA 21 portal and the system will automatically generate a unique CSR registration number. Besides this, the amendment also tightens the norms on the mandatory CSR spend and disclosure requirements with respect to CSR project viz. formation of annual action plan, impact assessment for larger CSR obligation etc., which will bring in the need for accountability of CSR spend.