Corporate Social Responsibility (CSR) regulations in India require certain companies to mandatorily undertake CSR activities and spend at least 2% of their average net profit of the immediately preceding three financial years on CSR activities. A company having: (i) a net worth of Rupees 500 crore or more; or (ii) a turnover of Rupees 1000 crore or more; or (iii) a net profit of Rupees 5 crore or more, is required to comply with the CSR provisions specified under Section 135 of the Companies Act, 2013 (“Act“) read along with the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules“). Foreign companies having a branch office or project office in India are also required to fulfil CSR obligations if they meet the criteria specified above.
Companies required to comply with the CSR Rules are required to establish a CSR committee whose primary function is to formulate an annual plan and recommend it to the board of directors. The CSR committee is also responsible for formulating the CSR policy, recommend the amount to be incurred for CSR activities and monitoring the CSR policy of the company. An illustrative list of CSR activities which a company can undertake is provided in Schedule VII of the Act.
Expenditure on CSR activities was made mandatory in 2014 and since then, several amendments have been introduced. The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 is one such amendment that was introduced on September 20, 2022 (“Amendment Rules“)1, by the Ministry of Corporate Affairs. The following changes have been brought about by the Amendment Rules:
Establishment of a CSR committee for unspent CSR amount
Companies are required to establish a CSR committee to monitor the execution of their CSR commitments and in particular any funds in their “Unspent Corporate Social Responsibility Account”. Companies may keep unused funds set aside for CSR in this designated account as long as they use them within three financial years. Its utilisation is to be monitored by the CSR committee. The Amendment Rules have also done away with the relaxation given to companies to not form a CSR committee if they no longer satisfy the required criteria.
Change in Expenditure for Impact Assessment
The CSR Rules earlier had authorised up to 5% of overall CSR expenditures, or Rupees 50 lakh, whichever was less for impact assessment. The Amendment Rules provide that the cost of social impact assessments, which can be considered as CSR spending, cannot be greater than 2% of all CSR expenditures for the applicable financial year or Rupees 50 lakh, whichever is higher. The amendment permits greater impact assessment spending in the event of substantial CSR projects.
Revised format for annual report on CSR activities
The Amendment Rules provide for a new format for the annual report on CSR activities. All companies are required to provide the following information in the annual report:
- Brief explanation of its CSR policy;
- Information about the members of the CSR committee such as name of the director, his/her designation, number of meetings of CSR Committee held and number of meetings of attended by the director;
- Web-links to the company’s website where the CSR Committee’s membership, CSR policy, and CSR projects approved by the board are listed; and
- Executive summary and web links for the impact assessments of CSR projects.
Companies are now also required to disclose in the annual report, information regarding the CSR amount allocated to ongoing projects and other than ongoing projects, particulars of excess amount for set-off, if applicable and unspent CSR amount for the preceding three financial years. If any capital assets were generated or bought as a result of the company’s CSR spending during the financial year, the company must specify how many. Additionally, if the company fails to spend 2% of the average net profits of the three immediately preceding financial years, reasons for the same should be provided in the annual report.