Amendments to CSR Rules

The Ministry of Corporate Affairs (MCA) has issued Notification dated 20th September 2022 [G.S.R. 715(E)] amending certain provisions of the Companies (CSR Policy) Rules. Most of these amendments are good and should not be of any major concern to companies or to the CSR implementing agencies.

The Notification can be read / downloaded at:

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTgwNTU0MTk3&docCategory=Notifications&type=open

Our simplified analysis

Amendment to Rule 3

Rule 3 of Companies (CSR Policy) Rules has been amended such that every company including its holding or subsidiary and a foreign company defined under Section 2(42) of the Indian Companies Act, having its branch office or project office in India and which fulfills the criteria specified under section 135(1) of the Indian Companies Act 2013 (i.e. Net Worth of Rs. 500/- crore or more or Turnover of Rs. 1,000/-  crore or more or Net Profit of Rs. 5 crore or more, during the immediately preceding financial year) shall constitute a CSR committee and comply with the provisions of spending CSR funds, if the company has any amount in its ‘Unspent Corporate Social Responsibility Account ‘.

Sub-rule (2) of Rule 3 has been omitted and the inference is  even if a company ceases to be covered u/s 135(1) (i.e., does not have for three consecutive financial years, Net Worth of Rs. 500/- crore or more or Turnover of Rs. 1,000/-  crore or more or Net Profit of Rs. 5 crore or more, during the immediately preceding financial year) it will still be required to constitute a CSR Committee of the Board and comply with the requirements of Section 135.

Amendment to Rule 4

Rule 4 has been amended to also recognize trust, societies and section 8 companies registered under Section 10(23C) (iv), (v), (vi) or (via) (educational and medical institutions) of Income tax as eligible CSR implementing agencies. Till this very recent amendment, only trust, societies and section 8 companies registered u/s 12A (now 12AB) of Income tax were recognized.

Explanation to Rule 4 clarifies that “any entity” (established under an Act of Parliament or a State legislature) shall mean “a statutory body constituted under an Act of Parliament or State legislature to undertake (CSR) activities covered in Schedule VII of the Act.”

Amendment to Rule 8

Rule 8 requires every company having average CSR obligation of ten crore rupees or more in pursuance of section 135(5) of the Act, in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study.

Rule 8 has been amended such that a Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed two percent (earlier it was five percent) of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is higher (earlier it was whichever is less).

In other words while the cap of five percent has been reduced to two percent, the cap of fifty lakhs stands effectively relaxed especially for companies with high CSR expenditure outlays.

Annual Report on CSR

Format for the Annual Report on CSR Activities to be included in the Board’s Report has also been amended to accommodate these changes

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