9911796707
TMI BlogFrequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR)X X X X Extracts X X X X X X X X Extracts X X X X ..... inistry has received several references and representations from stakeholders seeking clarifications on the various issues related to CSR. 3. Accordingly, in suppression of clarifications and FAQs issued vide General Circular no. 21/2014 (dated 18th June 2014), 36/2014 (dated 17th September 2014), 01/2016 (dated 12th January 2016) ,05/2016 (dated 16th May 2016), clarification issued vide letter dated 25.01.2018 and General Circular no. 06/2018 (dated 28th May 2018), a set of FAQs along with response of the Ministry is provided herewith at Annexure for better understanding and facilitating effective implementation of CSR. 4. This issues with the approval of competent authority. Yours faithfully, (Shobhit Srivastava) Deputy Director (CSR Cell) Annexure Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR) S. No. Question Answer 1.0 Applicability of CSR 1.1 Which companies qualify for CSR under the Companies Act, 2013? A company satisfying any of the following criteria during the immediately preceding financial year is required to comply with CSR provisions specified under section 135(1) of the Companies Act, 2013 read with the Companies (CSR Poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, two or more directors. Private companies Two or more directors. No independent directors are required as mentioned in the proviso under section 135(1). Foreign company At least two persons out of which: (a) one shall be as specified under clause (d) of sub-section (1) of section 380 of the Act, and (b) another shall be nominated by the foreign company. (Refer rule 5(1) of the Companies (CSR Policy) Rules, 2014) Where the amount required to be spent by a company on CSR does not exceed fifty lakh rupees, the requirement for constitution of the CSR Committee is not mandatory and the functions of the CSR Committee, in such cases, shall be discharged by the Board of Directors of the company. 2.2 What are the functions of the CSR Committee? The Corporate Social Responsibility Committee shall - (i) formulate and recommend the CSR policy to the Board; (ii) recommend the amount of expenditure to be incurred on CSR activities; (iii) monitor the CSR policy of the company from time to time; and (iv) formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the items as mentioned in rule 5(2) of the Companies (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements regarding CSR including non-compliance. The existing legal provisions such as mandatory disclosures, accountability of the CSR Committee and the Board, and provisions for audit of accounts of the company provide sufficient mechanisms for monitoring. 2.6 What is the role of the Government in monitoring compliance of CSR provisions by companies? The Government monitors the compliance of CSR provisions through the disclosures made by the companies in the MCA 21 portal. For any violation of CSR provisions, action can be initiated by the Government against such non-compliant companies as per provisions of the Companies Act, 2013 after due examination of records, and following due process of law. Non-compliance of CSR provisions has been notified as a civil wrong w.e.f. 22nd January, 2021. 3.0 CSR Expenditure 3.1 How is average net profit calculated for the purpose of section 135 of the Act? Whether 'profit before tax' or 'profit after tax' is used for such computation? The average net profit for the purpose of determining the spending on CSR activities is to be computed in accordance with the provisions of section 198 of the Act and will also be exclusive of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects, disposal/sale of materials used in CSR projects, and other similar income sources. The surplus arising out of CSR activities shall be utilised only for CSR purposes. 3.5 Whether contribution to the corpus of an entity is an admissible CSR expenditure? No, the provision relating to contribution to corpus as admissible CSR expenditure has been amended and the contribution to corpus of any entity is not an admissible CSR expenditure w.e.f. 22nd January, 2021. 3.6 Whether expenses related to transfer of capital asset as provided under rule 7(4) of Companies (CSR Policy) Rules, 2014, will qualify as admissible CSR expenditure? Yes, the expenses relating to transfer of capital asset such as stamp duty and registration fees, will qualify as admissible CSR expenditure in the year of such transfer. 3.7 If a company spends more than the requirement provided under section 135, can that excess amount be set off against the mandatory 2% CSR expenditure in succeeding financial years? Yes, the excess amount can be set off against the required 2% CSR expenditure up to the immediately succeeding three financial years subject to compliance with the conditions stipulated under rule 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2014 provides that any expenditure incurred by an assessee on the activities relating to CSR referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. 3.11 What tax benefits can be availed under CSR? No specific tax exemptions have been extended to CSR expenditure. The Finance Act, 2014 also clarifies that expenditure on CSR does not form part of business expenditure. 3.12 Whether contribution in kind can be monetized to be shown as CSR expenditure? The requirement comes from section 135(5) that states that "The Board of every company shall ensure that it spends…" Therefore, CSR contribution cannot be in kind and monetized. 3.13 Can CSR expenditure be incurred on activities beyond Schedule VII? No, CSR expenditure cannot be incurred on activities beyond Schedule VII of the Act. The activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act, 2013. The items enlisted in Schedule VII of the Act are broad-based and are intended to cover a wide range of activities. The entries in the said Schedule VII must be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts can be monetized and accounted for under the head of 'CSR expenditure'? No, involvement of employees in CSR projects of a company cannot be monetized. Contribution and involvement of employees in CSR activities of the company will no doubt generate interest/pride in CSR work and promote transformation from Corporate Social Responsibility (CSR) as an obligation to Socially Responsible Corporate (SRC) in all aspects of their functioning. Companies, therefore, should be encouraged to involve their employees in CSR activities. 4.0 CSR Activities 4.1 Which activities do not qualify as eligible CSR activity? Rule 2(1)(d) of the Companies (CSR Policy) Rules, 2014 defines CSR and the following activities are specifically excluded from being considered as eligible CSR activity: (i) Activities undertaken in pursuance of normal course of business of the company. However, exemption is provided for three financial years, till FY 2022-23, to companies engaged in R&D activities for new vaccines, drugs, and medical devices in their normal course of business, related to COVID- 19. This exclusion is allowed only in case the companies are engaged in R&D in collaboration with organisations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tates that any activity undertaken by the company outside India shall not be an eligible CSR activity. The only exception is training of Indian sports personnel representing any State or Union Territory at national or international level. 4.5 How can companies with small CSR funds take up CSR activities in a project mode? A well-designed CSR project can be managed with small CSR funds as well. Further, there is a provision in the Companies (CSR Policy) Rules, 2014 that enables such companies to collaborate with other companies for undertaking CSR activities by way of pooling their CSR resources. (Refer rule 4(4) in Companies (CSR Policy) Rules, 2014). 5.0 CSR Implementation 5.1 What are the different modes of implementation of CSR activities? Pursuant to rule 4 of the Companies (CSR Policy) Rules, 2014 a company may undertake CSR activities through following three modes of implementation: (i) Implementation by the company itself (ii) Implementation through eligible implementing agencies as prescribed under sub-rule (1) of rule 4. (iii) Implementation in collaboration with one or more companies as prescribed under sub-rule (4) of rule 4. 5.2 Which entities are eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities and thereby strengthen the CSR eco-system. 5.6 Is it mandatory for every implementing agency to register on the MCA21 portal? Yes, every implementing agency mentioned in rule 4(1) of the Companies (CSR Policy) Rules, 2014 shall mandatorily register itself in the MCA21 portal w.e.f. 01st April 2021 in order to enable it to undertake CSR activities on behalf of the company. 5.7 Whether an ongoing project approved prior to April 01, 2021, may be implemented by an implementing agency not registered on MCA21 portal? Since the requirement of registration has commenced from 01st April, 2021, any ongoing project which has been approved between 22nd January, 2021 and 31st March, 2021, may be carried out by an implementing agency which is not registered in MCA21 portal. However, the unregistered implementing agency is required to register in MCA21 portal before undertaking any new project after 01st April, 2021. 5.8 Whether registration of implementing agency by filing e-form CSR-1 is mandatory in case the company carries out CSR activities directly? No. The question of filing e-form CSR-1 does not arise in case the company carries out CSR activities directly. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngoing projects, the major responsibilities of the Board, inter-alia, include: (i) identification of the ongoing projects; (ii) year-wise allocation of funds; (iii) transferring the unspent money to a separate bank account as prescribed under sub-section (6) of section 135; (iv) monitoring the implementation of the projects with reference to the approved timelines and year-wise allocation; and (v) making modifications, if any, for smooth implementation of the projects within the overall permissible time period. 6.5 Can ongoing projects be implemented through implementing agencies? Yes, once the Board approves a project as an ongoing project, then it can choose to implement the project either itself, or through any of the implementing agencies as mentioned in rule 4(1) of the Companies (CSR Policy) Rules, 2014. 6.6 Does the Board have the power to abandon or modify an ongoing project within the permissible period of three years? As per provisions of the CSR Rules, the Board may abandon or modify an ongoing project, partially or wholly, under exceptional circumstances, during the prescribed project period as per the recommendation of its CSR Committee, and by provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not permitted to spend the unspent CSR amount, other than the amount pertaining to ongoing projects, on any CSR activity during the intervening period of six months after the end of the financial year. Such unspent CSR amount is required to be transferred to any fund included in Schedule VII of the Act. 7.4 Whether disbursal of funds by a company to the implementing agency for the implementation of projects will be considered as spend under section 135(5) and rules made there under? Section 135(5) of the Act prescribes minimum spending obligation for the company. The company may fulfil its CSR spending obligation directly by itself or though engaging an implementing agency. The implementing agency acts on behalf of the company and mere disbursal of funds for implementation of a project does not amount to spending unless the implementing agency utilises the whole amount. In the annual action plan, the CSR Committee of the company is required to provide for modalities of utilisation of funds. The CSR Committee shall recommend to the Board on budget allocation for any CSR project including modalities of utilisation of funds in every project. Further, as per rule 4(5) of the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting practices adopted by the company. 8.0 CSR Enforcement 8.1 What are the penal provisions for non- compliance with the provisions regarding transfer of unspent amount? The said non-compliance is a civil wrong and shall attract the following penalties: Company Twice the unspent amount required to be transferred to any fund included in Schedule VII of the Act or Unspent CSR Account, as the case may be, or one crore rupees, whichever is less. Every Officer in Default 1/10th of the unspent amount required to be transferred to any fund included in Schedule VII of the Act or Unspent CSR Account, or two lakh rupees, whichever is less. 8.2 Will the penal proceedings apply even after the unspent amount has been transferred to the Unspent CSR Account or to the funds mentioned in Schedule VII of the Act? The penalty does not relieve the company from the obligations under the law, and the penalty is over and above the obligated amount required to be transferred under section 135(5) or 135(6). The penalty is the consequence of not abiding by the law, and not an alternative for the same. 8.3 Is the penal provision in section 135(7) specific to non-transference of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the independent agency for impact assessment. 9.5 Is expenditure on impact assessment over and above the administrative overheads of 5%, or included in the same? Yes, the expenditure incurred on impact assessment is over and above the specified administrative overheads of 5%. Expenditure up to a maximum of 5% of the total CSR expenditure for that financial year or 50 lakh rupees (whichever is lower) can be incurred separately for impact assessment. 9.6 Whether impact assessment reports of all the CSR projects shall be annexed to the annual report on CSR? Rule 8(3)(b) of the Companies (CSR Policy) Rules, 2014 provides that impact assessment reports shall be placed before the Board and shall be annexed to the report on CSR. It is clarified that web-link to access the complete impact assessment reports and providing executive summary of the impact assessment reports in the annual report on CSR, shall be considered as sufficient compliance of the said rule. 9.7 When two or more companies collaborate for implementation of a CSR project, should the impact assessment carried out by one company be shared with other companies? Yes, in case two or more companies choose to coll ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
