Govt amends rules governing corporate social responsibility

The government has asked companies having any amount in their unspent corporate social responsibility accounts to set up a CSR committee.

To this effect, the government has amended rules governing corporate social responsibility (CSR), according to an official notification issued by the Ministry of Corporate Affairs.

Under the Companies Act, 2013, certain classes of profitable companies are required to spend at least 2 per cent of their average net profit of the preceding three financial years on CSR activities in a particular financial year.

Mukul Sharma, Partner, Cyril Amarchand Mangaldas, said the amendments have also revised the format for the annual report on CSR activities to be included in the board's report.

Under the CSR rules, amounts remaining unspent in a financial year relating to an ongoing project as well as any unutilised surplus arising from the CSR activities are required to be deposited by the company in a special bank account called the 'Unspent Corporate Social Responsibility Account'.

The amended rules now provide that a company will have to comply with CSR related obligations, including constituting a CSR committee so long as there is any unspent amount in its Unspent Corporate Social Responsibility Account.

Prior to the amendment, CSR rules capped the expenditure of impact assessment that could be counted towards CSR obligations of a company to 5 per cent of its CSR expenditure or Rs 50 lakh, whichever is lower.

This limit has now been increased to the higher of 2 per cent or Rs 50 lakh, which will enable companies to undertake comprehensive impact assessment for large scale CSR projects and account for the same towards their CSR obligation, Sharma said.

Apart from this, the government has released a new format for the annual report on CSR activities which is to be included in the board's report for the financial year commencing on or after April, 2020.

Under the format, the composition of the CSR committee requires the companies to provide the executive summary along with the weblinks of impact assessment of CSR projects carried out.

In addition, it requires the companies concerned to provide details about the CSR amount spent against ongoing projects and those other than ongoing projects.

Other requirements include disclosure of composition of the CSR committee, CSR policy and CSR projects approved by the board on the company website, among others.

Companies having a net worth of at least Rs 500 crore or a minimum turnover of Rs 1,000 crore or net profit of Rs 5 crore or more during the immediately preceding financial year have to spend on CSR activities.