Corporate Social

Responsibility in India UNIT 10 CSR LEGISLATIONS AND POLICY

GUIDELINES
Objectives
After going through this unit, you should be able to:
 Understand the concept of Corporate Social Responsibility
 Understand the evolution of Corporate Social Responsibility in India
 Understand the different CSR provisions applicable to organisations in India
 Understand the difference between CSR and Corporate Governance vis-
à-vis ESG (Environmental, Social and Governance)
Structure
10.1 Introduction
10.2 Evolution of CSR Law in India
10.3 Applicability of CSR Provisions and the Activities listed out under
Schedule VII
10.4 Constitution of CSR Committees
10.5 CSR Policy
10.6 Quantum of CSR Spending and Transfer of Unspent Amount
10.7 Implementation and Monitoring of CSR Activities
10.8 Duties and Responsibilities of the CSR Committee and the Board
10.9 Other Salient Features of CSR after the latest Amendments
10.10 CSR and Corporate Governance vis-à-vis ESG
10.11 CSR Audit
10.12 Summary
10.13 Self-Assessment Questions
10.14 Further Readings/References

10.1 INTRODUCTION
Corporate Social Responsibility [CSR] is a concept whereby organisations serve
the interests of the Society by taking responsibility for the impact of their activities
on customers, employees, shareholders, communities and the environment in all aspects
of their activities.
The Concept of CSR has evolved over the years in India. With the introduction of
mandatory provisions in the statute books of India, it has gained enormous importance
both as a mandatory compliance as well as an ethical and moral obligation on the
part of responsible corporates. It is no more to be construed as a mere Philanthropic
Activity, but essentially, as a societal necessity and responsibly that Corporates are
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required to perform. A voluntary act on the part of corporates as per their own CSR Legislation and
Policy Guidelines
will and fancy as existed before the statutory recognition/compulsion, has now taken
a well-structured form and conduct based on the dynamic statutory provisions under
the Companies Act, 2013 and the relevant rules framed there under as amended
from time-to-time synchronising with the changing societal needs. In other words,
the Corporates which otherwise exert a considerable influence on the Economy of
the Country have now been statutorily obligated to take more initiatives and
responsibilities towards Social, Environmental and Economic wellbeing of the Nation
in a very transparent and quantifiable or measurable manner.
It would be worthwhile to understand the evolvement of CSR in our country prior
to it getting statutorily made mandatory. The blossoming of CSR into its current
status may briefly be traced as follows:
 While some of the Corporates were already serving the society in their
own way on a voluntary basis, there was no uniformity. The welfare measures
for the society were generally considered to be the sole responsibility of
the Government as enshrined in the Constitution under Directive Principles
of State Policy.
 While CSR was talked about, The Companies Bill 2008, introduced in
the then Lok Sabha also did not contain any provisions relating to CSR
and it lapsed with the dissolution of the Lok Sabha. This Bill again got
introduced as The Companies Bill 2009. This Bill too did not deal with
CSR. However, when this Bill got referred to the then Standing Committee
on Finance, reference of introduction of CSR as a concept for larger
companies to make disclosures on their CSR policies and their activities
under such policies were introduced, for the first time.
 Thereafter, Ministry of Corporate Affairs (MCA) came out with Corporate
Social Responsibility Voluntary Guidelines 2009 in December 2009. The
said Guidelines envisaged that the corporates to formulate a CSR Policy
to guide their strategic planning and providing a roadmap for their CSR
initiatives under certain core elements.
 Later, on the recommendation of the Standing Committee on Finance, after
having due and extensive deliberations, MCA agreed to introduce statutory
provisions on CSR in the Companies Act. Numerous recommendations
of the said Committee and several other suggestions for amendments in
the said Bill, necessitated introduction of a new Bill viz., ‘The Companies
Amendment Bill 2011’ which contained Clause 135 dealing with CSR. This
Bill finally got consummated into Companies Act, 2013 replacing six decades
old Companies Act,1956.
 India made a history of sorts in the Global Corporate Scenario by giving
due statutory recognition and status to CSR in the landmark Corporate
Legislation of the Country.

10.2 EVOLUTION OF CSR LAW IN INDIA

Section 135 of the Companies Act, 2013 had come into force with effect from 1st
April 2014. Section 135 stipulates the threshold limits for companies that are statutorily
required to comply with CSR provisions along with other relevant stipulations. Schedule
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Corporate Social VII of the Act provides the details of the Activities that can be undertaken by a
Responsibility in India
company under its CSR Policy. MCA came out with Companies (CSR Policy) Rules,
2014 which govern the entire gamut of CSR activities of the Company.
However, the CSR provisions under Section 135, Schedule VII and the CSR Rules
have remained quite dynamic in keeping with the evolving social scenario. The List
of Activities and other stipulations have undergone several changes over the past
seven years. In other words, MCA has remained alive to the experiences that both
the Corporates and the Ministry gathered over these years on the evolution and
development of CSR. This fact could be appreciated by going through the gist of
developments that have taken place subsequent to the introduction of Section 135.
The far-reaching steps taken by MCA in the implementation of CSR Law could
briefly be summarised as stated below:
 First and foremost was the constitution of a separate CSR Cell in May
2014 with the responsibility of proposing amendments to CSR rules and
schedule thereto. CSR Cell was also to issue necessary clarifications with
regard to the provisions of CSR and implementations thereto. This Cell
was also entrusted with tasks such as, the responsibility of coordinating
with other Administrative Ministries, analysis of CSR expenditure of the
companies, compliance with CSR provisions by the companies, etc.
 Later, MCA constituted a High-Level Committee [HLC] in February 2015
to monitor the progress of implementation of CSR by the companies. The
HLC submitted its Report in September 2015.
 MCA, based on the recommendation of this Committee, instituted National
CSR Awards to recognise the CSR initiatives of the companies as well as
to encourage them to take more and more steps for public good under
the realm of CSR.
 MCA also launched National CSR Data Portal to achieve transparency
and factual disclosures.
 Simultaneously, MCA started closely monitoring the compliance of CSR
provisions by companies, by studying the statutory disclosures made in reports
of the Board of Directors of the companies and initiating necessary action
wherever necessary through the concerned ROCs.
 In course of time, MCA set up an internal Expert Committee to revisit
Schedule VII of the Act and guidelines for enforcement of CSR provisions.
Two sub-committees viz., Legal Sub-committee and Technical Sub-committee
too were constituted to assist the main Expert committee. In July 2018,
these committees submitted their reports.
 As MCA felt a greater need to further fine tune the CSR provisions, it
constituted another High-Level Committee under the Chairmanship of
Secretary MCA in 2018 [HLC 2018] and this HLC submitted its Report
on 7th August 2019.
 These significant developments ultimately culminated in MCA notifying
necessary amendments to Section 135 of the Companies Act, 2013 as well
as to the CSR Rules framed thereunder on 22 nd January 2021 for
strengthening the CSR ecosystem by simplifying compliances and improving
disclosures.
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Activity 1 CSR Legislation and
Policy Guidelines
List down major highlights of the evolution of CSR Law in India.
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Now, let us dwell on Section 135 and the relevant CSR Rules thereunder
(after these major amendments) as prevailing currently.

10.3 APPLICABILITY OF CSR PROVISIONS AND

THE ACTIVITIES LISTED OUT UNDER
SCHEDULE VII
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 Policy) Rules,
2014 made thereunder:
(i) net worth of rupees five hundred crore or more, or
(ii) turnover of rupees one thousand crore or more, or
(iii) net profit of rupees five crore or more.
Schedule VII lists outs the CSR Activities as follows:
(i) Eradicating hunger, poverty and malnutrition, promoting health care including
preventive health care and sanitation including contribution to the Swach
Bharat Kosh set-up by the Central Government for the promotion of
sanitation and making available safe drinking water.
(ii) Promoting education, including special education and employment enhancing
vocation skills especially among children, women, elderly and the differently-
abled and livelihood enhancement projects.
(iii) Promoting gender equality, empowering women, setting up homes and hostels
for women and orphans; setting up old age homes, day care centres and
such other facilities for senior citizens and measures for reducing inequalities
faced by socially and economically backward groups.
(iv) Ensuring environmental sustainability, ecological balance, protection of flora
and fauna, animal welfare, agroforestry, conservation of natural resources
and maintaining a quality of soil, air and water including contribution to
the Clean Ganga Fund set-up by the Central Government for rejuvenation
of river Ganga.
(v) Protection of national heritage, art and culture including restoration of buildings
and sites of historical importance and works of art; setting up public libraries;
promotion and development of traditional arts and handicrafts.
(vi) Measures for the benefit of armed forces veterans, war widows and their
dependents, Central Armed Police Forces (CAPF) and Central Para Military
Forces (CPMF) veterans, and their dependents including widows. 147
Corporate Social (vii) Training to stimulate rural sports, nationally recognized sports, Paralympic
Responsibility in India
sports and Olympic sports.
(viii) Contribution to the Prime Minister’s National Relief Fund or Prime Minister’s
Citizen Assistance and Relief Fund in Emergency Situations Fund (PM-
CARES Fund) or any other fund set up by the Central Government for
socioeconomic development and relief and welfare of the scheduled caste,
tribes, and other backward classes, minorities and women.
(ix) (a) Contribution to incubators or research and development projects in
the field of science, technology, engineering and medicine, funded by
the Central Government, State Government, Public Sector Undertaking
or any agency of the Central Government or State Government and
(b) Contributions to public funded Universities; Indian Institute of
Technology (IITs); National Laboratories and autonomous bodies
established under Department of Atomic Energy (DAE), Department
of Biotechnology (DBT); Department of Science and Technology(DST);
Department of Pharmaceuticals, Ministry of Ayurveda, Yoga and
Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry
of Electronics and Information Technology and other bodies, namely
Defence Research and Development Organisation (DRDO); Indian
Council of Agricultural Research (ICAR); Indian Council of Medical
Research(ICMR); and Council of Science and Industrial Research
(CSIR), engaged in conducting research in science, technology,
engineering and medicine aimed at promoting Sustainable Development
Goals (SDGs).
(x) Rural development projects.
(xi) Slum area development.
[This item has been further amplified in the Explanation as: “For the purpose
of this item the term ‘slum area’ shall mean any area declared as such by
the Central Government, or any State Government or any other competent
authority under any law for the time being in force]
(xii) Disaster management, including relief, rehabilitation and reconstruction
activities.
The act stipultes that a company shall give preference to the local area and
areas around it where it operates, for spending the amount earmarked for
Corporate Social Responsibility activities.
As explained in the foregoing paragraphs, the companies will have to spend on CSR
as per the provisions of the Act and the CSR Policy Rules. The Ministry of Corporate
Affairs (MCA) notified the Companies (CSR Policy) Amendment Rules, 2021
(‘Rules’) through a notification dated 22 January 2021. These Rules provide substantial
amendments to the Companies (Corporate Social Responsibility Policy) Rules, 2014.
The said Rules provide that “Corporate Social Responsibility (CSR)” means the
activities that a company undertakes in accordance with the statutory obligation
laid down in Section 135 of the Act and in accordance with the provisions contained
in the Rules, but shall not include the following:
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  Activities undertaken in the normal course of company business. However, CSR Legislation and
Policy Guidelines
a company engaged in the development and research activity of new drugs,
vaccines, and medical devices in its normal course of business can undertake
the development and research activity of a new drug, vaccine and medical
devices relating toCOVID-19 for the financial years 2020-21, 2021-22,
2022-23 subject to the conditions that:
- The company shall carry out such development and research activities
in collaboration with any of the organisations or institutes mentioned
in Schedule VII item(ix) of the Act.
- The company must disclose the details of the activity separately in the
Annual report on CSR included in the report of the Board of Directors
(‘Board’).
 Activities undertaken by a company outside India except for training of
Indian sports personnel representing India at the international level or Union
or State territory at the national level.
 Contribution of any amount indirectly or directly to any political party under
section 182 of the Act.
 Activities benefiting employees of the company defined in Section 2(k) of
the Code on Wages, 2019.
 Activities supported by a company on a sponsorship basis to derive
marketing benefits for its services or products.
 Activities carried out to fulfil other statutory obligations under any law in
force in India.
Activity 2
Enlist the activities mentioned under schedule VII on which companies can spend
to comply with CSR provisions.
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10.4 CONSTITUTION OF CSR COMMITTEES

Section 135(1) provides that every company attracted by CSR provisions must
constitute a Corporate Social Responsibility Committee of the Board of Directors.
The composition of the CSR Committee is stipulated as under:
Listed companies Three or more directors, out of which at least one
shall be an independent director.
Unlisted public companies Three or more directors, out of which at least one
shall be an independent director.However, if there 149
Corporate Social is no requirement of having an independent director
Responsibility in India
in the company, two or more directors.

Private companies Two or more directors. No independent directors

are required as mentioned in the provision under
section 135(1).

Foreign company At least 2 persons of which one person shall be a

person resident in India authorized to accept on
behalf of the foreign company, the services of notices
and other documents. The other person shall be
nominated by the foreign company.
A welcome feature of the latest amendment is that where the amount required
to be spent by a company on CSR does not exceed Rs. 50 Lakhs, 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.

10.5 CSR POLICY

As per the amended definition, “CSR Policy” means 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.
In other words, CSR Policy elaborates the activities to be undertaken by the Company
in alignment with the activities as listed out in Schedule VII to the Act. In general,
the CSR Policy contains a Statement detailing:

 the approach and direction given by the Board of Directors of a company

based on the recommendations of its CSR Committee.

 Guiding Principles governing the selection, implementation and monitoring

of CSR Activities.

 Formulation of an Annual Action Plan.

It is very important that the CSR Activities shall not be the same as those undertaken
by the company in its normal course of business.

Another significant requirement is that the Board of Directors should ensure that
the contents of the CSR Policy is placed on the website of the company, if any.
Activity 3

Write down the composition of CSR Committees for different type of companies.

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 CSR Legislation and
10.6 QUANTUM OF CSR SPENDING AND TRANSFER Policy Guidelines
OF UNSPENT AMOUNT
a. Quantum of CSR Spending
A company attracted by CSR provisions are required to spend at least 2% of
its average net profits made during the 3 immediately preceding financial years
in pursuance of its CSR Policy. In case, a company has not completed 3 financial
years since its incorporation, it should be ensured that the average net profits
shall be calculated for the such immediately preceding financial years since its
incorporation.
The average net profit for the purpose of CSR activities is to be computed as
per the provisions of Section 198 of the Act. It must be exclusive of the items
given under Rule 2(1)(h) of the Companies (CSR Policy) Rules, 2014. Section
198 of the Act specifies certain additions/deletions (adjustments) to be made
while calculating a company’s net profit. It mainly excludes capital payments/
receipts, income tax and set-off of past losses. Profit Before Tax (PBT) is to
be used for computation of net profit under Section 135 of the Act.
b. Transfer of Unspent Amount
The Act stipulates that where the company fails to spend the required amount,
the Board, in its report on CSR policy and activities forming part of the Report
of the Board of Directors, shall specify the reasons for not spending such
amount and, unless the unspent amount relates to any ‘ongoing project’, transfer
such unspent amount to a *Fund specified in Schedule VII, within a period
of six months of the expiry of the financial year.
*Funds that are specified for Transfer of Unspent CSR Amount
 Contribution to Prime Minister’s National Relief Fund
 Any other fund initiated by the central government concerning socio-economic
development, relief and welfare of the scheduled caste, minorities, tribes,
women and other backward classes
 A contribution made to an incubator funded either by the central government,
the state government, public sector undertaking of state or central
government, or any other agency.
 Contributions made to:
- Public-funded universities
- National Laboratories and Autonomous Bodies (established under the
auspices of the Indian Council of Agricultural Research (ICAR)
- Council of Scientific and Industrial Research (CSIR)
- Department of Atomic Energy (DAE)
- Indian Institute of Technology (IITs)
- Indian Council of Medical Research (ICMR)
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Corporate Social - Defence Research and Development Organisation (DRDO)
Responsibility in India
- Department of Science and Technology (DST) engaged in conducting
research in technology, science, medicine, and engineering aimed at
encouraging Sustainable Development Goals (SDGs).
In the case of an ‘ongoing project’ under the company’s CSR policy, the unspent
amount, shall be transferred by the company to an exclusive account to be opened
by the company in any scheduled bank within 30 days from the end of the financial
year. This account shall be designated as ‘Unspent Corporate Social Responsibility
Account’, and the funds shall be used towards its obligations under the CSR Policy
within a period of three financial years from the date of the transfer.
If the company is unable to utilise the said funds at the end of the three financial
years, the funds should be transferred to the ‘specified fund’ mentioned above within
a period of thirty days upon completion of the third financial year.
An ‘ongoing project’ means a multi-year project that a company undertakes to
fulfil its CSR obligation within three years, excluding the financial year in which itis
commenced. It will also include projects that were initially not approved as multi-
year projects but whose duration is extended beyond one-year by the board based
on reasonable justification.
Another welcome measure introduced by the Amendment in 2021 is that if a
company spends an amount in excess of the requirements, it can set off such excess
amount against the requirement to spend under this sub-section for such number
of succeeding financial years and in such manner, as may be prescribed.

10.7 IMPLEMENTATION AND MONITORING OF CSR

ACTIVITIES
A. Implementation of CSR Activities
A company can undertake CSR activity either by itself or through implementing
agencies which are registered with MCA in the required manner, with effect from
1st April 2021.
The following type of entities are entitled to apply and get registered as Implementing
Agencies:
 Companies that are established under Section 8 of the Act, or a registered
society or registered public trust under Section 12A and80G respectively
of the Income Tax Act, 1961, established by the companies themselves
or along with any other company.
 Companies that are established under Section 8 of the Act or a registered
society or registered trust established by the Central or State Government.
 Entity established under State legislature or an Act of Parliament.
 Companies that are established under Section 8 of the Act, or a registered
public society or registered trust under section 12A and80G respectively
of the Income Tax Act, 1961, and having a track record of at least three
years in undertaking similar activities.
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The above entities who intend to undertake CSR activity should register themselves CSR Legislation and
Policy Guidelines
with the Central Government by following the required procedural formalities after
satisfying themselves of fulfilling the eligible criteria. They need to file the Form
CSR-1 with the Registrar, effective from 1 April 2021. The entities must sign and
submit formCSR-1 electronically. It should be digitally verified by a Company
Secretary, Chartered Accountant or Cost Accountant in practice.
On successful submission of Form CSR-1 on the MCA portal, the system will
automatically generate a unique CSR Registration Number.
However, these new and amended requirements would not impact ongoing
CSR Projects and Programmes that were undertaken prior to 1st April 2021.
In this context, the following significant aspects with regard to implementation of
CSR activities are worth noting:
 Engaging International Organisation: A company can engage
‘international organisations’ for monitoring, designing and evaluating the CSR
programmes or projects as per its CSR policy and for capacity building
of its personnel for CSR.
- As per the extant amended CSR Rule 2(1)(g), an ‘international
organisation’ is an organisation notified by the Central Government as
an international organisation under Section 3 of the United Nations
(Privileges and Immunities Act, 1947 to which the provisions of the
Schedule to the said Act apply.)
- Accordingly, companies have the option to appoint any other entity
to undertake the prescribed overhead jobs in respect of CSR. In any
case, the threshold (5% of CSR Expenditure) allowed as administrative
overhead will be applicable.
 Collaboration With Other Companies: A company may also collaborate
with other companies for undertaking projects or programmes or CSR
activities in such a manner that the CSR committees of respective companies
are in a position to report separately on such projects or programmes
in accordance with CSR rules.
B. Monitoring of CSR Activities
The Board of a company should satisfy that the funds disbursed for CSR activities
are utilised for the purposes and in the manner as approved by them. The person
responsible for financial management or the Chief Financial Officer should certify
to this effect.
In the case of any ongoing project, the Board should monitor the implementation
of the project in the approved timelines and year-wise allocation. It can make any
modifications for smooth implementation of the project within the permissible time.

10.8 DUTIES AND RESPONSIBILITIES OF THE CSR

COMMITTEE AND THE BOARD
CSR Committee:
 The CSR Committee shall formulate and recommend a CSR Policy to the
Board. 153
Corporate Social  CSR Policy shall lay down the CSR programmes and projects to be
Responsibility in India
undertaken by the company in subjects/areas in alignment with those specified
in Schedule VII of the Act.
 The Committee shall recommend the expenditure sought to be incurred
under such activities to be undertaken by the company.
 Modalities of implementation schedules and utilisation of funds for the projects
or programmes.
 It is also the responsibility of the Committee to monitor the implementation
the activities under the Policy by introducing a transparent controlling and
reporting mechanism for the individual projects and programmes.
 Details of impact and any need assessment for the projects undertaken by
the company.
Board of Directors:
 After due consideration and deliberation on the recommendations made
by the CSR Committee, the Board shall approve the CSR Policy of the
Company.
 The Board must ensure that the Activities mentioned in its CSR Policy are
undertaken.
 The Board shall make sure that the company spends minimum 2% of the
average net profits made during the 3 immediately preceding financial years
as per CSR Policy.
 In case, a company has not completed 3 financial years since its
incorporation, the Board should ensure that the average net profits shall
be calculated for such immediately preceding financial years since its
incorporation.
 The Board’s Report shall include an annual report on CSR which
should cover the following aspects:
 The Composition of CSR Committee
 The Contents of CSR Policy
 In case, CSR spending is less than 2% of the Net Profit as stipulated,
the reasons for the unspent amount as well as details of transfer of
unspent amount relating to ongoing project, if any, to the specified fund
under the Act [such transfer shall happen within a period of 6 months
from the expiry of the financial year].
 In the case of a foreign company, the Balance Sheet filed shall contain an
Annexure regarding a Report on CSR.
In case of non-compliance of CSR provisions, the penalty on the company would
be 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 would attract a penalty
of 1/10thof 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
154 is less.
 CSR Legislation and
10.9 OTHER SALIENT FEATURES OF CSR AFTER Policy Guidelines
THE LATEST AMENDMENTS
A. Creation or Acquisition of a Capital Asset

The CSR amount may be spent by a company for creation or acquisition of a

capital asset, which shall be held by–

(a) a company established under section 8 or a Registered Public Trust or

Registered Society, having charitable objects and CSR Registration
Number or

(b) beneficiaries of the said CSR project, in the form of self-help groups,
collectives, entities;

Or

(c) a public authority as defined under 2 (h) of RTI Act, 2005:

It is further stipulated that any capital asset created by a company prior to

the commencement of the Companies (CSR Policy) Amendment Rules,
2021, shall within a period of 180 days from such commencement comply
with the requirement of this rule, which may be extended by a further period
of not more than 90 days with the approval of the Board based on reasonable
justification.

B. Impact Assessment

Companies having average CSR obligation of ten crore rupees or more in the
three immediately preceding financial years, and companies that have CSR projects
with outlays of minimum Rs. 1 crore and which have been completed not less than
one year before impact assessment shall undertake impact assessment, through
an independent agency, of their CSR projects. The impact assessment reports
shall be placed before the Board and shall be annexed to the annual report on
CSR.

Impact assessment shall be carried out project-wise only in cases where both the
above conditions are fulfilled. In other cases, it can be taken up by the company
on a voluntary basis.

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 Rs. 50 lakhs (whichever is lower) can
be incurred separately for impact assessment.

C. A few other Important Amendments in CSR Rules:

Administrative overheads:

Administrative overheads mean the company expenses incurred for administration

and general management of the CSR functions. However, it will not include the direct
expenses incurred for implementing, designing, evaluating, and monitoring a particular
CSR project or programme. 155
Corporate Social Net profit:
Responsibility in India
Net profits mean the net profit of a company according to its financial statement
prepared under the applicable provisions of the Act, but it will not include the
following:
- Any profit arising from overseas branch/branches of the company, whether
operated as a separate company or otherwise.
- Any dividend received from another company in India covered under and
complying with Section 135 of the Act.
CSR Expenditure:
 Administrative overheads shall not exceed five percent of total CSR
expenditure.
 Any surplus arising out of the CSR activities shall not form part of the
business profit and shall be ploughed back into the same project or transferred
to the Unspent CSR Account and spent in pursuance of CSR policy and annual
action plan of the company or transfer such surplus amount to a Fund specified
in Schedule VII, within a period of six months of the expiry of the financial
year.
 Where a company spends an amount in excess of requirement, such excess
amount may be set off against the requirement to spend up to immediate
succeeding three financial years subject to the conditions that –
- the excess amount available for set off shall not include the surplus arising
out of the CSR activities and
- the Board of Directors the company shall pass a resolution to that effect.
Form CSR-2
The Ministry of Corporate Affairs (MCA) vide Notification dt. 11th February, 2022,
vide powers conferred by section (1) and (2) of Section 128 and subsection (3)
of Section 129, Section 133, Section 134 and other applicable sections read with
Section 469 of the Companies Act, 2013 has notified as follows:
In Companies (Accounts) Rules, 2014, in rule12, after sub-rule(1A) the following
sub rule may be inserted namely;
(1B) Every company covered under the provisions of sub- section (1) of Section
135 shall furnish a report on Corporate Social Responsibility in form CSR-2 to
the Registrar for the preceding financial year (2020-2021) and onwards as an
addendum to Form AOC-4 XBRL or AOC-4NBFC (Ind As) as the case may be.
Dedicated Portal for CSR
Ministry of Corporate Affairs, Government of India is contemplating to establish a
National CSR Exchange portal to disseminate Corporate Social Responsibility related
data and information filed by the companies registered with it.
D. Ministry of Corporate Affairs (MCA’s) Frequently Asked Questions
(FAQs) and Clarifications:
After the major amendments in CSR provisions in 2021, MCA has come out with
156 General Circular No.14/2021 on 25th August 2021 annexing therein an extensive
list of Frequently Asked Questions and MCA’s Response/Clarifications on the issues CSR Legislation and
Policy Guidelines
raised thereon ‘for better understanding and facilitating effective implementation of
CSR. The essence of many of the clarifications have been incorporated under the
relevant subject matters while dealing with them then and there. However, here, an
attempt has been made to summarise a few more clarifications which could be
considered significant:
 Provisions of section 135, read with Schedule VII of the Act and Companies
(CSR Policy) Rules, 2014 provide the broad framework within which the
eligible companies are required to formulate their CSR policies including
activities to be undertaken and implementation of the same. CSR is a board-
driven process, and the Board of the company is empowered to plan,
approve, execute, and monitor the CSR activities of the company based
on the recommendation of its CSR Committee. The Government has
no direct role in the approval and implementation of the CSR
programmes /projects of a company.
 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.
 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.
 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.
 The first proviso to section 135(5) of the Act provides that the company
shall give preference to local areas and the areas around where it operates.
Some activities in Schedule VII such as welfare activities for war widows,
art and culture, and other similar activities, transcend geographical boundaries
and are applicable across the country. With the advent of Information &
Communication Technology (ICT) and emergence of new age businesses
like e-commerce companies, process-outsourcing companies, and aggregator
companies, it is becoming increasingly difficult to determine the local area
of various activities. The spirit of the Act is to ensure that CSR initiatives
are aligned with the national priorities and enhance engagement of the
corporate sector towards achieving Sustainable Development Goals (SDGs).
Thus, the preference to local area in the Act is only directory and not
mandatory in nature and companies need to balance local area preference
with national priorities.
 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
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Corporate Social in Schedule VII of the Act are broad-based and are intended to cover a
Responsibility in India
wide range of activities. The entries in the said Schedule VII must be
interpreted liberally to capture the essence of the subjects enumerated in
the said Schedule.
 CSR expenditure can be incurred in multiple modes:

(i) ‘Activities route’, which is a direct mode wherein a company undertakes

the CSR projects or programmes as per Schedule VII of the Act, either
by itself or by engaging implementing agencies as prescribed in
Companies (CSR Policy) Rules, 2014.
(ii) ‘Contribution to funds route’, which allows the contributions to various
funds as specified in Schedule VII of the Act.
(iii) Contribution to incubators and R&D projects, as specified in item (ix)(a)
and contribution to institutes/organisations, engaged in research and
development activity, as specified under item (ix) (b) of Schedule VII
of the Act.
 Contributions to the following funds (specified in Schedule VII) shall be
admissible as CSR expenditure:
(i) Swachh Bharat Kosh
(ii) Clean Ganga Fund
(iii) Prime Minister’s National Relief Fund (PMNRF)
(iv) Prime Minister’s Citizen Assistance and Relief in Emergency Situations
Fund (PM CARES Fund)
(v) Any other fund set up by the Central Government and notified by the
Ministry of Corporate Affairs, for socio-economic development and
relief and welfare of the Scheduled Castes, the Scheduled Tribes, other
backward classes, minorities and women.
 Any activity benefitting employees of the company shall not be considered
as eligible CSR activity. As per the rule, any activity designed exclusively
for the benefit of employees shall be considered as an “activity benefitting
employees” and will not qualify as permissible CSR expenditure. The spirit
behind any CSR activity is to benefit the public at large and the activity
should be non-discriminatory to any class of beneficiaries. However, any
activity which is not designed to benefit employees solely, but the public
at large, and if the employees and their family members are incidental
beneficiaries, then, such activity would not be considered as “activity
benefitting employees” and will qualify as eligible CSR activity.
 Sponsorship activities of an event are done with an aim of deriving marketing
benefits for a company’s product or services. The intent of CSR is to
encourage companies to undertake the activities in a project or programme
mode rather than as a one-off event. Companies shall not use CSR purely
as a marketing or brand building tool for their business, but brand building
158 as a collateral benefit does not vitiate the spirit of CSR.
  The budget outlay dedicated for one project can be used against another CSR Legislation and
Policy Guidelines
project. In such a case, the Board and CSR Committee should appropriately
record the alteration in the target spending and modify the same in accordance
with the actuals.
 Companies are 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.
 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 through 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.
 A company can open a single special account, called ‘Unspent Corporate
Social Responsibility Account’, for a financial year in any scheduled bank,
to transfer the unspent amount w.r.t ongoing project(s) of that financial year.
A company needs to open a separate ’Unspent CSR Account’ for each
financial year but not for each ongoing project.
 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.
 In case two or more companies choose to collaborate for the implementation
of a CSR project, then the impact assessment carried out by one company
for the common project may be shared with the other companies for the
purpose of disclosure to the Board and in the annual report on CSR. The
sharing of the cost of impact assessment may be decided by the collaborating
companies subject to the limits as prescribed in the Rules.

10.10 CSR AND CORPORATE GOVERNANCE

VIS-A-VIS ESG
Corporate Social Responsibility (CSR) and Corporate Governance have lot
of similarities, leading one to think that they are the two sides of the same coin.
They had similar beginnings. CSR started more as a philanthropic activity on a
voluntary basis by responsible corporates. So also, is the case with Corporate
Governance. Ethical Business Conduct was an unwritten code amongst good
corporates even prior to it getting codified.
Later Corporate Governance became mandatory with the introduction of Clause
49 for listed Enterprises by SEBI. With the changing times and needs, the requirements
and compliances under Corporate Governance are getting fine-tuned from time to
time to make enterprises behave as good Corporate Citizens.
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Corporate Social CSR which started as a good business practice and more as a voluntary philanthropical
Responsibility in India
activity or set of activities by the companies in the environments and surroundings
that they were operating, became a mandatory compulsion with the introduction of
Section 135 in the Companies Act, 2013 for many corporates based on certain
criteria.
More than anything else, many stakeholders including the general public started giving
credence and importance to the corporates based on their Corporate Governance
structure as well as their societal commitments in terms of their CSR programmes
and projects for the common good.
In this scenario, entered ESG or the Environmental, Social and Governance. It has
become the latest buzzword in the corporate world. Corporates’ responsibilities
towards Environmental, Social and Governance issues created a greater expectation
amongst various stakeholders especially amongst the investors. Investors started
using ESG as a significant criterion to assess the performance of the companies in
their respective domain and areas of operation. In the Indian context, CSR is treated
more as a statutory and compliance requirement whereas ESG on the other hand
started gaining importance with investors and financial community in taking their
investment decisions.
As both revolve around the best principles and practices of business ethics, adding
certainly immense value to an enterprise, the corporates have started aligning their
CSR activities and ESG commitments. Apart from boosting the image of the company,
this serves a greater purpose of enhancing the reputation of companies with financial
investors leading to a win-win situation for both.
Also, it is worth noting that the Companies Act, 2013 under Section 134(m) mandates
companies to include a report by the Board of Directors on Conservation of Energy,
along with the annual financial statement, which in essence is an ESG disclosure.
This is further amplified in the Companies (Accounts) Rules, 2014. Similarly, SEBI
has stipulated certain ESG disclosures in respect of Listed entities.
It is evident that with the increasing importance of ESG, the companies that have
aligned their CSR activities with their ESG goals, beyond the mere statutory
compulsions/compliances, would grow immensely in their stature and brand
enhancement. No doubt, they will also become preferred choices among global
investors who have been of late laying greater emphasis on ESG and sustainability
reporting. The companies operating with such lofty objectives, while serving a greater
cause of social, environmental and sustainability commitments, also become very
successful in their respective sphere of operations and scale new heights in every
aspect including their brand image, turnover and profits.
Activity 4
Explain the difference between CSR and Corporate Governance vis-à-vis
ESG.
..........................................................................................................................
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 CSR Legislation and
10.11 CSR AUDIT Policy Guidelines

CSR Rules require monitoring and reporting of CSR activities. These have been
dealt with in detail elsewhere in this Article under relevant headings. Similarly, we
have also seen that corporates with larger CSR outlays as stipulated in the Rules,
after the latest amendment, need to carry out Impact Assessment through an
Independent Agency and the impact assessment report after consideration by the
Board of Directors should be annexed to the annual report on CSR.
In this context, it may be mentioned that The Institute of Chartered Accountants
have come out with a Technical Guide in the form of a handbook consisting of a
detailed report on the implementation of CSR activities, requirement of CSR Audit,
reporting requirements etc under CARO 2020 relevant to CSR.

10.12 SUMMARY
Indian corporates in general have not lagged behind in their social obligations and
responsibilities even when CSR was voluntary. With CSR getting a legally structured
form and a spectrum of activities getting specified in Schedule VII, with minimal
spending statutorily monitored and regulated, CSR has reached greater heights. With
the growth of Indian corporates, it is natural that CSR spending too have gone up
substantially. It is also heartening to note that how with the Government’s timely
intervention and clarification, CSR spending and contributions by the corporates
have come to the aid of COVID management.
The Government too, on its part, realising that the Indian corporates are discharging
their CSR obligations in a more responsible way, in keeping pace with the changing
needs of the society and the environment in which they operate, carried out the
latest amendment in the CSR provisions and CSR Rules. Significantly, the penal
provisions in CSR law got substituted by civil liability with much reduced penalty
for non-compliance.

10.13 SELF-ASSESSMENT QUESTIONS

1. Trace the evolvement of CSR in our country prior to it getting statutorily made
mandatory.
2. What are the methods of implementing CSR activities as per the Companies
(CSR Policy) Amendment Rules?
3. Which activities do not qualify as eligible CSR activity?
4. Enlist Duties and Responsibilities of the CSR Committee and the Board.
5. List down some salient features of CSR after the latest Amendments.

10.14 FURTHER READINGS/REFERENCES

ClearTax. (2022, January 31). Corporate Social Responsibility under Section
135 of Companies Act 2013. ClearTax. Retrieved April 27, 2022, from https://
cleartax.in/s/corporate-social-responsibility#:~:text=Section%20135(1)%20of%20
the,%2C%20turnover%2C%20or%20net%20profits 161
Corporate Social ClearTax. (2022, April 14). CSR. Companies Corporate Social Responsibility Policy
Responsibility in India
Rules. Retrieved April 27, 2022, from https://cleartax.in/s/csr-amendment-rules-2021
The Companies (Amendment) Act, 2020. Ministry of Corporate Affairs. (2020).
Retrieved April 27, 2022, from https://www.mca.gov.in/bin/dms/
getdocument?mds=pnbKQcxlMYbXIvg20K4TWw%253D%253D&type=open
Tandon, A., & Seth, S. (2019). ESG – beyond CSR. Chartered Secretary: The
Journal for Governance Professionals, 49(5), 1–116.

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