Commentary On Newly Amended CSR Rules, 2021

Amended CSR Rules - Taxscan - opengraph


The concept of Corporate Social Responsibility (CSR) was introduced earlier under the Companies Act, 1956 on a voluntary basis and later was introduced as the mandated provision under the Companies Act, 2013 (hereinafter referred as ‘2013 Act’) with an intent to make the corporates more concerned towards nature and the society it is working in. However, due to lacunas in the rules and lesser restrictions under the earlier CSR Provision in the 2013 Act, the whole purpose behind the introduction of CSR has not been achieved exhaustively. To overcome such a situation and to strengthen CSR provisions and make them more explicit and effective, recently, on 22.01.2021 Ministry of Corporate Affairs has introduced Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (hereinafter referred to as ‘CSR Amendment Rules’) to amend the existing regime in a very indispensable manner.

In this Article, endeavors have been made to discuss the new concepts which have been introduced under the CSR Amendment Rules, their impact, and points to be taken care of while undertaking CSR Activities. We will also analyze whether such amendments are going to be beneficial or challenging tasks.

New Definition of ‘CSR’

Earlier the definition of ‘CSR’ was more or less inclusive in nature, and obscure. In simple language, it includes all those projects or programs relating to activities, areas, or subject specified in Schedule VII of the 2013 Act, and at the same, it was also allowing any other activity not specifically mentioned in Schedule VII subject to the condition that it will include activities, areas or subjects specified in Schedule VII of the 2013 Act. As there was a requirement to include any activities, areas, or subjects specified in Schedule VII of the 2013 Act but the quantum of the same was nowhere an obligation, the Companies were carrying any sort of social welfare activities by including the negligible part of activities mentioned in Schedule VII of the 2013 Act and were considering all activities taken as CSR.

Pursuant to the newly introduced ‘CSR’ definition, the meaning of ‘CSR’ has been properly streamlined and specific provisions have been made for carving out the activities which will not be considered as CSR in any manner. Such carved out provisions includes activities undertaken by the company in the normal course of business, the contribution of any amount to the political party under Section 182 of the 2013 Act, activities benefiting employees of the Company, activities supported by the companies on a sponsorship basis to market its products or services, activities carried out for the fulfillment of any other statutory obligation under any other law i.e., apart from the 2013 Act and activities are undertaken by the company outside India.

In furtherance to the above restrictions and keeping in mind the scenario of COVID whole world is going through, the companies engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business have been given relaxations by allowing such activities under the purview of CSR for the purpose of 2013 Act, particularly for the financial years 2020-21, 2021-22 and 2022-2. Provided such research and development activities must be in respect to the new vaccine, drug, or medical devices relating to COVID 19 and must be carried out in collaboration with any institutes or organization mentioned in item (ix) of Schedule VII of the 2013 Act. Also, the reporting of such CSR activities undertaken by the company shall be done in the Annual Report of the company.

In addition to the above relaxations, if any activity has been undertaken by the Company outside India for the training of Indian Sports personnel who represents any state or union territory at national level or represents India at the international level shall also be allowed to be taken as CSR. Rest all activities taken outside India are still outside the purview of CSR.

Definition of ‘CSR Policy’

In the CSR Amendment Rules, a new definition has been given to ‘CSR Policy’. Pursuant to such definition CSR policy means a statement that explains and contains the approach and directions of the Board w.r.t CSR activity to be undertaken by the company on the recommendation of the CSR Committee. Also, it further includes the guidelines w.r.t selection, implementation, monitoring of activities, and the manner in which an annual action plan must be formulated.

Precisely, ‘Policy’ in its literal sense means course of action, terms & conditions, and mechanism to do or attain something. It does not only mean restricting the nature of activities to be carried on, rather it means to cover all questions of what? When? How? Where? etc. If we compare the new definition introduced with the repealed definition, it can be ascertained that the streamlining effect has been given to it, which seems to be clearer, explicable, and more apt in nature.

Introduction of term ‘International Organisation’

In the new CSR Amendment Rules, a new concept of international organization has been inserted. Pursuant to Rule 4(3) of the CSR Amendment Rules “A company may engage international organizations for designing, monitoring and evaluation of the CSR projects or programs as per its CSR policy as well as for the capacity building of their own personnel for CSR.”, which means that a company on which CSR provisions are applicable can engage any international organization for designing, monitoring and evaluation of CSR projects but not for the implementation of it.

Also, it will be interesting to see, whether payment to such international organization will be allowed under CSR expenditure or not, as the literal intent of doing CSR expenditure is doing it in India and not outside, and making payment to such international organization is also not covered under the definition of administrative overheads provided under CSR Amendment Rules.

Pursuant to Rule 2(g) of CSR Amendment Rules, ‘International Organisation’ means “an organization notified by the Central Government as an international organization under section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply.”

Treatment of Unspent CSR Amount

On 22.01.2021, another notification for making effective Section 21 of the Companies (Amendment) Act, 2019 relating to amendments in the second proviso to Section 135(5) of the 2013 Act and insertion of sub-section (6) under Section 135 was introduced. Prior to such amendment to Section 135(5) of the 2013 Act, the concept was either comply or explain the reason for not complying, but post the amendment has been made effective under the second proviso to Section 135(5) the concept has totally changed and now either Company has to comply or transfer the unspent amount to a Fund specified under Schedule VII of the 2013 Act within 6 months from the end of the financial year. Therefore, even in the cases where implementing agency has been hired to perform CSR Activity the Company has to supervise whether actual expenditure has happened or not and in case it has not occurred, the company is under obligation to transfer such unspent amount to the fund specified under Schedule VII of the 2013 Act.

On the other hand, if the Company is performing any ongoing project in concern to CSR Activity, the Company has to transfer the unspent amount to a specific account namely ‘Unspent Corporate Social Responsibility Account’ to be opened with any Scheduled Bank within a period of 30 days, and must assure that the amount is spent within a period of three years, failing which, the unspent amount will be transferred to the fund specified under Schedule VII of the 2013 Act.

Concept of ‘Ongoing Projects’

According to the definition of ‘Ongoing Projects’ defined under Rule 2(i) of the CSR Amendment Rules, it means multi-year projects undertaken by the company in fulfillment of its CSR obligations having a timeline of not exceeding three years. Also, it tends to include those projects as well which were initially not approved as multi-year projects but the board has extended the same beyond one year on reasonable grounds and justification.

Now, here the question arises whether the CSR Ongoing Projects must be completed in three years or only the amount of CSR expenditure under obligation must be spent in such timeframe and the project can be extended beyond three years. To this one must assure that the ongoing project and CSR Expenditure both have to be completed within the period of 3 years.

Note: While calculating three years’ period for the multi-year projects since inception, the year of commencement shall not be included.

Changes in CSR Implementation (Rule 4)

Pursuant to Rule 4 of the CSR Amendment Rules, the board is bound to undertake the CSR Project either by itself or through Company established under Section 8 of the 2013 Act, registered public trust/trust, or society, established by the Company or Central Government or State Government, or through entity established under the statutory act of parliament or a state legislature.

Also, the companies established under Section 8 of the 2013 Act, registered public trust or society, not being an entity established by the Company, Central Government or State Government, or under any statutory act of parliament or state legislature can be engaged for the implementation of CSR, provided such entity must have an established track record of at least three years in undertaking similar activities.

In addition to the above conditions, Section 8 Company, registered public trust or society, not being established or incorporated by the central government or state government or under any statutory act of parliament or state legislature, must also be registered under Section 12A and 80G of the Income Tax Act, 1961, and those not having such registration under the Income Tax Act, 1961 will not be entitled to undertake CSR Activities for the purpose of 2013 Act.

In my view, the amendment brought in by the new CSR Amendment Rules has taken a very deep turn and though the registration under Income Tax Act, 1961 is not mandatory in nature now the same will be mandatory for the purpose of the 2013 Act.

Introduction of Form CSR-1

In the new CSR Amendment Rules, any entity (other than the Company itself) who intends to undertake CSR Activities shall file e-form CSR-1 and get itself registered with the Central Government, subsequent to which unique CSR Registration Number will be generated. The same is applicable from 01st April 2021 and if any CSR Projects or program is approved prior to 01st April 2021 will not be affected and those entities are not required to file e-form CSR-1.

Here, the point to ponder is whether the activities undertaken by the entity fulfilling all other criteria and has not filed CSR-1 will be counted for the CSR Purpose or not? Since CSR-1 seems to be an intimation only and generation of Unique CSR Registration number is automatic and the same has to be filed prior to undertaking any CSR Activities it picturizes that filing of CSR-1 and obtaining unique CSR registration number is an additional requirement but at the same, it is also challengeable as such condition is not mentioned under Rule 4(1) unlike registration under Section 12A and 80G of the Income Tax Act, 1961, etc.

Responsibility on Chief Financial Officer or Financial Management Personnel

Under the new rules, in addition to the responsibility of the Board to ensure that the disbursal of CSR funds made by the Company has been utilized for the purpose mentioned and not anywhere else, clear provision has been introduced putting an obligation and responsibility on the Chief Financial Officer of the Company or any other person responsible for managing finances to provide certification w.r.t proper utilization of CSR funds. In my view, this provision is appreciable as the same will lead to proper accounting of the CSR Funds, and chances of any misappropriation of such funds will reduce.

Evolution of ‘Impact Assessment’ Concept

Under the new provisions introduced through CSR Amendment Rules, an obligation has been made for certain companies to mandatorily get an impact assessment done. Those certain companies are the ones who are having an average CSR obligation of INR 10 Crore Rupees or more in the last three preceding financial years. Such impact assessment has to be undertaken by an independent agency and must be done for those CSR Projects undertaken by the Company which is having an outlay of at least INR 1 crore and one year has passed before doing such impact study.

The intent behind introducing such a concept of impact study is to ascertain and verify whether the CSR Projects undertaken by the Company have actually benefited society to a satisfactory extent or not. The concept of ‘impact assessment’ is nothing but similar to the observation of the patient done by the doctors after completion of treatment.

Changes in CSR Expenditure provisions

Earlier, the provision relating to CSR Expenditure was very open with loopholes as the same was just conveying that any expenses incurred for the CSR Activities approved by the board will tantamount to CSR Expenditure. Even Contribution to the corpus of CSR was considered as CSR Expenditure. And, if any expenditure is incurred not in line with what has been mentioned in Schedule VII of the 2013 Act, the same will not be considered as CSR Expenditure, a consequence of which the Companies had started booking expenditure under various heads w.r.t to CSR Activities and the true and fair picture of actual expenditure which was supposed to be incurred on the CSR Activities was not highlighted. Under the new provisions, this issue has been properly addressed by making proper upper caps for the expenditure which cannot be ignored from incurring, but where major manipulation can happen. Firstly, the upper cap has been provided on the expenditure for Administrative Overheads and the maximum of 5% of the total CSR Expenditure can now be expended under such head. In furtherance to that any company which is undertaking impact assessment can book the expenditure incurred on such thing under CSR Expenditure and the same shall not exceed 5% of the total CSR Expenditure or INR 50 Lakhs, whichever is less.

Set off Provisions

Many times, it happens that the CSR Activities undertaken by the Company is taking more expenditure than the obligation under the Act. Since there was no provision of set-off of such excess expenditure and such excess amount spent cannot be carried forward for upcoming years, corporates were not happily spending on CSR. Under the new rules, specific provision has been introduced for such set-off under Rule 7(3) of the CSR Amendment Rules, which clearly allow the set-off of any excess sum spent by the Company in any year to carry forward for subsequent three years for set off against the obligation under Section 135(5) of the 2013 Act for those years. But, prior to such carry forward, the Company has to ensure certain nominal points i.e. such excess amount is not including any surplus arising out of CSR Activities and Board has passed a resolution for giving that effect of carrying forward and set off. This new provision will definitely encourage corporates to do more CSR Activities without any restrictions in mind.

Treatment of Capital Assets [Rule 7(4)]

Under the new provisions, companies are allowed to spend CSR amount to create or acquire capital assets, but, such capital assets cannot be held by the Company itself and shall be held either by Company established under Section 8 of the 2013 Act, Registered Trust, or Society having charitable objects and who have obtained CSR Registration number by filing e-Form CSR-1, OR by beneficiaries of the said CSR Project, in the form of self-help groups, collectives, entities, OR by a public authority. Precisely, the capital assets created or acquired by spending CSR amount will be held by the above-mentioned persons in a fiduciary capacity and the company cannot hold the owners of the same.

Further, if any capital assets created by the company prior to commencement of CSR Amendment Rules, the same shall be transferred in favor of the above-mentioned persons within 180 days from the commencement of such rules, which may be further extended by the board based on reasonable justification for 90 days.


The new CSR rules seem to be very streamlined, comprehensive and have addressed many unsolved issues. It can be foreseen that now CSR Activity is not merely about giving an excuse rather completing is the only option left with the corporates. Corporates have been provided with free hands to do CSR Activities ethically but certain obligations have been introduced to clutch the misuse which may happen. The new rules are definitely clearer and more balanced and corporates have to recast their approach for undertaking CSR activities as per the upcoming scenarios.

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CS Santosh Pandey is a Company Secretary Practising in New Delhi. He can be reached at

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