The Ministry of Corporate Affairs issued the Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR).
The broad framework of CSR has been provided in Section 135 of the Companies Act, 2013, Schedule VII of the Act and Companies (CSR Policy) Rules, 2014. Further, Ministry had also issued clarifications including FAQs from time to time on various issues concerning CSR.
“A number of significant developments have taken place since then. The Ministry has notified the amendments in Section 135 of the Act as well in the CSR Rules on 22nd January 2021 with an aim to strengthen the CSR ecosystem, by improving disclosures and by simplifying compliances. In response to such amendments, the Ministry has received several references and representations from stakeholders seeking clarifications on the various issues related to CSR,” the MCA said in the Circular while addressing all Regional Directors, Registrar of Companies, and Stakeholders.
MCA clarified that a company satisfying any of the 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 namely net worth of Rs.500 crore or more, or turnover of rupees one thousand crores or more, or net profit of rupees five crores or more.
The compliance with CSR requirements is specific to each company. A holding or subsidiary of a company is not required to comply with the CSR provisions unless the holding or subsidiary itself fulfills the eligibility criteria prescribed under section 135(1). For Example, Company A is covered under the criteria mentioned in section 135(1). Company B is the holding company of company A. If Company B by itself does not satisfy any of the criteria mentioned in section 135(1), Company B is not required to comply with the provisions of section 135.
If the company has not completed three financial years since its incorporation, but it satisfies any of the criteria mentioned in section 135(1), the CSR provisions including the spending of at least two percent of the average net profits made during the immediately preceding financial year(s) are applicable.
Rule 8(3) of the Companies (CSR Policy) Rules, 2014 mandates various classes of companies to conduct impact assessment namely companies with minimum average CSR obligation of
Rs. 10 crores or more in the immediately preceding 3 financial years; and companies that have CSR projects with outlays of minimum Rs. 1 crore and which have been completed not less than 1 year before undertaking impact assessment. The 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 50 lakh rupees (whichever is lower) can be incurred separately for impact assessment,” the MCA clarified.
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