The Companies (Corporate Social Responsibility Policy) Rules, 2014 Amendment 

By - Shivam Shekhar on October 21, 2022

On September 20th 2022, the Ministry of Corporate Affairs (“MCA”) issued the notification G.S.R. 715(E) [1] to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”) in the exercise of its powers defined under Section 135 and Section 469(1) & 469(2) of the Companies Act, 2013 (“Act”). 

The Amendment

Firstly, Rule 3 of the CSR Rules has been amended. A subsequent proviso has been inserted which mandates that companies having any unspent or remaining amount in their CSR Account must formulate a CSR committee and ensure compliance under the relevant provisions (‘Section 135, sub-sections (2) to (6)) [2] of the Act.  

Secondly, prior to this notification, companies that would cease to be covered by Section 135(1) of the Act, were also required to comply with the provisions of Section 135 of the Act, i.e., incurring CSR spending, creating committees, and so on, for up to three fiscal years. This requirement and the entirety of Rule 3(2) have been removed from the CSR Rules. 

Thirdly, Rule 4 of the CSR Rules has been expanded to cover the scope of implementation of CSR activities, undertaken either by the company itself or through the below-mentioned entities: 

  • A Section 8 company of the Act or a registered public trust or a registered society constituted by the company, either alone or in conjunction with another company, is exempted under clauses 23C (iv) to 23C (vi a) of Section 10 or registered under Section 12A, and approved under Section 80G of the Income Tax Act of 1961. 
  • A Section 8 company, or a registered public trust or a registered society, exempted by clauses 23C (iv) to 23C (vi a) of Section 10 or registered under Section 12A, and approved under Section 80G of the Income Tax Act of 1961, with at least three years of experience in such activities. 
  • A Section 8 company of the Act or a registered trust or a registered society, established by the Central or State Government. 
  • Any entity [3] established under an Act of Parliament or a State legislature. 

Fourth, before the amendment, the ceiling on book expenditure for impact assessment was 5% of total CSR expenditure for that fiscal year or INR 50 lakh, which has now been increased to 2% of total CSR expenditure for that fiscal year or INR 50 lakh. 

Finally, the format of the CSR Annual Report has been updated. The previous format was fairly complex. The obligation of mentioning the specifics of each project has now been eliminated. 

Conclusion

These amendments are a progressive step toward a CSR-friendly regime, demonstrating the government's willingness to broaden the horizons of the CSR regime by providing tax benefits for such activities, increasing the limit on CSR spending as per book expenditure, and providing an easy format to file CSR Annual Reports. 

[1] https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTgwNTU0MTk3&docCategory=Notifications&type=open.
[2] The Companies Act, 2013. 
[3] “entity” shall mean a statutory body constituted under an Act of Parliament or State legislature to perform activities detailed in Schedule VII of the Act. 


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