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TMI BlogFrequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR)X X X X Extracts X X X X X X X X Extracts X X X X ..... with an aim to strengthen the CSR ecosystem, by improving disclosures and by simplifying compliances. In response to such amendments, Ministry has received several references and representations from stakeholders seeking clarifications on the various issues related to CSR. 3. Accordingly, in suppression of clarifications and FAQs issued vide General Circular no. 21/2014 (dated 18th June 2014) , 36/2014 (dated 17th September 2014) , 01/2016 (dated 12th January 2016) , 05/2016 (dated 16th May 2016), clarification issued vide letter dated 25.01.2018 and General Circular no. 06/2018 (dated 28th May 2018) , a set of FAQs along with response of the Ministry is provided herewith at Annexure for better understanding and facilitating effective implementation of CSR. 4. This issues with the approval of competent authority. Yours faithfully, (Shobhit Srivastava) Deputy Director (CSR Cell) Annexure Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR) S. No. Question Answer 1.0 Applicability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Company A would be at least two per cent of the average net profits of the company made during FY 2018-19 and FY 2019-20. 2.0 CSR Framework 2.1 What is the composition of the CSR Committee? The composition of the CSR Committee for various categories of companies is 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 is no requirement of having an independent director in the company, two or more directors. Private companies Two or more directors. No independent directors are required as mentioned in the proviso under section 135(1). Foreign company At least two persons out of which: (a) one shall be as specified under clause (d) of sub-section (1) of section 380 of the Act, and (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the approval and implementation of the CSR programmes/projects of a company? 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. 2.5 What are the mechanisms for monitoring the CSR process? CSR is a Board-driven process, and the Board of the company is empowered to plan, decide, execute, and monitor the CSR activities of the company based on the recommendation of its CSR Committee. The CSR architecture is disclosure-based and CSR-mandated companies are required to file details of CSR activities annually in MCA21 registry. Companies are required to make necessary d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, office supplies, legal expenses, etc. However, expenses which are attributed to the project implementation shall be included in project cost only. Example: Salary and training for the employees working in the CSR division of a company, stationery cost, travelling expenses, etc. may be categorised as administrative overheads. However, salary of school teachers or other staff, etc. for education-related CSR projects shall be covered under education project cost. The maximum permissible limit for administrative overheads is five per cent of the total CSR expenditure of the company for the financial year. 3.3 Are administrative overheads applicable only for expenses incurred by the company, or can they be applied to expenses incurred by the implementing agency as well? According to rule 2(1)(b) of the Companies (CSR Policy) Rules, 2014, administrative overheads mean the expenses incurred by the company in the general management and administration of CSR functions in the company. Therefore, expenses incurred by implementing agencies on the management of CSR activities shall not amount to administr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... succeeding three financial years; thus, in case any excess amount is left for set off, it will lapse at the end of the said period. Example: In FY 2020-21 a company had spent ₹ 2 crores in excess. In FY 2021-22, it sets-off ₹ 50 lakhs from such excess. However, from FY 2022-23, the company is no longer subject to CSR provisions under section 135(1). In such case, the company may continue to retain the remaining excess CSR of ₹ 1.50 crores up to FY 2023-24, and thereafter the same shall lapse. 3.9 Whether it is mandatory for companies to carry out CSR in their local areas? 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure? 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 3.15 Which are the funds specified in Schedule VII of the Act for the purpose of CSR contribution? Contributions to the following funds 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill FY 2022-23, to companies engaged in R D activities for new vaccines, drugs, and medical devices in their normal course of business, related to COVID- 19. This exclusion is allowed only in case the companies are engaged in R D in collaboration with organisations as mentioned in item (ix) of Schedule VII and disclose the same in their Board reports. (ii) Activities undertaken outside India, except for training of Indian sports personnel representing any State or Union Territory at national level or India at international level; (iii) Contribution of any amount, directly or indirectly, to any political party under section 182 of the Act; (iv) Activities benefitting employees of the company as defined in section 2(k) of the Code on Wages, 2019; (v) Sponsorship activities for deriving marketing benefits for products/services; (vi) Activities for fulfilling statutory obligations under any law in force in India. 4.2 Whether the companies can undertake any CSR activity mentioned under Schedule VII of the Act for the exclusive benefit of their employees, workers and their family members? R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.0 CSR Implementation 5.1 What are the different modes of implementation of CSR activities? Pursuant to rule 4 of the Companies (CSR Policy) Rules, 2014 a company may undertake CSR activities through following three modes of implementation: (i) Implementation by the company itself (ii) Implementation through eligible implementing agencies as prescribed under sub-rule (1) of rule 4. (iii) Implementation in collaboration with one or more companies as prescribed under sub-rule (4) of rule 4. 5.2 Which entities are eligible to act as an implementing agency for undertaking CSR activities? Rule 4(1) of the Companies (CSR Policy) Rules, 2014 provides the eligible entities which can act as an implementing agency for undertaking CSR activities. These are: (i) Entity established by the company itself or along with any other company a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 2014 shall mandatorily register itself in the MCA21 portal w.e.f. 01st April 2021 in order to enable it to undertake CSR activities on behalf of the company. 5.7 Whether an ongoing project approved prior to April 01, 2021, may be implemented by an implementing agency not registered on MCA21 portal? Since the requirement of registration has commenced from 01st April, 2021, any ongoing project which has been approved between 22nd January, 2021 and 31st March, 2021, may be carried out by an implementing agency which is not registered in MCA21 portal. However, the unregistered implementing agency is required to register in MCA21 portal before undertaking any new project after 01st April, 2021. 5.8 Whether registration of implementing agency by filing e-form CSR-1 is mandatory in case the company carries out CSR activities directly? No. The question of filing e-form CSR-1 does not arise in case the company carries out CSR activities directly. 5.9 Can international organisations act as an implementin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... menced i.e., (1+3) financial years. Under no circumstances shall the time period of an ongoing project be extended beyond its permissible limit. 6.4 What are the responsibilities of the Board in case ongoing projects are undertaken by the company? In case of ongoing projects, the major responsibilities of the Board, inter-alia, include: (i) identification of the ongoing projects; (ii) year-wise allocation of funds; (iii) transferring the unspent money to a separate bank account as prescribed under sub-section (6) of section 135; (iv) monitoring the implementation of the projects with reference to the approved timelines and year-wise allocation; and (v) making modifications, if any, for smooth implementation of the projects within the overall permissible time period. 6.5 Can ongoing projects be implemented through implementing agencies? Yes, once the Board approves a project as an ongoing project, then it can choose to implement the project either itself, or through any of the implementing agencies as mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company was unable to meet its CSR obligation, but transferred the said unspent amount to any fund included in Schedule VII of the Act, will the same be considered as compliance under section 135? The compliance of CSR is fulfilled when the company spends the prescribed amount as per its obligation. However, in case the company fails to spend the requisite amount within the financial year, it shall fulfil its obligation by transferring the unspent amount to any fund included in Schedule VII of the Act. The same will be considered as compliance with section 135(5) of the Act. Further, the Board of the company is required to give the requisite disclosure in the Board report and annual report on CSR. 7.3 A company has been given six months time to transfer the unspent CSR amount, other than the amount pertaining to ongoing projects, to any fund included in Schedule VII of the Act. Can the company spend this amount in the said period of six months on any CSR activity? No, companies are not permitted to spend the unspent CSR amount, other than the amount pertaining to ongoing projects, on any CSR activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company be utilised for regular business of the company? No, the provisioning of a separate special account, namely the Unspent CSR Account , in any scheduled bank is to ensure that the unspent amount, if any, is transferred to this designated account and used only for meeting the expenses of ongoing projects, and not for other general purposes of the company. The special account cannot be used by the company as collaterals or creating a charge or any other business activity. 7.7 Can an ongoing project initiated by a company in any previous financial year (for instance in FY 2019-20) be classified as an ongoing project under section 135(6) of the Act. Is the unspent amount of previous financial years also required to be transferred to the Unspent CSR Account? No, the provisions related to ongoing projects have come into effect from 22 nd January 2021, i.e., from FY 2020-21 onwards. The said provisions are prospective in effect and not applicable to projects of previous financial years. Further, the Board of the company is free to decide the treatment of the unspent CSR amount of previous financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.0 Impact Assessment 9.1 What is the objective of providing impact assessment of CSR activities? The purpose of impact assessment is to assess the social impact of a particular CSR project. The intent is to encourage companies to take considered decisions before deploying CSR amounts and assess the impact of their CSR spending. This not only serves as feedback for companies to plan and allocate resources better but shall also deepen the impact of CSR. 9.2 Which companies are required to undertake impact assessment? Rule 8(3) of the Companies (CSR Policy) Rules, 2014 mandates following class of companies to conduct impact assessment: (i) companies with minimum average CSR obligation of ₹ 10 crore or more in the immediately preceding 3 financial years; and (ii) companies that have CSR projects with outlays of minimum ₹ 1 crore and which have been completed not less than 1 year before undertaking impact assessment. Impact assessment shall be carried out project-wise only in cases where both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 limit as prescribed in rule 8(3)(c) of the Companies (CSR Policy) Rules, 2014 for each company. 10.0 CSR Reporting Disclosure 10.1 Whether reporting of CSR is mandatory in Board s Report? Yes, as per rule 8(1) of the Companies (CSR Policy) Rules, 2014, the Board s Report pertaining to any financial year, for a CSR-eligible company, shall include an annual report on CSR containing particulars specified in Annexure I or Annexure II of the said rules, as applicable. 10.2 Is it mandatory for foreign companies to give reports on CSR activities? Yes, as per rule 8(2) of the Companies (CSR Policy) Rules, 2014, in case of a CSR-eligible foreign company, the balance sheet filed under clause (b) of sub-section (1) of section 381 of the Act, shall include an annual report on CSR containing particulars specified in Annexure I o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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