Highlights of the Final CSR Rules Notified

Further to the last post, which explained activities covered in Schedule VII. In this post, highlights are given of the final CSR Rules.

ENTITIES COVERED

  • All companies whether a public company or a private one are covered by CSR, if they satisfy anyone of the criteria on Rs 1000 crore Turnover or Rs 500 crore Networth or Rs 5 crore profit.
  • Foreign companies (falling under S.2(42) of Companies Act 2013) covered for their Indian operations (Branch / Project offices).
  • Once a company qualifies for CSR, it must continue until and unless it does not qualify for 3 consecutive years. That means once a company comes out of CSR net it still must continue a minimum of 3 years.

BOARD OF DIRECTORS

  • To formulate a Board committee consisting of a minimum of 3 Board members, including an Independent Board member. In case of a private company which has 2 directors, only 2 Board member committee may be formed. In case of unlisted and private companies no need of an independent Director.
  • To spend a minimum of 2% of last 3 years’ average net profit on CSR activities.

CSR BOARD COMMITTEE

  • Committee would formulate a CSR Policy, identifying projects, and amounts to be allocated to the same. It should also provide modalities of execution and implementation schedules. Policy to specify that any surplus / contributions arising from CSR projects would form part of CSR corpus and not be part of business profits.

The Committee must institute a monitoring mechanism for these projects.

ELIGIBLE CSR EXPENDITURE

  • Eligible CSR expenditure must be only on projects / programs falling in the list of Schedule VII.
  • However it appears that a backdoor has been opened to allow contributions to Corpus as eligible CSR expenditure (see Rule 7).
  • Expenditure incurred outside India would not be allowed as CSR.
  • Although it is stated that programmes that benefit only employees and their families would not be considered as CSR expenditure, but it is quite possible that scope for exploitation under this clause exist, it would have been better if only could be replaced with largely.
  • Contributions to political parties not to be considered as part of CSR.
  • Upto 5% of total CSR Expenditure permitted for CSR capacity building of own employees or that of implementing agencies permitted. However it must be undertaken through institutions with 3 year track record.

ACCOUNTABILITY & TRANSPARENCY

  • Brief outline of company’s CSR Policy, overview of programs/ projects to be undertaken must be disclosed in the Annual Directors’ Report with a link for details on website.
  • Disclosure of composition of CSR Committee
  • Average net profit of the company for last three financial years.
  • Specify the required amount of CSR expenditure to be spent (2% of average net profits)
  • CSR amount actually spent
  • CSR amount unspent
  • Project-wise Details of the CSR expenditure providing details like, Sector; areas where project implemented, specifying if it is local or otherwise, specify State, District; Budget Outlay; Actual amount spent segregating between direct and overheads; cumulative expenditure; Whether implemented directly or through implementing agencies, giving details of Implementing agencies.
  • If CSR expenditure is less than required, reasons have to be given.
  • A Responsibility Statement by CSR Committee that implementation and monitoring of CSR Policy is in compliance with CSR objectives and policy of the company.
  • This Report has to be signed by Chairman CSR Committee and anyone of CEO/ MD / Director.

OTHER ISSUES

  • Net profit is to be calculated on the basis of net profits arrived at in the Company’s audited accounts (i.e. Profit After Tax), however these should not include profits from overseas branches of the company and dividends rec’d from any other company which is also covered by CSR and complying with the same.
  • CSR Policy can be implemented in any way company considers appropriate, as long as while implementing with other NGOs, they must have at least 3 years track record in the relevant type of projects.
  • May collaborate with other companies CSR programmes.

__________________________________
Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
e-mail: socio-research@sma.net.in;

 

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