On March 13th, 2020, the Ministry of Corporate Affairs (MCA) published the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2020. These rules have been made available for public feedback until April 10th, 2020 and the MCA is seeking our inputs on them.
The rules have been drafted to put into action the 2019 amendments made to the Companies Act. You may recall certain changes to Corporate Social Responsibility (CSR) were made during the Finance Minister’s 2019 budget speech; these were later passed in July 2019. The current rules have been drafted to implement these changes and are relevant to CSR-compliant organisations as well as to nonprofits across India.
To start with, the 2020 rules are changing the definition of CSR to now cover any activity undertaken by a company under their obligations to the CSR provisions of the Companies Act 2013. That being said, CSR will not include:
- Any activities which the company does as a part of its business
- An activity undertaken by the company outside India
- Contributions made directly or indirectly to a political party
- Activities that benefit only company employees (if company employees are 25 percent or less of the people served by an activity, it can be counted as CSR)
Additionally, the rules:
- Change the definition of ‘CSR policy’, to mean a document that outlines the approach of a company towards selecting, implementing, and monitoring its CSR activities.
- Make provisions for international organisations like the United Nations to be covered under CSR.
- Create a provision for ‘ongoing projects’, which are multi-year projects (not exceeding three years) that companies undertake to fulfill their CSR obligations, not including the financial year in which the activity commenced.
- Enable the government to set up a ‘National Unspent Corporate Social Responsibility Fund’ for any unspent CSR budgets. This fund will be used to undertake CSR projects as mandated by the Companies Act.
What do the rules mean for nonprofit organisations?
While a majority of the provisions of the rules apply to CSR-compliant companies, there are a few key implications for nonprofits:
- There is no clarity whether trusts and societies will be eligible to receive CSR donations—the rules mention only Section 8 companies and entities established by the Parliament or a state legislature, as being eligible to receive CSR donations.
- There are new (and specific) benchmarks for impact assessment that companies will need to undertake, which will require some alignment between donors and nonprofits.
- There is a CSR-1 form that all Section 8 companies will have to pay for and fill to be eligible to receive CSR funds. This form will also need to be ratified by a company secretary, chartered accountant, or a cost accountant.
What do the rules mean for CSR-compliant companies?
For CSR-compliant companies, the 2020 rules make the following changes:
- Companies can collaborate with each other for CSR projects, as long as individual reporting is undertaken.
- Companies can work with international organisations to monitor CSR projects and for their own capacity building, but will need prior permission from the government to execute CSR projects with such organisations.
- The CSR Committee will need to share with their board an annual action plan for CSR and other details, such as impact evaluation and needs assessment.
- A 10 percent expenditure cap has been placed for companies which are undertaking impact assessment. This is inclusive of the five percent cap on administrative expenses linked to CSR spending.
- Unspent CSR funds from a company will need to be transferred to an ‘Unspent CSR’ account and will be spent according to the company’s action plan.
- Any balance that should have been spent on CSR, but has not been spent yet, must be transferred to an ‘Unspent CSR’ account within 30 days of these rules coming into force, and used within three financial years. Failing which, this amount should be transferred to a fund specified under Schedule VII of the Companies Act.
- Companies with CSR spends over INR five crore will need to conduct impact assessment of their CSR projects.
- CSR activities will need to be published on the company’s website and in their Annual Report in a format prescribed in these rules.
How can we help shape these rules?
The government is asking for comments and suggestions on these rules, which can be submitted until April 10th. With just a few days left, it is imperative for those impacted by the rules to share their feedback, so that the government can understand and address any constraints that arise.
To share feedback on the rules you can either:
- Visit the MCA website and share your inputs; or
- Visit the Civis platform, where you can read, discuss, and share feedback (all inputs on Civis are anonymous, unless one chooses to make their feedback public).
An earlier version of this article stated that the last day to give feedback on the CSR amendment is March 28th. On March 28th, 2020, this was updated to April 10th, to reflect an extension provided by the government in a circular dated March 26th.