February 25, 2021

Explained: How the CSR rules for Indian companies have changed

Written by Karunjit Singh, Edited by Expand Desk | New Delhi |

January 27, 2021 8:42:53 AM

The Ministry of Corporate Affairs has amended the rules for corporate social responsibility (CSR) expenditure of India Inc., allowing companies to carry out multi-year plans and all CSR implementing agencies must be registered with the government. We see some important changes.

How do the new regulations help companies to carry out multi-year CSR programs?

All companies with a net worth of Rs 500 crore or more, revenue of Rs 1,000 crore or more or a net profit of Rs 5 crore or more are required to spend 2 per cent of their average profit on CSR over the previous three years. Activities each year. The amended CSR rules allow companies to set CSR expenditures in excess of the required 2 per cent of expenses against the required expenditure for up to three financial years in any fiscal year. Experts note, however, that there was ambiguity as to whether this rule would apply to costs incurred prior to the amendment.

“The government may consider allowing companies that have incurred high social responsibility costs in the past to set up against future social responsibility spending requirements,” said Harish Kumar, partner at law firm L&L Partners.

What changes are needed for implementing agencies?

Many companies handle CSR costs through an enforcement agency, but the new amendment restricts companies from authorizing a Section 8 organization or registered public charity to run CSR programs on their behalf. Section 8 is a company registered for the purpose of promoting charitable causes, using profits to promote its purposes and prohibiting the distribution of dividends to shareholders. Also, all such companies must be registered with the government by April 1st.

Experts point out that this change will affect the social responsibility programs of many large Indian companies that run projects through private trusts.

Kumar said the change should either turn such private trusts into registered public trusts, or stop them from acting as CSR enforcement agencies. “Many companies, including Blue-Chip, provide a significant amount of social responsibility through their private trusts. Companies. “

An expert who did not want to be quoted said that private trusts like Reliance Trust, Bharti Trust and DLF Trust, which handle most of the CSR expenditure for affiliates, would be affected by this change.

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What are the other major changes?

According to the amended rules, any company with a CSR obligation of Rs 10 crore or more for the previous three financial years is required to appoint an independent company to conduct an impact assessment of all their projects at a cost of Rs 1 crore or more. Companies will be allowed to calculate up to 5 per cent of CSR expenditure up to Rs 50 lakh per annum in the impact assessment for CSR expenditure.