Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) regulations in India mandate eligible companies to allocate a minimum of 2% of their average net profit from the preceding three financial years towards CSR projects. These regulations apply to companies meeting certain financial thresholds, including:

• A net worth of at least 500 crore rupees
• Annual turnover surpassing 1000 crore rupees
• Net profits exceeding 5 crore rupees
  Additionally, foreign corporations with operations meeting these criteria must also adhere to CSR requirements.

A CSR committee is required to be constituted by compliant companies, responsible for formulating annual CSR strategies, policy implementation, and ensuring alignment with regulatory frameworks.

The Companies (CSR Policy) Amendment Rules, 2022, introduced by the Ministry of Corporate Affairs, brought several changes to the CSR landscape, including:

1. Establishment of dedicated CSR committees for oversight of CSR activities.
2. Mandate to earmark unutilized CSR funds in a specific account for utilization within three financial years.
3. Revision of expenditure allocation for impact assessments to 2% of total CSR expenditure or Rs. 50 lakh, whichever is higher.
4. Introduction of a new reporting template for annual CSR reporting, emphasizing transparency and accountability.
5. Requirement for comprehensive disclosure in annual reports, including CSR policy, CSR committee details, and impact assessments.
6. Introduction of Form CSR-2 for detailed reporting of CSR expenditure, CSR committee details, and other relevant financial information.

• Enforcing the Establishment of Dedicated CSR Committees:
  • The Amendment Rules emphasize the critical management of CSR resources by making it mandatory for companies to establish CSR committees. These committees are tasked with overseeing the implementation of CSR initiatives and managing funds within the “Unspent Corporate Social Responsibility Account.”
  • Companies are now required to allocate unutilized CSR funds to this designated account, ensuring their utilization within a specified three-year period under the vigilant supervision of the CSR committee. Moreover, the amendments have eliminated previous leniencies that exempted companies from maintaining a CSR committee if they fell below the required CSR eligibility criteria. This ensures consistent oversight across all entities engaged in CSR activities.
• Revision in Expenditure Allocation for Impact Assessment:
  • The recent amendments bring about a significant change in the budget allocation framework for CSR impact assessments. Previously, under the CSR Rules, companies were allowed to allocate up to 5% of their total CSR expenditure or Rs. 50 lakh, whichever was lower, for assessing the impact of CSR initiatives.
  • However, the updated Amendment Rules have amended this provision, setting a limit on the expenditure for social impact assessments at 2% of the total CSR expenditure for the relevant financial year or Rs. 50 lakh, whichever is higher.
  • This adjustment enables a higher investment in the impact assessment of larger-scale CSR projects, ensuring a more comprehensive evaluation of their societal contributions and outcomes.

Form CSR-2 must be filed annually as an addendum to Form AOC-4, with the due date aligned with the filing of financial statements.