The Board of Directors of a firm must ensure that the money disbursed is used for the purposes and in the manner agreed upon by them. The person in charge of financial management or the Chief Financial Officer should attest to this.

In the event of an ongoing project, the Board should oversee the project's implementation within the authorised timetables and year-by-year allocation. It can make any necessary changes to ensure the project is completed on schedule.

The CSR Committee shall suggest and develop for the Board an annual execution plan in accordance with the CSR policy, which should include the following:

• List of authorised CSR programmes or projects to be carried out in the subjects or areas listed in Schedule VII of the Act.
   
• Method of carrying out the CSR programmes or initiatives stated in these Rules.
   
• Modalities of a project or programme implementation timeIn India, Corporate Social Responsibility (CSR) rules mandate some corporations to do CSR activities & spend at least 2% of their average net profit over the previous three fiscal years on CSR initiatives. A company that has: i) a net worth of Rs 500 crore or more; (ii) a turnover rate of Rs 1000 crore or more; or (iii) a total profit of Rs 5 crore or more is needed to comply with the CSR provisions specified in Sec 135 of the Companies Act, read in conjunction with all the Companies; Corporate Social Responsibility Policy Rules, Foreign enterprises with a branch or project office in India must also fulfil CSR duties if they fit the conditions outlined above.

The Companies (CSR Policy) Rules

Certain actions that CSR does not cover have been omitted from the definition. Among these include, but are not limited to:

• Activities carried out in the usual course of business: If a corporation spends money on research and development for a vaccine/drug/device for Covid-19, they will be exempt for three years until the fiscal year 2022-23.
• Activities carried out outside of India.
• Contributions to a political party, for example.
• Aside from training athletes who would represent India in national and international tournaments, activities are carried out outside of India.
• Under Section 182 of the Companies Act, any sum may be contributed to any political party.
• Activities that benefit the employees of the firm, 
• Sponsored activities are those that a company promotes in order to get marketing advantages for its services or goods.
• These activities also meet other statutory criteria under any law in force in India.
• Companies must verify that none of these activities is included in their CSR policy, as they are expressly prohibited under the definition of "CSR." Any expenditures incurred as a result of these efforts are not CSR creditable.

The Characteristics of CSR Spending

Companies are now required to spend money on CSR efforts.

Any funds that remain unspent must be deposited to the Unspent CSR Account. It must be transferred to government funds if it is not used during the next three fiscal years.

Though this revision appears to make a difference, there is no real difference because the excess from CSR efforts is not allowed to be included in commercial earnings. The unspent sum must be transferred within 6 months after the fiscal year's end.

Suppose the corporation spends more than the specified limit of 2% on CSR. In that case, the surplus can be written off against the CSR obligations of the next three fiscal years, subject to specific criteria. These templates will be valid for fiscal years 2020-21.

Administrative Overheads were redefined to cover only expenditures incurred by the corporation for the administration and general management of CSR services. Administrative overhead expenditures shall not exceed 5% of the overall CSR spending of the firm.

Companies must develop a CSR Policy that specifies the actions, approaches, and directions followed by the firm in compliance with the recommendations of the CSR committee. It must also include a set of guiding principles to aid in the selection, execution, and monitoring of activities and the development of an annual action plan.

The CSR Board ensures that money allocated for CSR initiatives is used for their intended purposes. In addition, it must oversee the execution of CSR initiatives and ensure that they are completed within the timeframes specified. These improvements were implemented in order to improve internal control mechanisms for CSR operations.

A corporation might opt to do CSR initiatives on its own or through a third-party implementation agency. These agencies, however, must be registered, and each company will be assigned a unique CSR Registration Number.

Most significantly, the CFO must submit a certificate of CSR money distribution. In addition, he must sign the CSR report.

Choosing Implementation Partners

Rule 4(1) specifies a list of implementing partners who a corporation may designate to carry out CSR activities. This list includes a business incorporated under Section 8 of the Act, a registered public trust, a registered society, and other organisations. Only entities covered by Rule 4(1) may be appointed as implementing partners by the corporation. With effect from April 1, 2021, every entity designated as an implementing partner must register with the Central Government.

Increased Board and CSR Committee Responsibilities

The new CSR Rules have given the Board of Directors and the CSR Committee new obligations, such as monitoring, assessing, and reporting on CSR operations. According to Rule 4, the Board must be satisfied that CSR monies are being used properly (5). In the case of an "ongoing project," the Board is obligated to oversee the project's implementation in line with the agreed-upon timetables, and it has the authority to make adjustments to ensure the project continues smoothly.

The CSR Committee is given a new role under Rule 5(2). Rule 5(2) requires the CSR Committee to create an "annual action plan" in line with the CSR Policy. The following items should be included in the yearly action plan:

• In addition, approved CSR initiatives are listed here.
• The way in which CSR programmes are implemented.
• Implementation timelines and funding methods
• Monitoring and reporting mechanism
• Evaluation of the impact.

As per Rules 4(5), 4(6), and 5(2), the CSR Committee and the Board have increased monitoring responsibilities for ensuring that CSR activities are carried out in line with the CSR Policy and yearly action plan. Therefore, monitoring and evaluation responsibilities must be completed even when CSR programmes are implemented directly by a company's implementing partners. Distributing CSR money directly to implementing partners cannot circumvent these duties.

Furthermore, Rule 9 requires the Board to form the CSR Committee, the CSR Policy, and the permitted projects, all of which are publicly published notifications on the company's website.

"Administrative overheads" associated with CSR

Expenses incurred by the corporation for "general management & administration" of CSR operations are referred to in Rule 2(1) as "administrative overheads" (b). This excludes costs for planning, executing, monitoring, and evaluating a CSR initiative or programme. According to Rule 7(1), the Board must guarantee that 'administrative overheads' do not exceed 5% of overall CSR expenditure in a fiscal year.

CSR Policy

CSR policy is a statement that incorporates the direction and method offered by the company's board after considering the suggestions of its CSR committee, as well as the execution and monitoring of activities, guiding principles for selection, and preparation of the yearly action plan.

Profit after taxes

Net profits are a company's net earnings as reported in its financial statements prepared in accordance with the Act's applicable rules, although they do not contain the following:

• Any profit derived from the firm's foreign branch/branches, whether operated as a distinct company or otherwise.
• Any dividend received from another firm in India that is covered by and in accordance with Section 135 of the Act.

Currently active project

An ongoing project is a multi-year initiative undertaken by a firm to fulfil its CSR commitment within three years, omitting the fiscal year in which it was initiated. It will also cover initiatives that were not originally approved as multi-year projects but whose life is extended beyond one year by the board for acceptable reasons.

CSR Implementation Act Amendment

The Board of Directors should guarantee that the company's CSR activities are carried out directly or through:

• Companies established under Section 8 of the Act, or a registered society or registered public trust established under Sections 12A & 80G of the IT Act of 1961, either by the companies themselves or in collaboration with another firm.
• Companies established under Section 8 of the Act, as well as registered societies and registered trusts established by federal or state governments
• Entities are established by legislation enacted by a state legislature or by a bill passed by Parliament.
• Companies incorporated by Sec 8 of the Act, or a recorded public society or registered trust under Sections 12A and 80G of the IT Act of 1961, and with a track record of at least three years in comparable operations.
• The companies listed above that want to engage in CSR activities should register with the Central Government by submitting Form CSR-1 to the Registrar commencing April 1, 2021. Form CSR-1 must be signed & submitted digitally by the entities. In reality, it should be digitally confirmed by a Cost Accountant, Company Secretary, or Chartered Accountant.
• When you submit Form CSR-1 on the MCA site, the system will produce a unique CSR Registration Number for you. A firm can hire foreign organisations to monitor, plan, and evaluate CSR programmes or initiatives in accordance with its CSR policy and train its employees in CSR.
• tables and funding utilisation
• The mechanism for a project or programme reporting and monitoring
• Details on the impact and any need for evaluation for the company's projects.

Amendment to CSR Expenditure

A company's Board of Directors must guarantee that administrative costs do not exceed 5% of overall CSR expenditure for the fiscal year. The surplus created by CSR activities will be transferred to the Unspent CSR Account or reinvested in the same project and will not be included in a company's business earnings.

Within six months after the conclusion of the fiscal year, the corporation must spend any residual CSR funds in line with its annual action plan and CSR policy or transfer them to a Fund listed in Schedule VII.

If a firm exceeds the sum provided in Section 135(5) of the IT Act, the excess might be deducted over three fiscal years. However, the surplus generated by CSR activities in line with these Rules shall not be included in the excess amount available for set-off, and the Board should make a resolution to that effect.

• A corporation can utilise CSR funds to purchase or construct a capital asset that it owns.
• Companies registered under Section 8 of the Act, or a Registered Society or Registered Public Trust having philanthropic aims and a CSR Registration Number.
• The state's authorities.

Amendment to CSR Reporting

An annual report notification on CSR shall be included in the Board report covered by the Rules for any fiscal year, with the details required in Annexure I or Annexure II, as appropriate.

The annual report on CSR prepared by a foreign firm under section 381(1)(b) of the Act shall include the information stated in Annexure I or Annexure II, as appropriate. Every firm with a CSR commitment of Rs.10 crore or more shall perform an effective evaluation through an independent agency for CSR initiatives with a budget of Rs.1 crore or more that are executed within a year of the impact study's completion.

The impact assessment reports should be provided to the Board of Directors and included as an attachment to the annual CSR report. A corporation performing an impact assessment can register CSR spending for that fiscal year, but it cannot exceed 5% of overall CSR expenditure or Rs.50 lakh, whichever is less.

CSR actions are displayed on the website

The Board of Directors' CSR Policy and Projects, as well as the makeup of the CSR Committee, should be made public on the Board of Directors website if one exists.

Modifications to the transfer of unspent CSR funds

In line w/s 135(5) & 135(6) of the Act, the corporation should transfer any unspent CSR monies to any fund mentioned in Schedule VII of the Act until a fund is established in Schedule VII.

CSR and I Form Filing

• Form CSR-1 will be available on the MCA portal beginning April 1, 2021.

• Any entity-created firm or collection of companies (Trust/ Society/ Section 8 Company): You can enter up to 5 CINs for such firms in the Form.
• Form CSR-1 must include the entity's email address, which must be authenticated using a One-Time Password (OTP).
• An OTP can be sent to an email address linked with a single form up to ten times per day. The OTP is only suitable for 30 minutes. If the OTP fails, you must either download a new form the same day or try the next day again.
• The names of the entity's Directors/Board of Trustees/CEO/Chairman/Secretary/Authorised Representative must be included on the form (AR). It is vital to ensure that the entity's DIN or PAN is correct and that it is connected with it.
• A maximum of ten rows will be available for inputting information about the entity's Directors/Board of Directors.
• Trustees/Chairman/CEO/Secretary/AR. Attachments must include a copy of the entity's registration certificate and a copy of the entity's PAN.

Conclusion

Together with Section 135 of the Act, the new CSR Rules establish a tight legal framework for CSR operations in India. To maintain compliance with the latest legal framework, companies must preserve detailed notifications of CSR Committee meetings, CSR money allocations, and actions conducted by implementing partners.

The early Section 135 CSR obligation was predicated on the idea of "comply or explain," in which a firm may either engage in CSR activities or explain why it had not spent the CSR amount. Section 135 compliance was meant to be voluntary rather than mandatory by Parliament. For company registration, contact Online Legal India.