Vinod Kothari & Company

Practising Company Secretaries

FAQs on CSR 2021 Amendments

Team Vinod Kothari and Company
corplaw@vinodkothari.com
Version: 22nd February, 2021

Contents
General Background................................................................................................................................... 5
Scope and Applicability .............................................................................................................................. 5
1. When will the Amendment Rules be effective? ............................................................................ 5
2. Are the Amendment Rules retroactive? ........................................................................................ 5
Penal provisions .......................................................................................................................................... 5
3. What are the implications of not spending post the amendments coming into effect? ................. 5
4. Are the penal proceedings in addition to the obligation to transfer the unspent amount to the
National Unspent CSR Fund, or other Funds mentioned in Schedule VII? Or is it one of the two
implications - the obligation to have the unspent money transferred, and the obligation to pay penalty? 6
5. Are the penal provisions only for failure to spend the amount, or for any other breach of the law
as well? For example, will the failure of disclosures, or other non-compliance of section 135 also lead to
penal implications referred to section 135 (7)? ......................................................................................... 6
6. Apart from transfer of the unspent amount to the specified CSR funds, whether the Board will
still be required to provide a reason for not spending the required CSR amount as specified under the
erstwhile provisions? ................................................................................................................................ 6
CSR Committee........................................................................................................................................... 6
7. In situations where the CSR spending is less than 50 lakhs, whether the existing CSR committee
will be dissolved or is required to continue?............................................................................................. 6
Scope of CSR Expenditure ......................................................................................................................... 7
8. Which all activities would not qualify as CSR expenditure as per the new definition of ‘Corporate
Social Responsibility’ defined in the Amendment Rules? ........................................................................ 7
9. What is the meaning of ‘normal course of business’ in the context of CSR? ............................... 7
10. Activities “benefiting employees” have been excluded from the scope of CSR. Does that mean
the company has to oust the employees from any CSR activity it undertakes? ........................................ 8
11. Who are employees in the context of the Amendment Rules? Can the company have CSR
activities towards workers engaged in unskilled activities? What if the Company spends towards
apprentices/ interns or contract labour? .................................................................................................... 8
12. What is the meaning of sponsorship activities deriving marketing benefits for company’s products
or services?................................................................................................................................................ 9
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13. Whether CSR expenditure is eligible for deduction under Sec 80G, if the implementing agency
is registered under Sec 80G and issues a certificate to that effect? If not, why is there a provision requiring
implementing agencies to hold Sec 80G certificate? ................................................................................ 9
14. Whether salary paid to an employee 'deputed' for CSR Activities can be treated as a part of CSR
spending? .................................................................................................................................................. 9
Ongoing project / Unspent CSR Account ................................................................................................. 9
15. What will be the actionables if a company spends less than the amount required to be spent under
CSR obligation? ........................................................................................................................................ 9
16. What is the meaning of ‘ongoing project’? Which projects will be considered as an on-going
project?.................................................................................................................................................... 10
17. When will an ongoing project be regarded as ‘commenced’? .................................................... 10
18. 11
19. What if the Board has identified a project with an estimated gestation period of 5 years? Will that
qualify as ‘ongoing project’? .................................................................................................................. 11
20. Since the company is required to spend the unspent amount in the next 3 financial years, does
that mean that the maximum period for an on-going project can be 3 financial years upon which the
amount will be transferred to the Fund? ................................................................................................. 11
21. Whether amount transferred to a third party implementing agency (Intermediary) for a project eg.
school building, will that be considered as an ongoing project? ............................................................. 11
22. If an Intermediary utilises x% of the amount received from the company in an FY. Will the entire
amount received by the Intermediary qualify as a CSR spend? If not, how will the balance amount be
dealt with? ............................................................................................................................................... 11
23. Whether a project will be termed as on-going only if substantial amount is spent for such project/
Whether a committed disbursement i.e. a binding commitment for disbursement of CSR amount, would
mean the project is ‘on-going’? .............................................................................................................. 11
24. What is the responsibility of the Board in case any ongoing project is undertaken by the company?
12
25. What will happen if the company fails to spend the amount retained for ongoing projects? ..... 12
26. Are the any restrictions on utilization of the money in the special account or can it be used for
regular business purposes of the company? ............................................................................................ 12
27. Can there be commingling of the money put into the special a/c, for various ongoing projects
inter se? In other words, can funds earmarked for one project be used for another project, should there
be an excess spending in one and deficit funding in another? ................................................................ 12
28. Is non-expenditure considered as non-compliance post amendments coming into force? What will
be the role of auditor on non-compliance? Will he qualify his report?................................................... 12
29. Whether a company is required to open “Unspent Corporate Social Responsibility Account”
project-wise or whether there will be a single account managed for all on-going projects? .................. 13
30. A company voluntarily decides to spend more than 2% of its profits. Thus, the target spending is
stipulated both in the CSR Policy, and in the CSR action plan. However, the company fails to spend the
whole of its target, such that the company has spent more than the statutory minimum of 2%, but less
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than the company's own target. Will the company be required to transfer such amount to the National
Funds, and failing that, pay a penalty?.................................................................................................... 13
31. In what ways should the money for an ongoing project be treated where such an ongoing project
is subsequently abandoned? .................................................................................................................... 13
32. If the Company has transferred an amount towards an ongoing project to an intermediary, who in
turn is not able to spend such amount in a financial year then who will transfer the unspent amount to
unspent CSR A/c , whether the intermediary or the Company? ............................................................. 13
Carry forward of Excess CSR spending ................................................................................................. 13
33. Can CSR spending be carried back, that is, to fulfil the shortfall of CSR spending in any
year? 13
34. What is the meaning of capacity building spending referred to in Rule 4 (6)?........................... 14
35. Whether the benefit of carrying forward will be available to a company that had zero CSR expense
to be incurred on account of losses, however, voluntarily incurred certain CSR expenses? .................. 14
CSR Implementation ................................................................................................................................ 14
36. Are all companies who are mandated to undertake CSR expenditure as per the specified criteria
under section 135(5) of the Act, required to have a CSR Committee under section 135(1) of the Act? 14
37. What are the modes of implementing CSR activities available with the company post the
amendments coming into effect? ............................................................................................................ 14
38. Which entities are eligible to qualify as implementing agencies for undertaking CSR activities as
per the Companies (CSRP) Amendment Rules, 2021 ............................................................................ 14
39. Whether all three types of bodies - a section 8 company or a registered public trust or a registered
society, is required to have income-tax registration u/s 12A as well as 80G of the Income Tax Act, 1961?
15
40. Whether societies are required to be registered under both section 12A as well as section 80G of
the Income Tax Act, 1961, to qualify as an implementing agency? ....................................................... 15
41. Whether the existence of any such public agencies for three years or more would suffice to meet
the said requirement? .............................................................................................................................. 15
42. Whether ABC, a registered society, having experience of 3 years in holding medical / health
camps can undertake the project of building a hospital as CSR activity? How would a company assess
the experience of agency in carrying out similar activities? ................................................................... 15
43. What is the role of International organizations in the context of CSR? Is it mandatory for the
companies to engage such international organizations? ......................................................................... 16
44. Can an international organization undertake CSR activities on behalf of the company like any
other implementing agency? ................................................................................................................... 16
45. An outside agency (trust/ society/ Sec 8 company) has been mandated to have established track
record of 3 years of undertaking similar activities. Whether existence of any trust/ society/ sec 8 company
for three years or more would suffice to meet the above requirement? .................................................. 16
46. In the CSR Amendment Rules, at various places the term ‘CSR project’ and ‘CSR program’ have
been used. What is the difference between ‘project’ and ‘program’ in context of the CSR rules? What are
the parameters and principles to differentiate any activity between the two, if needed? ........................ 16
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Registration of implementing agencies [CSR-1]..................................................................................... 16

47. What is the role of implementing agencies in carrying out CSR activities? ............................... 16
48. Is registration of every implementing agency mandatory? ......................................................... 17
49. What are the requirements prescribed under the Amendment Rules, 2021 for registration of
implementing agencies with the MCA? .................................................................................................. 17
50. Considering every eligible implementing agency undertaking CSR activities is required to
register itself with MCA, whether registration by filing CSR-1 is mandatory in case the company carries
out CSR activities directly without engaging any implementing agencies? ........................................... 17
Impact Assessment .................................................................................................................................... 18
51. What is the meaning of ‘impact assessment’? ............................................................................ 18
52. Which all companies are required to undertake impact assessment?.......................................... 18
53. Whether companies are required to undertake impact assessment for FY 2020-21? ................. 18
54. Whether the company is required to undertake impact assessment on a regular basis? ............. 18
55. Who can conduct impact assessment? ........................................................................................ 18
56. Whether the expenditure of impact assessment is over and above the ‘administrative overheads’
of 5% or inclusive of the same? .............................................................................................................. 18
57. Whether impact assessment is to be carried out for CSR projects as well as CSR programs, CSR
activities as rule 8(3) states that “all CSR ‘projects’ having outlay of Rs. 1 core or more require “impact
assessment”? Whether impact assessment is to be underaken every year on an ongoing basis?............ 19
Responsibilities and functions of the Board and Committee ................................................................ 19
58. Can a company that has passed a resolution earlier to spend in excess of their statutory CSR
expenditure requirements subsequently pass a resolution in the same year for a lower target thereby
reducing the amount to be transferred to the unspent amount fund? ...................................................... 19
59. What are the actionable arising out of the CAA, 2020 and the Amendment Rules? .................. 19
 Vinod Kothari & Company
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General Background
The long-awaited amendments to the CSR provisions brought by the Companies (Amendment) Act, 2020,
(‘CAA, 2020’) have finally been made effective by MCA, vide its notification dated January 22, 2021.
Along with this, MCA has notified the Companies (Corporate Social Responsibility Policy) Amendment
Rules, 2021 (Amendment Rules).

CSR has recently been a subject receiving close review by regulators. With the recent amendments in place,
including the amendments introduced by the Amendment Act, 2019 and **, read with these Amendment
Rules, the entire regime of CSR has undergone a huge change, making the understanding of CSR law and
amendments thereto all the more important. Various new concepts and substantial changes have been
introduced viz. The concept of ‘ongoing projects’, transfer of unspent amounts to a designated fund,
corporatization and registration of implementing agencies, preparing a detailed annual report on CSR, CFO
certification, impact assessment for certain companies, annual action plan, disclosures on the website and
so on.

Accordingly, through these FAQs, we have listed down the probable questions that one may have with
respect to the recent amendments in CSR provisions.

In case you wish to view our detailed FAQs on CSR, please refer to FAQs on Corporate Social
Responsibility.

Scope and Applicability

1. When will the Amendment Rules be effective?

The Amendment Rules have been notified with immediate effect and thus would be applicable with effect
from the date of the Gazette Notification, that is, 22nd January, 2021.

2. Are the Amendment Rules retroactive?

Going by the general principle, we are of the view that the amendments are not retrospective or retroactive.
That, however, does not mean the amendments do not affect matters or things done in FY 20-21. For
example, any shortfall of spending in FY 2020-21 may well be covered by the amendments. Further, there
is a potential view that even the impact assessment may be required for projects undertaken in earlier years.

Penal provisions

3. What are the implications of not spending post the amendments coming into effect?
The proposed amendments intend to switch the CSR mechanism from “comply or explain” i.e. COREX to
a “comply or pay penalty” i.e. COPP provision. Any non-compliance with the new requirements of law
may attract the following penal provisions:
a) Penalty on company:
Up to twice the amount required to be transferred to fund specified in Schedule VII or Unspent CSR account
or Rs. 1 crore, whichever is lower;

b) Penalty on officers in default:

1/10th of the amount required to be transferred to Fund specified in Schedule VII or Unspent CSR account
or Rs. 2 lakhs, whichever is lower.
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4. Are the penal proceedings in addition to the obligation to transfer the unspent amount to the National
Unspent CSR Fund, or other Funds mentioned in Schedule VII? Or is it one of the two implications
- the obligation to have the unspent money transferred, and the obligation to pay penalty?
In our view, the obligation to transfer the unspent amount to a National Fund, as stipulated in section 135
(5), is to add force to the mandate of spending contained in the law. The penalty is the consequence of
infraction of the law. For example, not transferring the money to the National Fund within time will still be
a breach of the law, and may thus attract penalty. In other words, penalty is the consequence of not abiding
by the law, and not an alternative for the same. Hence, penalty would not relieve the company from the
obligations under the law.

5. Are the penal provisions only for failure to spend the amount, or for any other breach of the law as
well? For example, will the failure of disclosures, or other non-compliance of section 135 also lead to
penal implications referred to section 135 (7)?
Section 135 (7) is clearly related to breach of section 135 (5) and section 135 (6). If the default pertains to
any other provision of the section, or of the Rules, like failure to form a Committee or any issue with the
CSR Policy, then the implications will be the general penalty provisions of section 450 of the Act.

Will the companies necessarily require to pay, in case of companies, twice the amount of penalty or
Rs. 1 crore, whichever is lower, (or in the case of officer in default), as specified in section 135(7) of
the Companies Act, 2013?
No, since the provision uses the words ‘upto’ the said amount, the particular amount of penalty levied on a
particular company will be decided by way of adjudication. Adjudication principles are laid down in the
Companies (Adjudication of Penalties) Rules, 2014.

6. Apart from transfer of the unspent amount to the specified CSR funds, whether the Board will still
be required to provide a reason for not spending the required CSR amount as specified under the
erstwhile provisions?
The second proviso to section 135(2) of the Act still requires the Board to explain, in the Board’s report,
reasons for not spending the required CSR amount. Thus, the Board is not absolved of its responsibility to
provide an explanation if the required CSR spending is not met and the existing requirement is still in place,
over and above the transfer of the shortfall.

CSR Committee

7. In situations where the CSR spending is less than 50 lakhs, whether the existing CSR committee will
be dissolved or is required to continue?

Section 135(9) and Rule 3(2) are slightly different. Section 135
Please note section 135 (9) of the Companies Act, 2013 and rule 3 (2) of the CSR Policy Rules cannot be
read to mean the same thing. The section talks about the non constitution of the CSR committee where the
csr budget does not exceed 50 lacs and bestows the responsibility of the csr committee on the board. On the
other hand, rule 3 (2) talks about the conditions when the csr committee constitution is not applicable and
where it requires the company to check its applicability under sub-section (1) of section 135 for three
consecutive preceding financial years.
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Accordingly, the cases which can attract sub-sec (9) may be those companies which are covered under sub-
section (1) for the first time or which are otherwise also covered however,have a temporary fall in their
profits because of which their csr obligation may have come down. In such cases, the board has to decide
on the csr matters.
Dissolving of the csr committee can only be done where the company fulfills the conditions under rule 3(2)
and not otherwise

Scope of CSR Expenditure

8. Which all activities would not qualify as CSR expenditure as per the new definition of ‘Corporate
Social Responsibility’ defined in the Amendment Rules?

Rule 2(1)(d) of the Amendment Rules defines “Corporate Social Responsibility (CSR)” which seeks to
exclude a list of 6 items from CSR expenditure.

Following are the list of exclusions:

a) Activities undertaken in pursuance of normal business of the company (see below);
However, exemption is provided for three financial years till FY 2022-23, to companies engaged in
R&D activity of new vaccine, drugs and medical devices in their normal course of business which
undertakes R&D activity of vaccine/ drugs/ medical devices related to COVID-19. This exclusion will
be allowed only in case the companies are doing such R&D in collaboration with organisations as
mentioned in item (ix) of schedule VII and disclose the same in their board’s report.

b) Activities undertaken outside India, except for training of Indian sports personnel representing any
State or Union territory at national level or India at international level;
c) Contribution of any amount, directly or indirectly, to any political party under section 182 of the Act;
d) Activities benefiting employees of the company as defined in section 2(k) of the Code on Wages, 2019;
e) Sponsorship activities for deriving marketing benefits for products/ services;
f) Activities for statutory obligations under any law in force in India.

9. What is the meaning of ‘normal course of business’ in the context of CSR?

The term is neither defined in the Act nor in the Amendment Rules. Black Law’s Dictionary defines the
term “ordinary course of business” as “normal routine in managing trade or business”. In general, a normal
course of business refers to something that a company does ordinarily to conduct its business activities. E.g.
Normal course may include sale/supply of goods or services in the course of business of the company.

On the contrary, MCA on 28th March, 2014 vide an affidavit clarified that CSR activities which is core
part of its business also can be undertaken if it is not done with profit motive.

“pharmaceutical company donating medicines/drugs within section 135 read with Schedule VII to the Act
is a CSR Activity, as the same is not an activity undertaken in pursuance of its normal course of business
which is relatable to health care or any other entry in Schedule VII”

The question is, whether mere absence of a profit motive will take an activity out of the purview of normal
course of business? In light of the fact that CSR is what the Company does with a social objective in mind,
CSR activities should not be what the Company does in an ordinary course of business. If the Company
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sells flour in an ordinary course of business, using such flour for a social objective will, in our view, not be
a proper CSR activity. Same goes for pharmaceuticals or anything else that the company makes, sells or
provides. Our opinion is based on the fact that mixing ordinary course of business activities, though done
with a profit motive, and the same activities done without profit motive, will have a very thin borderline of
distinction.

While activities done under normal course of business would not fall under CSR expenditure, expenditure
undertaken for awareness programmes towards COVID-19 vaccination will be allowed as CSR
expenditure, as clarified by MCA vide its circular dated 13th January, 2021.

10. Activities “benefiting employees” have been excluded from the scope of CSR. Does that mean the
company has to oust the employees from any CSR activity it undertakes?
If the activities are intended for larger good, and there is neither a distinctive reservation for employees,
nor a distinctive exclusion, it does not offend the intent of CSR.

In our view, if employees participate in activities which are generally open for all, they can also benefit
themselves from such activity as it is not exclusively conducted for them only.

ICAI FAQs on CSR further clarify that projects, programmes or activities that benefit only the employees
of the company and their families shall not be considered as CSR. However, programmes or activities that
are for the generic benefit or good, but which also cover some employees or their families will still be
considered as CSR as long as such benefits are not exclusively for the benefit of such employees.

For example, recreational facilities provided for employees and their families in the employee quarters shall
not be considered as CSR. However, if the Company maintains a stadium for promotion of sports in a city
used by residents of that place and not exclusively by its employees then such spending shall be still
considered as a spending towards CSR, even if some of the Company’s employees participate in the same,
or derive benefits from the same, as a part of the common beneficiaries.

CSR is a ‘social’ responsibility and not an ‘employer’ responsibility. The intent is that employer’s
obligation to employees, or employee welfare activities are not taken as CSR. The idea is not to deprive the
employees completely from social benefit programmes but to avoid making them the sole beneficiaries.
Hence, if employees are not targeted beneficiaries solely, nor have any special status, the spirit of CSR is
not breached.

11. Who are employees in the context of the Amendment Rules? Can the company have CSR activities
towards workers engaged in unskilled activities? What if the Company spends towards apprentices/
interns or contract labour?
Earlier, there was an ambiguity as to who would be included under the term ‘employees’ and thereby be
ineligible with respect to CSR spending. The same has been clarified by the Amendment Rules to include
all employees as defined under the Code of Wages Act, 2019.

Employees as defined under the Code of Wages Act, 2019 include all employees whether skilled, unskilled
or semi-skilled. Accordingly, if CSR expenditure is made towards unskilled labour, the same would not be
considered as CSR expenditure. However, apprentices and interns engaged under the Apprentices Act, 1961
are specifically excluded from the definition and thus would be eligible for CSR expenditure.
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12. What is the meaning of sponsorship activities deriving marketing benefits for company’s products
or services?
Sponsorship basis implies a company being a sponsor of an event with an aim of taking marketing
advantage for its product or services.

The intent is not to rule out any marketing benefits arising from CSR expenditure. CSR expenditure, in
most cases, creates brand value and provides various marketing benefits. For example, a company creating
awareness w.r.t COVID-19 is specifically permitted as a CSR activity and may build a company’s brand
value. The issue is pertaining to sponsorship- since such an activity does not facilitate any involvement of
the sponsor in the project except for funding.

Therefore, companies shall not use CSR as a marketing or brand building tool for its business.

13. Whether CSR expenditure is eligible for deduction under Sec 80G, if the implementing agency is
registered under Sec 80G and issues a certificate to that effect? If not, why is there a provision
requiring implementing agencies to hold Sec 80G certificate?

MCA FAQ says this: http://www.mca.gov.in/MinistryV2/faq+on+csr+cell.html

No specific tax exemptions have been extended to CSR expenditure per se. Finance Act, 2014 also clarifies
that expenditure on CSR does not form part of business expenditure. While no specific tax exemption has
been extended to expenditure incurred on CSR, spending on several activities like contributions to Prime
Minister’s Relief Fund, scientific research, rural development projects, skill development projects,
agricultural extension projects, etc., which find place in Schedule VII, already enjoy exemptions under
different sections of the Income Tax Act, 1961.

14. Whether salary paid to an employee 'deputed' for CSR Activities can be treated as a part of CSR
spending?
Such remuneration would fall under administrative expenses and can be treated as a part of CSR spending
to the extent of 5% of such total CSR spending, along with any other administrative expenses.

Ongoing project / Unspent CSR Account

15. What will be the actionables if a company spends less than the amount required to be spent under
CSR obligation?
If a company spends less than the amount required to be spent under CSR obligation, the Board shall specify
the reasons for not spending such amount, in the Board’s report.

The company shall deal with the unspent amount in the following manner:

Analysis of Unspent Actionable Timeline

Amount

Unspent amount pertains Transfer such unspent amount to a separate Within 30 days from the
to ‘ongoing project’ bank account to be called as ‘Unspent CSR end of the financial year.
Account’.
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Unspent amount does not Transfer unspent amount to the National Fund Within 6 months from the
pertain to ‘ongoing or the Fund prescribed under Schedule VII. end of the financial year.
project’

While the time for transferring the unspent money to the Fund prescribed under Schedule VII is 6 months,
the Board will have to decide on the retention of money for ongoing projects, disclose reasons for not
spending the amount, etc. in its Board’s Report.

Hence, the analysis of what may actually be retained by the Company will have to be done before approval
of the Board’s report.

16. What is the meaning of ‘ongoing project’? Which projects will be considered as an on-going project?
Rule 2(1)(i) of Amendment Rules defines the term ‘ongoing project’ as:
a) a multi-year project, stretching over more than one financial year;
b) having timeline not exceeding three years excluding the year of commencement
c) includes such project that was initially not approved as a multi-year project but whose duration has
been extended beyond one year by the Board based on reasonable justification.

Ongoing Project

includes a project that was

Multi-year project i.e.
stretching over more
than 1 FY
Not exceeding 3 years
inititally not approved as
(excl. year of
multi-year but the Board
commencement)
extended its duration (based
on reasonable justification)

The same should have commenced within the financial year to call it ‘ongoing’. This includes a project that
was initially not approved as a multi-year project. The intent is to include a project which has an identifiable
commencement and completion. The expenses which are recurring in nature should not be included in the
ongoing project.

For example, if a company contributes to the annual running expense of a cancer hospital, the spending for
the next year cannot be regarded as an “ongoing project”. However, if installation of a new facility at the
same hospital is already undertaken during the year, such expense should be regarded as an “ongoing
project”.

17. When will an ongoing project be regarded as ‘commenced’?

An ongoing project will be considered as ‘commenced’ when concrete steps have been taken towards such
project. However, the requirement of spending on such a project is not necessary if the company has
undertaken a binding commitment towards such project.
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18.
19. What if the Board has identified a project with an estimated gestation period of 5 years? Will that
qualify as ‘ongoing project’?
In terms of the definition of ongoing projects prescribed u/r 2(1)(i) of Amendment Rules, the project shall
not stretch beyond three years excluding the year of commencement to qualify it as an ongoing project.
There can be projects that may stretch beyond 3 years, for example, building of a hospital or a school. In
such cases, though the on-going project is for a period of 5 years, in our view, the company will be permitted
to retain the CSR amount to be spent for the 3 years out of the total life of 5 years of the project. The
rationale behind the restriction of 3 years is to avoid retaining the unspent amount indefinitely.

20. Since the company is required to spend the unspent amount in the next 3 financial years, does that
mean that the maximum period for an on-going project can be 3 financial years upon which the
amount will be transferred to the Fund?
Yes, the same is correct. The unspent amount for ongoing projects can be maximum retained for 3 financial
years, while the excess amount shall be transferred to the Fund.

21. Whether amount transferred to a third party implementing agency (Intermediary) for a project eg.
school building, will that be considered as an ongoing project?
Irrespective of the facts whether the project is implemented by the company itself or through a third party
implementing agency, if such project meets the criteria of ongoing project i.e. being a multi-year project
having timelines not exceeding three years excluding the year of commencement, the same shall be treated
as an ongoing project.

22. If an Intermediary utilises x% of the amount received from the company in an FY. Will the entire
amount received by the Intermediary qualify as a CSR spend? If not, how will the balance amount
be dealt with?
CSR expenditure shall be considered as spent only if the intermediary has in turn spent such amount. Mere
transfer of funds to the intermediary will not be considered as CSR amount spent.

Only the x% utilized by the Intermediary shall be treated as CSR expenditure and the remaining amount is
the unspent amount which shall be transferred to Unspent CSR A/c or Fund specified in Schedule VII, as
the case may be.

23. Whether a project will be termed as on-going only if substantial amount is spent for such project/
Whether a committed disbursement i.e. a binding commitment for disbursement of CSR amount,
would mean the project is ‘on-going’?
There might be situations where a company has agreed for a disbursement of amount before the end of the
financial year, however, due to some reasons the actual disbursement/ implementation has not been made
or the project for which the disbursement has been committed has not started. In such situations, while the
actual amount is not disbursed or the project has not started, we may say that project has commenced within
the same financial year if the company has already made a binding commitment to disburse the amount.
Thus, spending of CSR amount is not necessary if the company has committed to such a project and steps
towards such commitment have been taken.

Since the project has commenced within the same financial year, it is correct to regard the same as an
ongoing project.
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24. What is the responsibility of the Board in case any ongoing project is undertaken by the company?
The Board of Directors will be responsible for:

Identification of ongoing project Year wise allocation of funds

Responsibilities of the
Board

Make modifications, if required,

Monitoring the implementation
for smooth implementation of
of the project with reference to
the project within the overall
the approved timelines
permissible time period

The Amendment Rules have put major responsibility, in case of on-going projects, on the Board.

25. What will happen if the company fails to spend the amount retained for ongoing projects?
The company shall transfer such unspent retained amount to Fund prescribed under Schedule VII within 30
days from the end of third financial year, for instance, if the company retained Rs. 50 lakhs in 2019-20 to
be spent in 2020-21, and only Rs. 40 lakhs were spent towards the project in FY 2020-21, the shortfall of
Rs. 10 lakhs will be transferred to the Fund.

26. Are the any restrictions on utilization of the money in the special account or can it be used for regular
business purposes of the company?
The whole purpose of segregation of the money into a separate a/c is to ensure that there is no commingling
with the rest of the company’s finances. Hence, the amount parked into the Special Account is only to be
used for the expenditure for the project (s) for which the money was intended.

27. Can there be commingling of the money put into the special a/c, for various ongoing projects inter
se? In other words, can funds earmarked for one project be used for another project, should there
be an excess spending in one and deficit funding in another?
It does not seem logical to contend that the outlay earmarked for each "ongoing project" will be mutually
ring fenced. Hence, there is nothing wrong in using the outlay dedicated for one project against another.

28. Is non-expenditure considered as non-compliance post amendments coming into force? What will be
the role of auditor on non-compliance? Will he qualify his report?
Where earlier, the non-expenditure would only imply an explanation to be inserted in the Board’ report, the
new provisions also impose a specific penalty on such non-spending. Penalty may also be imposed on the
company as well as the officer-in-default. This means that the regulator has intended to make non-
compliance of CSR expenditure penalty-driven and the liability of the company does not end with only
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an explanation. Thus, in our view, non- expenditure will be treated as non-compliance and accordingly
reports by auditors will be qualified.

29. Whether a company is required to open “Unspent Corporate Social Responsibility Account” project-
wise or whether there will be a single account managed for all on-going projects?
The language of section 135(6) is Any amount remaining unspent under sub-section (5), pursuant to any
ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of
its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty
days from the end of the financial year to a special account to be opened by the company in that behalf
for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility
Account'
The language seems to indicate that an account will be required to be opened for each financial year with
funds pertaining to all on-going projects.

30. A company voluntarily decides to spend more than 2% of its profits. Thus, the target spending is
stipulated both in the CSR Policy, and in the CSR action plan. However, the company fails to spend
the whole of its target, such that the company has spent more than the statutory minimum of 2%,
but less than the company's own target. Will the company be required to transfer such amount to the
National Funds, and failing that, pay a penalty?
One may refer to the language of the section 135(5) which provides for a minimum spending of 2% of
average profits, etc. Second proviso to section 135 (5) refers to “such amount”, which is the amount targeted
to be spent by the Board. Thus, if the company has voluntarily fixed for itself a higher target, it becomes
obligated to spend such a higher amount and the provisions of section 135 apply to such higher target.
Therefore, even if a company is able to meet the statutory target but cannot meet the internal target set by
the Board which is higher that the former, then the shortfall will be either transferred to the Fund or the
Special Account, as may be the case.

31. In what ways should the money for an ongoing project be treated where such an ongoing project is
subsequently abandoned?
The remaining CSR amount of such projects such be transferred to the fund.

32. If the Company has transferred an amount towards an ongoing project to an intermediary, who in
turn is not able to spend such amount in a financial year then who will transfer the unspent amount
to unspent CSR A/c , whether the intermediary or the Company?
The intermediary can do the transfer to the unspent account of the company - in fact the Board of the
company may authorise the trustees/ governing body of the implementing agency to open such unspent
CSR account.

Carry forward of Excess CSR spending

33. Can CSR spending be carried back, that is, to fulfil the shortfall of CSR spending in any year?
Pursuant to the third proviso to section 135 (5) of the Act, if the company spends an amount in excess of
the requirements provided under this subsection, such company may set off such excess amount against the
requirement to spend under this subsection for such number of succeeding financial years and in such
manner, as may be prescribed. In this regard, Rule 7 (3) of Amendment Rules provides for a time frame of
3 immediately succeeding years for adjusting that excess CSR spending.
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Therefore, in case a company spends any amount in excess of its CSR obligation and sets off such excess
expenditure against the shortfall of CSR spending in any immediately three succeeding financial years is
regarded as carrying backward of CSR shortfall.

In other words, the shortfall of CSR spending in any year can be adjusted against excess spending in any
previous year.

34. What is the meaning of capacity building spending referred to in Rule 4 (6)?
The expenditure on training the CSR staff regarding the CSR project. However, such expenditure is not to
exceed 5% of the total CSR expenditure of the Company in one financial year.

35. Whether the benefit of carrying forward will be available to a company that had zero CSR expense
to be incurred on account of losses, however, voluntarily incurred certain CSR expenses?
Excess spending, that is, spending in excess of what is required, is allowed to be set off. If there was no
spending required by the company on account of losses, and the company had spent an amount, the said
amount may be regarded as excess spending and may be carried forward.

CSR Implementation

36. Are all companies who are mandated to undertake CSR expenditure as per the specified criteria
under section 135(5) of the Act, required to have a CSR Committee under section 135(1) of the Act?
No. CAA, 2020 has provided a relief to companies where the amount to be spent towards CSR does not
exceed Rs. 50 lakhs in a year. Such companies will be exempt from constituting a CSR Committee and the
CSR function and obligations will be discharged by the Board. The same will be applicable from 22nd
January, 2021 due to Enforcement Notification. However, temporary fall in the profit thereby leading to
fall in the CSR expenditure, would not exempt a company from the requirement of having a CSR
Committee.

37. What are the modes of implementing CSR activities available with the company post the amendments
coming into effect?
Pursuant to Rule 4 of the Companies (CSRP) Amendment Rules, 2021, company may undertake CSR
activities via following three modes of implementation:
a) Self-implementation
b) Implementation through eligible implementing agencies [Rule 4(1)]
c) Joint implementation with one or more companies [Rule 4 (4)]

38. Which entities are eligible to qualify as implementing agencies for undertaking CSR activities as per
the Companies (CSRP) Amendment Rules, 2021
So far, a section 8 company, trust, or a society, having a track record of three years in carrying out similar
activity were qualified to be an implementing agency. However, several amendments have been brought in
the provisions relating to implementing agencies.

On or from April 01, 2021, following four types of agencies shall be eligible to carry out CSR activities on
behalf of the company:
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a) Category I: Entity established by the company itself or along with any other company - a company
established under section 8 of the Act, or a registered public trust or a registered society, registered
under section 12A and 80 G of the Income Tax Act, 1961
b) Category II: Entity established by the Central Government or State Government (‘Government
Agencies’) - a company established under section 8 of the Act, or a registered trust or a registered
society.
c) Category III: Statutory bodies - any entity established under an Act of Parliament or a State
legislature
d) Category IV: Public agencies - a company established under section 8 of the Act, or a registered
public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act,
1961, and having an established track record of at least three years in undertaking similar activities.

39. Whether all three types of bodies - a section 8 company or a registered public trust or a registered
society, is required to have income-tax registration u/s 12A as well as 80G of the Income Tax Act,
1961?
While the expression “registered under section 12A and 80 G of the Income Tax Act, 1961” appears exactly
after registered society, however, it does not seem logical to attach the condition only in case of societies
and therefore all three types of bodies - a section 8 company or a registered public trust or a registered
society shall qualify for registration.

40. Whether societies are required to be registered under both section 12A as well as section 80G of the
Income Tax Act, 1961, to qualify as an implementing agency?
Section 12A deals with the registration of trusts for claiming exemption of tax on their income, under
sections 11,12 and 13 of the Income Tax Act, 1961. On the other hand, Section 80G enables the donor to
seek tax deduction for a donation made to certain funds, charitable institutions, etc.

41. Whether the existence of any such public agencies for three years or more would suffice to meet the
said requirement?
The criteria to qualify as an implementing agency for such public agencies is to have an established track
record of atleast 3 years in carrying out similar activities which the company proposes to undertake as per
the Schedule VII of the Act.

Existence of such public agencies for 3 years does not prove that the Trust is having 3 year experience in
carrying out similar projects / programs.

42. Whether ABC, a registered society, having experience of 3 years in holding medical / health camps
can undertake the project of building a hospital as CSR activity? How would a company assess the
experience of agency in carrying out similar activities?
It is the responsibility of the Board of the company to identify the credibility of the implementing agency.
Necessary due diligence shall be carried out to ascertain the track record and capacity of implementing
agency to undertake CSR activities.
In the given instance, holding medical / health camps and building hospitals are two different sets of
activities and require different skills sets and experience. Company shall conduct proper due diligence so
as to confirm the eligibility requirements of the society to undertake CSR activities on behalf of the
company.
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43. What is the role of International organizations in the context of CSR? Is it mandatory for the
companies to engage such international organizations?
Rule 2(1)(g) of the Amended Rules defines international organization as an organisation notified by the
Central Government as an international organisation under section 3 of the United Nations (Privileges and
Immunities) Act, 1947, to which the provisions of the Schedule to the said Act apply;

Pursuant to Rule 4(3) of the Amended Rules, a company may engage international organizations for
designing, monitoring and evaluation of the CSR projects or programs or for capacity building of their own
personnel for CSR. However, the said provisions are only directory not mandatory.

44. Can an international organization undertake CSR activities on behalf of the company like any other
implementing agency?
No, it shall not act as an implementing agency. In the draft CSR Rules, it was proposed that the companies
may also undertake CSR activities through international organizations with the prior permission of the
Central Government, however, this proposal has been dropped in the final rules.

45. An outside agency (trust/ society/ Sec 8 company) has been mandated to have established track record
of 3 years of undertaking similar activities. Whether existence of any trust/ society/ sec 8 company
for three years or more would suffice to meet the above requirement?
Mere existence of such an entity for three years or more shall not suffice and it will actually have to be
involved in undertaking similar activities. The idea behind this requirement is to ensure the genuineness of
the entity's presence in the target area, local connect, knowledge and experience in undertaking the activities
in which the company wants to contribute.

46. In the CSR Amendment Rules, at various places the term ‘CSR project’ and ‘CSR program’ have
been used. What is the difference between ‘project’ and ‘program’ in context of the CSR rules? What
are the parameters and principles to differentiate any activity between the two, if needed?
Since these words are not defined anywhere in the statute, we will turn to the general meaning of these
terms. A project is a set of activities while a program is a set of common and related projects. Thus, various
projects under a common goal will form part of a project. For example, building a school will be a project,
while various projects undertaken for a village such as a school, a hospital, etc. will be a program. The same
will depend on the interpretation of the CSR committee and Board, however, as far as standing under the
CSR law is concerned, both are treated at par.

Registration of implementing agencies [CSR-1]

47. What is the role of implementing agencies in carrying out CSR activities?
Rule 4 of the Companies (CSRP) Amendment Rules, 2021 allows companies to undertake CSR activities
through the specified implementing agencies.

Such implementing agencies are the intermediaries, typically carrying the following functions:
a) aggregation of spending by several group companies;
b) identification of CSR opportunities;
c) coordination with the end beneficiaries;
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d) monitoring of CSR implementation.

Undertaking CSR activities through a third party implementing agency saves the company from the
drudgery and allows it to focus on strategizing, deciding and spending CSR expenditure and thereby
meeting its CSR obligations.

48. Is registration of every implementing agency mandatory?

On and from April 1, 2021, all the four eligible implementing agencies discussed above shall mandatorily
register itself with MCA. In addition to this, income tax registration under section 12A and 80 G of the
Income Tax Act, 1961 is mandatory for Category I and IV entities i.e.
a) Category I: Entity established by the company itself or along with any other company - a company
established under section 8 of the Act, or a registered public trust or a registered society
b) Category IV: Public agencies - a company established under section 8 of the Act, or a registered
public trust or a registered society

Since the requirements of registration kicks off from April 01, 2021, any on-going projects approved prior
to April 01, 2021 may be carried out by unregistered implementing agencies. Further, the registration would
also be needed where the implementation agency is used to hold ‘capital asset’ under rule 7(4) of the
Amended Rules.

49. What are the requirements prescribed under the Amendment Rules, 2021 for registration of
implementing agencies with the MCA?
As discussed, on and from April 1, 2021, companies can undertake CSR activities only through
implementing agencies which are registered with MCA.

Rule 4(2) of the Companies (CSRP) Amendment Rules, 2021 mandates all four categories of implementing
agencies to register itself with the Central Government on and from April 1, 2021 by filing the Form CSR-
1 electronically with the Registrar of Companies.

The Form CSR-1 shall be digitally verified by a practicing CA/ CS/ CWA, post which a unique CSR
Registration Number will be generated.

50. Considering every eligible implementing agency undertaking CSR activities is required to register
itself with MCA, whether registration by filing CSR-1 is mandatory in case the company carries out
CSR activities directly without engaging any implementing agencies?
Rule 4(2)(a) of the Amended Rules states that "Every entity, covered under sub-rule (1), who intends to
undertake any CSR activity, shall register itself with the Central Government by filing the form CSR-1
electronically with the Registrar, with effect from the 01st day of April 2021”

Accordingly, where the company carries out its CSR activities through the implementing agencies as
specified in rule 4, such implementing agencies will be required to file e-form CSR -1 for registering
themselves.

However, in case the company carries out CSR activities directly, the question of registration by filing e-
form CSR-1 does not arise.
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Impact Assessment

51. What is the meaning of ‘impact assessment’?

The purpose of impact assessment is to assess the social impact of a particular project, and hence, it is called
“social impact assessment”. Impact assessment may also include “social return on investment”. Further,
“social impact assessment” and “social audit” are closely related to each other.

This seems another step to encourage companies to take considered decisions before deploying CSR
amounts and assess the impacts of their investments to capture the impact being generated by them. This
shall not only serve as feedback for companies to plan and better allocate resources, but shall also deepen
the impact of CSR.

52. Which all companies are required to undertake impact assessment?

The idea is to obligate only a certain class of companies, spending large sums of money on CSR and who
have the capacity, as impact assessment is cost-intensive and time consuming. Accordingly, Rule 8(3) of
the Amended Rules requires following class of companies to conduct impact assessment:

a) companies with minimum average CSR obligation of Rs. 10 crore or more in the immediately
preceding 3 financial years; and
b) having CSR projects of outlays of minimum Rs. 1 crore and which have been completed not less
than 1 year before undertaking impact assessment.

53. Whether companies are required to undertake impact assessment for FY 2020-21?
Since the requirement applies immediately, companies shall determine if it falls under the prescribed criteria
and conduct impact assessment accordingly. CSR targets for FY 2017-18, 18-19 and 19-20 will be relevant,
to determine the requirement of impact assessment for FY 20-21.

54. Whether the company is required to undertake impact assessment on a regular basis?
While the Amended Rules do not prescribe any timeline for impact assessment, however, in our view, if
the project is recurring in nature, the impact assessment may be undertaken on a rotational basis, so as to
cover all material projects, say, once in every 3 years.

55. Who can conduct impact assessment?

Rule 8(3) of the Amended Rules requires that the impact assessment shall be conducted by an independent
agency.

While the Amended Rules has not clarified about eligible independent impact assessment agencies,
academic or research entities capable of doing field surveys and which understand the objectives of the
CSR compliance can conduct the impact assessment.

56. Whether the expenditure of impact assessment is over and above the ‘administrative overheads’ of
5% or inclusive of the same?
The expenditure of impact assessment is over and above the specified administrative overheads of 5%. In
our view, expenditure upto a maximum of 5% or 50 lacs (lower of the two) can be booked separately in
relation to impact assessment.
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57. Whether impact assessment is to be carried out for CSR projects as well as CSR programs, CSR
activities as rule 8(3) states that “all CSR ‘projects’ having outlay of Rs. 1 core or more require
“impact assessment”? Whether impact assessment is to be undertaken every year on an ongoing
basis?
The terms projects and programs have been loosely and impact assessment will accordingly be undertaken
for all eligible programs and projects.

The timeline for impact assessment will vary based on the nature of the project and will be undertaken as
per the methodology adopted and at the discretion of the Board. For e.g. in case of an afforestation project,
the benefits can be measured only after a few years, while in case of a project of building better sanitation
facilities the benefits could be assessed within a year.

Responsibilities and functions of the Board and Committee

58. Can a company that has passed a resolution earlier to spend in excess of their statutory CSR
expenditure requirements subsequently pass a resolution in the same year for a lower target thereby
reducing the amount to be transferred to the unspent amount fund?
Yes. Since the Board has the power to decide the CSR amount to be spent under section 135(5) of the Act,
it also has a right to lower the target amount as long as the statutory limit is being met.

59. What are the actionable arising out of the CAA, 2020 and the Amendment Rules?

Rule Actionable Time for

No. actionable

2(f) To amend CSR Policy- Recommendation of CSR Committee (CSRC) and Immediate
approval of the BoD will be required.

2(f) To formulate an annual action plan for FY 21-22- Recommendation of In the first meeting
CSRC and approval of the BoD will be required. of CSRC & BoD for
2021-22
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2(i) 1. To calculate the minimum CSR Spending to be done for FY 2020- Immediate
21
2. To check the current CSR activities for FY 2020-21
3. To see if there will be any deficit in the spending
4. If yes, then to identify if there is any “ongoing project”
5. If there is any such ongoing project, then open a bank account
(Unspent CSR Account) and transfer the deficit amount to within
30 days of end of FY 20-21
6. If there is no such ongoing project, then transfer the deficit
amount to Sch. VII Fund within 6 months from end of FY 20-21
read with Rule 10.
To be discussed both at CSRC & BoD meetings.

4(1) To check the type of implementing agency through which CSR activities Immediate
are undertaken. Also, to ensure their registration under section 12A and
80 G of the Income Tax Act, 1961 as required under Rule 4(1).

4(2a) The implementing agencies will be required to be registered with CG w.e.f Immediate
1.4.2021. The Company may intimate the existing implementing
agencies.

4(5) New items before BoD: Immediate

& (6) a. Confirmation by the Board with respect to utilization of the CSR
expenditure;
b. Monitoring of “on-going” projects, if any, as per approved
timelines and year wise allocation;
c. Placing of certificate of CFO/ person responsible for financial
management about utilisation of CSR fund.

5 CSR Committee to revisit its budget for FY 2020-21 so as to align with Immediate
the requirements of the annual action plan as mentioned in Rule 5(2).

7(2) To check if there is any profit arising out of CSR expenditure – the same In the first meeting
is to be (i) ploughed back into the same project or (ii) shall be transferred of CSRC and BoD
to the Unspent CSR Account and spent in pursuance of CSR policy and for 2021-22
annual action plan of the company or (iii) transfer such surplus amount to
a Fund specified in Schedule VII, within a period of six months of the
expiry of the financial year.

7(3) To check if there is any excess spent done – then the same is to be set off In the first meeting
within three immediate subsequent FYs – a board resolution has to be of CSRC and BoD
passed. Should be placed before CSRC as well. for 2021-22
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7(4) To check if there is any capital asset created by the company for Immediate
undertaking CSR expenditure – the same has to be held by such entities
as mentioned in Rule 7(4) – this has to be complied within 180 days i.e by
21st July, 2020 or additional period of 90 days with the approval of Board.

8(1) Annual CSR Report to be prepared as per the revised format along with In the meetings held
the Impact Assessment Report as required under Rule 8(3)- to be placed for the purpose of
before CSRC as well as the BoD approving the
Board's Report.

8(3) To check if the provisions with respect to impact assessment will be Immediate
applicable on the company – the provisions are three-fold:
a. The average CSR Obligation of the company for past 3 FY (FY
2017-18, 18-19, 19-20) is Rs 10 cr or more;
b. The project outlay is 1 cr or more; and
c. The project should have been concluded one year ago

9 Website disclosures Immediate

a. composition of the CSR Committee;
b. CSR Policy; and
c. Projects approved by the Board.