Nowadays, we all are hearing many companies are spending their huge amount of money in providing various medical facilities to COVID+ patients. For Ex. Mr. Mukesh Ambani of famous Reliance Industries has spent huge amount on providing ventilators and oxygen cylinders in the areas which are badly hit by NOVEL Coronavirus. Likewise, Mr. Ratan Tata of our very well-known Tata Motors has also spent a handsome amount on providing free oxygen cylinders in various most affected places like Gujarat, Maharashtra, Hyderabad, Delhi etc. Not only these big business tycoons, but other companies are also spending good amount on providing these facilities. Have we ever wondered, apart from humanity, why these big business tycoons are spending such handsome amount of funds in providing facilities to the COVID+ Patients? This is because, the funds spent are covered under Corporate Social Responsibility (CSR) activities, which are mandatorily done by the organizations, which eligible for CSR activities. Earlier it was voluntary for companies to spend on CSR Activities but now there is huge transformation in this regime. Now the companies have to mandatorily undertake CSR Activities. Hence, now it is spend or penalise (earlier it was spend or explain).
MEANING AND ELIGIBILTY FOR CSR
Now the question arises what is Corporate Social Responsibility (CSR) and which companies are eligible for performing CSR Activities? As per Section 135 of Companies Act, 2013 Corporate Social Responsibility means the companies which fall in the specified threshold limits, has to spend a certain specified amount on the wellbeing of the society, basically the local area in which it is operating. The funds can be spent for improving the environment of the society, providing healthcare facilities, educational services etc. The basic idea behind spend CSR funds is to improve the society as a whole.
Companies having:
are eligible for spending funds on CSR Activities.
HOW MUCH TO SPEND ON CSR ACTIVITIES?
Every Company, which falls under the above threshold limits, is required to spend at least 2% of the Average Net Profits of immediately preceding Three Financial Years on CSR activities. Net Profits shall be calculated as per the provisions of Section 198 of the Companies Act, 2013. Where, the company is a newly incorporated Company, then CSR funds would be calculated on the basis of Number of years since its incorporation. As per Section 134 (3) the company is required to disclose in its Boards Report, the amount spent and amount left unspent on CSR Activities. The company shall also disclose on its website, if any giving in the details of the CSR amount spent and unspent.
Further, if company fails to spend the CSR funds, then it shall transfer such unspent amount, unless there is unspent amount due to any ongoing project, to a fund specified in Schedule VII, within a period of Six Months of the expiry of the Financial Year.
It may further be said that, if due to any ongoing project, there is any unspent amount, then the company shall transfer the said amount to a separate bank account called as Unpent Corporate Social Responsibility Account, within a period of 30 days of close of the Financial Year. If again the company fails to spend the unspent amount, it shall be transferred to a fund as specified in Schedule VII of the Act. The company is under an obligation to utilize the unspent amount, on specified activities, within a period of next Three Financial Years.
IS THE GOVERNMENT TAKING ANY STRICT STEPS TO LOCATE THE OFFENDERS?
Though, the government has not set up any vigil mechanism for taking note of the amount spent by companies on CSR Activities. But the company is required to set up a CSR committee which shall formulate and recommend to the Board, the CSR policies, which shall indicate the activities on which CSR funds can be spent. Further, it shall also monitor the activities undertaken by the company from time to time.
The committee shall consist of Three or more Directors of which at least one shall be Independent Director. If the company is not required to appoint an Independent Director, the committee shall consist of two or more directors of the company. Further, it must be noted that, where the amount to be spent on CSR activities does not exceed Rs. 50 Lakhs then, the company is not required to constitute CSR committee. All the functions of CSR committee shall be executed by the Board of Directors themselves. The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR activities giving in the following details:
HOW TO IMPLEMENT CSR FUNDS?
From 1st April, 2021 any company which is intends to get CSR funding from the eligible companies, must get itself registered on MCA by Filing FORM CSR-1 (as per notification by Ministry of Corporate Affairs dated 22nd January, 2021).
Following type of NGO’s are eligible to file Form CSR-1 on MCA Portal for getting CSR Funding:
1. 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 (43 of 1961), established by the company, either singly or along with any other company, or
2. A company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government; or
3. Any entity established under an Act of Parliament or a State legislature; or
4. A company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities
It may be noted that, due to COVID situation prevalent in the country, the MCA has notified that eligible companies spending their CSR funds for setting up makeshift hospitals and temporary COVID care facilities shall be considered as eligible CSR activity as per the General Circular dated 23.03.2020. The companies may undertake the aforesaid activities in consultation of State Government subject to fulfilment of Companies (CSR Policy), Rules, 2014.
Form CSR-1 is to be signed digitally by the authorised person of NGO and a practising professional.
The Professional may be Chartered Accountant/ Company Secretary/ Cost Accountant who is in whole time practising, so NGOs cannot directly file Form CSR-1, they have to approach the professional for filing Form CSR-1.
DOCUMENTS REQUIRED BY NGO TO GET ITSELF REGISTERED ON MCA PORTAL FOR GETTING CSR FUNDING
Following documents are required for filing Form CSR-1:
1. Copy of PAN Card of the NGO
2. Mail ID and Mobile Number
3. Details of Governing Body Members
4. Copy of Registration Certificate
5. Digital Signature of the Authorized Person with his PAN Number
SET-OFF OF UNSPENT AMOUNT OF CSR FUNDS
Excess amount left out of CSR Funds, if any, may be set off against the requirement to spend under Section 135(5) upto immediate succeeding three Financial Years subject to the following conditions:
ADMINISTRATIVE OVERHEADS UNDER CSR RULES
Administrative overheads are the expenses incurred by the Company for the general management and administration of Corporate Social Responsibility Functions excluding expenses incurred on designing, implementation, monitoring and evaluation of a particular CSR Project. Further, the company can spend not exceeding 5% of the total CSR expenditure of the company for the Financial Year, on administrative overheads.
ACTIVITIES WHICH DO NOT CONSTITUTE CSR ACTIVITIES
Following activities do not form part of CSR activities undertaken by any company in pursuance of the provisions of section 135 of the Act:
REPORTING UNDER CSR RULES
From Financial Year starting on or after 01st April, 2020, CSR report shall be in Annexure-II (previous years Annexures-I shall also continue). Annexure-II mandates the following disclosures to be included:
Impact assessment is mandatorily to be done by those companies having an obligation of spend average CSR amount of Rs. 10 Crores or more in the three immediately preceding Financial Years. Impact Assessment shall be done by an independent agency. Impact assessment is to be done in respect CSR projects having outlay of Rs. 1 Crores or more and which have been completed not less than one year before undertaking impact study. The impact assessment report shall be placed before the board and shall be annexed to the Annual Report on CSR. The total expenditure on impact assessment shall not exceed 5% of the total CSR expenditure in that Financial Year.
ANY PENALTIES FOR NOT SPENDING THE FUNDS BY THE ELIGIBLE COMPANIES?
Section 135(7) of Companies Act, 2013 as inserted vide Companies (Amendment) Act, 2020 from 22-1-2021 provides for penalty on company of twice the amount required to be transferred to the Fund specified in Schedule VII or Rs one crore, whichever is less.
Further, every officer who is in default is liable to a penalty of one-tenth of amount required to be transferred by the company to such fund specified in Schedule VII or the unspent CSR amount, or Rs two lakhs, whichever is less.
