Four changes in CSR expenditure rules for Indian companies

The Corporate Affairs Ministry recently amended the rules for Corporate Social Responsibility (CSR) expenditure by Indian companies for allowing them to undertake multi-year projects. Here are the four significant changes implemented in the rules for Corporate Social Responsibility (CSR) expenditure:

1. Multi-year CSR Projects

According to the changes, companies are allowed to spend more than 2 per cent expenditure in any fiscal year for up to three financial years. This allows the companies to implement multi-year projects that can fulfill their CSR obligations for at most three years. Earlier, according to the Companies Act 2013, all companies with a turnover of more than Rs 1,000 crore, net worth more than Rs 500 crore, or net profit more than Rs 5 crore, had to spend at least 2 per cent of their three-year annual profit towards CSR in one financial year.

2. Mandatory impact assessment

It is mandatory to hire an independent impact assessment agency for CSR projects with expenditure of over Rs 1 crore. This is applicable to organizations with CSR obligation worth more than Rs 10 crore for previous three financial years.

3. Expenditure limits for impact assessment

As an extension to the aforementioned change, companies can now spend only five per cent of the annual CSR expenditure up to Rs 50 lakh on impact assessment.

4. Restrictions on implementing agencies

No registered public charitable trust or Section 8 company is authorized to conduct CSR activities on behalf of business organizations. Furthermore, all companies under Section 8 have to be registered with the government by April 1, 2021. According to the changes, Section 8 company is defined as an entity registered to promote charitable causes, but allowed to use profits for the same without distributing profit dividends to the shareholders.

On a side note, the impact will be huge as almost all the industry leaders resorted to trusts for CSR projects.