The Corporate Affairs Ministry (MCA) has now taken several measures to give a further boost to CSR spending by corporates. Now, there is clarity on the entities through which CSR obligations could be fulfilled, and the Ministry has also revised the existing cap on the fees that could be paid by corporates for impact assessment.
The latest move allows companies to undertake CSR activities through approved entities, such as funds or institutions established for charitable purposes, institutions established wholly for public religious/charitable purposes, universities or other educational institutions existing solely for educational purposes, and certain hospitals /other medical institutions.
Also, the rule change on impact assessment would enable corporates to pay more than ₹50 lakh for impact assessment, which, in January 2021, was made mandatory for companies with a CSR budget of ₹10 crore or more in a fiscal year and projects with outlays of ₹1 crore or more.
It may be noted that rules prohibit companies from doing a self-assessment on the impact of their CSR spend. The impact assessment has to be undertaken by an independent agency.
Impact assessments help companies, grant-makers and funders understand and evaluate the impact of their social investments in projects on their target beneficiaries and society. As against the earlier regime, where expenses on impact assessment was capped at 5 per cent of total CSR spending or ₹ 50 lakh, whichever is lower, the revised norms now stipulate the limit at 2 per cent of total CSR spend or ₹50 lakh, whichever is higher.
SN Vishwanathan, Partner, SN Ananthasubramanian &Co, said that the revision and relaxation in the cap on fees on impact assessment would enable companies to engage agencies that can carry out meaningful assessment of projects.
Sawant Singh, Co-Founding Partner, Phoenix Legal, said the latest move by the MCA, is likely to give a fillip to CSR activities and make it easier for companies to comply with their CSR obligations.
“Also expenditure booked for impact assessment need not be restricted to ₹50 lakh as a higher 2 per cent threshold has been prescribed. These are all steps in the right direction”, he said.
MCA has also mandated that companies need to have CSR Committee even in cases where the amounts transferred to ‘unspent CSR account’ is less than ₹50 lakh. Also entities that can carry CSR activities has been redefined — essentially to take care of Income Tax Act . The MCA has also revised the format for the annual report on CSR activities to be included in the Board’s report.
Manendra Singh, Associate Partner, Economic Laws Practice, said the MCA has brought clarity as to the entities through whom CSR obligations can be fulfilled, and the disclosures around those entities. Especially for entities which are statutory bodies constituted under an Act of Parliament or State legislature.
In 2020-21, India Inc had spent about ₹24,865 crore towards CSR. CSR is a board driven process, and the board of the company is empowered to plan, decide, execute and monitor the CSR activities of the company based on the recommendations of its CSR committee.
The CSR architecture is disclosure based and CSR mandated companies are required to file details of CSR activities annually in MCA21 registry. The government monitors the compliance of CSR provisions through the disclosures made by the companies in MCA21 Portal.