TaxTMI 
TaxTMI 
Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR)
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....n aim to strengthen the CSR ecosystem, by improving disclosures and by simplifying compliances. In response to such amendments, Ministry has received several references and representations from stakeholders seeking clarifications on the various issues related to CSR. 3. Accordingly, in suppression of clarifications and FAQs issued vide General Circular no. 21/2014 (dated 18th June 2014), 36/2014 (dated 17th September 2014), 01/2016 (dated 12th January 2016) ,05/2016 (dated 16th May 2016), clarification issued vide letter dated 25.01.2018 and General Circular no. 06/2018 (dated 28th May 2018), a set of FAQs along with response of the Ministry is provided herewith at Annexure for better understanding and facilitating effective implementation of CSR. 4. This issues with the approval of competent authority. Yours faithfully, (Shobhit Srivastava) Deputy Director (CSR Cell) Annexure Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR) S. No. Question Answer 1.0 Applicability of CSR 1.1 Which companies qualify for CSR under the Companies Act, 2013? A company satisfying any ....
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....ompanies Three or more directors, out of which at least one shall be an independent director. Unlisted public companies Three or more directors, out of which at least one shall be an independent director. However, if there is no requirement of having an independent director in the company, two or more directors. Private companies Two or more directors. No independent directors are required as mentioned in the proviso under section 135(1). Foreign company At least two persons out of which: (a) one shall be as specified under clause (d) of sub-section (1) of section 380 of the Act, and (b) another shall be nominated by the foreign company. (Refer rule 5(1) of the Companies (CSR Policy) Rules, 2014) Where the amount required to be spent by a company on CSR does not exceed fifty lakh rupees, the requirement for constitution of the CSR Committee is not mandatory and the functions of the CSR Committee, in such cases, shall be discharged by the Board of Directors of the company. 2.2 What are the functions of the CSR Committee? The Corporate Social Responsibility Committee shall - (i) form....
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.... What are the mechanisms for monitoring the CSR process? 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 recommendation 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. Companies are required to make necessary disclosures in the financial statements regarding CSR including non-compliance. The existing legal provisions such as mandatory disclosures, accountability of the CSR Committee and the Board, and provisions for audit of accounts of the company provide sufficient mechanisms for monitoring. 2.6 What is the role of the Government in monitoring compliance of CSR provisions by companies? The Government monitors the compliance of CSR provisions through the disclosures made by the companies in the MCA 21 portal. For any violation of CSR provisions, action can be initiated by the Government against such non-compliant companies as per provisions of the Companies Act, 2013 after due exami....
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....e 2(1)(b) of the Companies (CSR Policy) Rules, 2014, administrative overheads mean the expenses incurred by the company in the general management and administration of CSR functions in the company. Therefore, expenses incurred by implementing agencies on the management of CSR activities shall not amount to administrative overheads and cannot be claimed by the company. 3.4 What is the meaning of surplus arising from CSR activities? How can this surplus be utilised? Surplus refers to income generated from the spend on CSR activities, e.g., interest income earned by the implementing agency on funds provided under CSR, revenue received from the CSR projects, disposal/sale of materials used in CSR projects, and other similar income sources. The surplus arising out of CSR activities shall be utilised only for CSR purposes. 3.5 Whether contribution to the corpus of an entity is an admissible CSR expenditure? No, the provision relating to contribution to corpus as admissible CSR expenditure has been amended and the contribution to corpus of any entity is not an admissible CSR expenditure w.e.f. 22^nd January, 2021. 3....
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....y (ICT) and emergence of new age businesses like e-commerce companies, process-outsourcing companies, and aggregator companies, it is becoming increasingly difficult to determine the local area of various activities. The spirit of the Act is to ensure that CSR initiatives are aligned with the national priorities and enhance engagement of the corporate sector towards achieving Sustainable Development Goals (SDGs). Thus, the preference to local area in the Act is only directory and not mandatory in nature and companies need to balance local area preference with national priorities. 3.10 Whether CSR expenditure of a company can be claimed as a business expenditure? No, the amount spent by a company towards CSR cannot be claimed as business expenditure. Explanation 2 to section 37(1) of the Income Tax Act, 1961 which was inserted through the Finance Act, 2014 provides that any expenditure incurred by an assessee on the activities relating to CSR referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. 3.11 What tax benef....
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....nd relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women. 3.16 Will contribution to any other fund set up for carrying out the activities mentioned in Schedule VII of the Act, be an admissible CSR expenditure? No, the Act does not recognise any contribution to any other fund, which is not specifically mentioned in Schedule VII, as an admissible CSR expenditure. 3.17 Can CSR funds be utilised to fund Government schemes? The objective of CSR provisions is to involve the corporates as partners in the social development process. Use of corporate innovations and management skills in the delivery of 'public goods' is at the core of CSR implementation by the companies. Therefore, CSR should not be interpreted as a source of financing the resource gaps in Government Schemes. However, the Board of the eligible company may undertake similar activities independently subject to fulfilment of Companies (CSR Policy) Rules, 2014. 3.18 Whether involvement of employees of a company in their CSR projects ca....
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....ered as eligible CSR activity. As per the rule, any activity designed exclusively for the benefit of employees shall be considered as an "activity benefitting employees" and will not qualify as permissible CSR expenditure. The spirit behind any CSR activity is to benefit the public at large and the activity should be non-discriminatory to any class of beneficiaries. However, any activity which is not designed to benefit employees solely, but the public at large, and if the employees and their family members are incidental beneficiaries, then, such activity would not be considered as "activity benefitting employees" and will qualify as eligible CSR activity. 4.3 What is the meaning of sponsorship activities deriving marketing benefits for company's products or services? Sponsorship activities of an event are done with an aim of deriving marketing benefits for a company's product or services. The intent of CSR is to encourage companies to undertake the activities in a project or programme mode rather than as a one-off event. Companies shall not use CSR purely as a marketing or brand building tool for their business....
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....f 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. 5.3 Whether all three types of entities - a company established under section 8 of the Act, or a registered public trust, or a registered society, are required to have income-tax registration u/s 12A as well as 80G of the Income Tax Act, 1961? Yes, as per rule 4(1) all three types of entities - a company established under section 8 of the Act, or a registered public trust, or a registered society are required to have income-tax registration u/s 12A as well as 80G of the Income Tax Act, 1961 to act as implementing agency, except for any entities established by Central or State Government. 5.4 What is meant by 'registered public trusts' in such states where registration is not mandatory? Registered public trust (as referred to in rule 4(1) of the Companies (CSR Policy) Rules,2014) would include trusts registered under the Income Tax Act, 1961 in respect of those states where registration of public trusts is not mandatory. 5.5 ....
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.... of the Companies (CSR Policy) Rules, 2014 as: (i) a multi-year project, stretching over more than one financial year; (ii) having a timeline not exceeding three years excluding the year of commencement; (iii) 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. The project should have commenced within the financial year to be termed as 'ongoing'. The intent is to include a project which has an identifiable commencement and completion dates. After the completion of any ongoing project, the Board of the company is free to design any other project related to operation and maintenance of such completed projects in a manner as may be deemed fit on a case-to-case basis. Note: The term 'year' refers to financial year as defined in section 2(41) of the Act. 6.2 When will an ongoing project be regarded as'commenced'? An ongoing project will have 'commenced' when the company has either issued the work order pertaining to the project or awarded the contract for execution of the project. 6.3 What is the maximum permiss....
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....What actions need to be taken if a company spends less than the amount required to be spent under CSR obligation in a particular year? If a company spends less than the amount required to be spent under their CSR obligation, the Board shall specify the reasons for not spending in the Board's report and shall deal with the unspent amount in the following manner: Nature of unspent amount Action required Timelines Unspent amount pertains to 'ongoing projects' Transfer such unspent amount to a separate bank account of the company to be called as 'Unspent CSR Account'. Within 30 days from the end of the financial year. Unspent amount pertains to 'other than ongoing projects' Transfer unspent amount to any fund included in Schedule VII of the Act. Within 6 months from the end of the financial year. 7.2 Where the company was unable to meet its CSR obligation, but transferred the said unspent amount to any fund included in Schedule VII of the Act, will the same be considered as compliance under section 135? The compliance of CSR is fulfilled when the company spends the prescribed amo....
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.... they can be utilised by them during the financial year. Mere disbursal of funds for implementation of a project does not amount to spending unless the implementing agency utilises the whole amount. 7.5 Should a company open a separate 'Unspent CSR Account' for each ongoing project? No, a company can open a single special account, called 'Unspent Corporate Social Responsibility Account', for a financial year in any scheduled bank, to transfer the unspent amount w.r.t ongoing project(s) of that financial year. A company needs to open a separate 'Unspent CSR Account' for each financial year but not for each ongoing project. 7.6 Can the amount transferred to 'Unspent CSR Account' of the company be utilised for regular business of the company? No, the provisioning of a separate special account, namely the 'Unspent CSR Account', in any scheduled bank is to ensure that the unspent amount, if any, is transferred to this designated account and used only for meeting the expenses of ongoing projects, and not for other general purposes of the company. The special account cannot be used by the company as collaterals or creating a charge or any other business activ....
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....ther provisions of the section or rules, the provisions of section 134(8) or general penalty under section 450 of the Act will be applicable. Further, in case of non-payment of penalty within the stipulated period, the provisions of section 454(8) will be applicable. 9.0 Impact Assessment 9.1 What is the objective of providing impact assessment of CSR activities? The purpose of impact assessment is to assess the social impact of a particular CSR project. The intent is to encourage companies to take considered decisions before deploying CSR amounts and assess the impact of their CSR spending. This not only serves as feedback for companies to plan and allocate resources better but shall also deepen the impact of CSR. 9.2 Which companies are required to undertake impact assessment? Rule 8(3) of the Companies (CSR Policy) Rules, 2014 mandates following class of companies to conduct impact assessment: (i) companies with minimum average CSR obligation of Rs. 10 crore or more in the immediately preceding 3 financial years; and (ii) companies that have CSR projects with outlays of minimum Rs. 1 crore and which have been completed not less than ....