Amendment to CSR rules: Know what changes for Indian companies

Organisations with net worth of Rs 500 crore or more, turnover of Rs 1,000 crore or more, net profit of Rs 5 crore or more, will have to spend 2 per cent of their average profits of the previous three years on CSR activities every year. In case an organisation fails to spend 2 per cent on CSR activities, it will have to state the reasons for not being able to do so. If the unspent amount doesn’t relate to any ongoing project, the organisation will have to transfer it to a fund notified by the government.

Many companies conduct CSR activities through implementing agencies. However, the new rules restrict organisations from authorising either a Section 8 company or a registered public charitable trust to conduct CSR projects on their behalf. An entity registered with the purpose of promoting charitable causes and is prohibited from distributing dividends to shareholders is a Section 8 company.

This rule would impact many organisations’ CSR initiatives that they conduct through private trusts. So, the change in rules means that such private trusts will have to be converted to registered public trusts, or stop acting as CSR implementing agencies.

Any organisation with a CSR obligation of Rs 10 crore or more for three previous financial years will have to hire an independent agency to conduct an impact assessment of all those projects that have an outlay of Rs 1 crore or more.

An organisation also needs to ensure that administrative overheads don’t exceed 5 per cent of the total CSR expenditure for the fiscal. If there’s a surplus from CSR activities, that will not be a part of the business profit. That money will have to be invested into the same project or transferred to an unspent CSR account.