An analysis of the recent changes to India’s CSR Framework


Samheeta Rao, Partner, GameChanger Law Advisors





–  CFO certification on CSR fund disbursal and utilization.

–  Frame a deeper, well defined and specific CSR policy.

–  Broader roles and responsibilities of CSR Committees, including formulating an annual action plan.

CSR Spends

– Consolidates erstwhile clarifications on excluded activities, while making exceptions for Covid-19 related R&D.

– Permission to acquire/create a capital asset, subject to such assets

being owned by the NGO, project beneficiaries or a public authority.

– Administrative overheads continue to be subject to a cap of 5% of

CSR spends, but it now excludes costs incurred directly on the

project design, implementation, monitoring and evaluation.

Unspent CSR funds – Transfer to a specifically designated “Unspent CSR Account” or to a fund specified in Schedule VII of the Companies Act within prescribed timelines
Mandatory Impact Assessment

– Companies spending above ₹ 10 crores on an average in the past three FYs are required to mandatorily undertake impact assessment of their projects which have an overlay of more than ₹1 crore.

– Impact assessment costs capped at lesser of Rs. 50 lakhs or 5%         CSR spends.

International Organizations – Can now avail expertise of specified UN organizations for project design, monitoring and evaluation or capacity building of personnel.
Mandatory CSR


– With effect from April 1, 2021, all implementing agencies are required to apply for and obtain a unique CSR registration number.
Income Tax registrations – Mandatory for CSR implementing agencies (except those set up by the Government) to have registrations under Section 12A and Section 80G of the Income Tax Act.



The  Government  has,  through  three  notifications,  introduced  amendments (collectively,  the  “Amendments”)  to  the  provisions  relating  to  corporate social responsibility (“CSR”) under the Companies Act, 2013 (the “Act”) and the Companies (Corporate Social Responsibility) Rules, 2014 (“CSR Rules”). This  includes  notification  of  previous  amendments  introduced  under  the Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020. All the amendments are effective from January 22, 2021.


2.1. Eligible CSR Spends

  • Excluded activities: The Amendments consolidate the various FAQs and clarifications issued by the Ministry of Corporate Affairs since 2014, when the CSR provisions were operationalized as it relates to activities/spends that are ineligible to be considered as CSR This covers activities in the normal course of business of a company, those benefitting only its employees, political contributions, sponsorship activities, fulfilment of statutory obligations and activities undertaken outside India (except for training of sports personnel representing a State/country at the national/international level).
  • Covid-19 related permitted activity in the normal course of business: A company undertaking research and development into vaccine, medical device and drugs related to Covid-19 is permitted to spend on such CSR activities (even though such activity is in their normal course of business) up to the financial year 2022-2023, provided separate disclosures are made in the annual report and such research and development is undertaken in collaboration with an institute specified in Schedule VII of the Act.
  • Acquisition/Creation of a capital asset: CSR funds can be utilized by a company towards acquisition or creation of a capital asset, provided such asset cannot be owned by the company. It must be owned either by the CSR implementing agency, or the beneficiaries of the project (such as collectives, self-help groups, etc.) or by a public authority. If any capital asset has been historically acquired/created out of CSR funds prior to the Amendments, then such company must comply with this provision by July 22, 2021.


2.2.Role of the CSR Committee: The CSR Rules now require the CSR Committee to formulate an        annual action plan for CSR spends, which sets out, inter alia, the CSR projects, implementation and monitoring schedules and details of impact assessment (if applicable). Specifically, the CSR Committee may, during the financial year, recommend to the board of directors, any changes to the annual plan, if so required along with providing the justification for such changes.

2.3. CSR Policy: The Amendments now require the CSR policy of a company to include further details of the CSR philosophy of the company, including guiding principles for selection, implementation and monitoring of activities as well as formulation of the annual action plan. As previously, the board of directors will have to adopt the CSR policy, based on the recommendations of the CSR Committee.

2.4. Treatment of Unspent CSR amounts: Any unspent CSR funds remaining at the end of a financial year shall be transferred as mentioned below:

  • Transfer to Unspent CSR Account: If it relates to any ongoing project undertaken in accordance with the CSR policy of the company, such unspent amount shall be transferred within 30 days of the end of the financial year, to the specifically designated “Unspent Corporate Social Responsibility Account” account to be opened by the company. These amounts should be spent within the next 3 financial years in accordance with the company’s CSR policy. If these amounts remain unspent even after the 3 year period, then such portion of the amounts lying in the Unspent CSR Account shall be transferred, within 6 months of the end of the financial year, to any fund specified in Schedule VII of the Act; or
  • Transfer to a Schedule VII fund: If it does not relate to any ongoing project, e., it is unallocated CSR funds, then such unspent amount shall be transferred, within 6 months of the end of the financial year, to any fund specified in Schedule VII of the Act (such as the PM national relief fund, PM CARES Fund, disaster management fund, Clean Ganga Fund, etc.). The Government may, in future, designate one or more funds in Schedule VII specifically for the purpose of companies transferring unspent CSR funds. An “ongoing project” has been defined a CSR project extending over a maximum period of 4 financial years, including the financial year in which it was initiated.

2.5. Treatment of surplus arising out of CSR funds: If any surplus arises out of the CSR activities, such surplus must either be:

  1. Spent on the same project which gave rise to the surplus, or
  2. Transferred to the Unspent CSR Account of the company, or
  3. Transferred to a fund as specified in Schedule VII of the Act

2.6.  Setting off excess CSR spends: If a company has spent amounts more than the mandatory 2% CSR expenditure, the company can set-off such excess amounts against the CSR spends in the next 3 financial years, provided the board of directors passes a resolution for the same. Further, such excess amounts cannot include the surplus arising out of CSR activities.

2.7. Clarification on “Administrative Overheads”: While the term “administrative overheads” has not been listed exhaustively, the Amendment defines it as expenses incurred for “general management and administration” of CSR functions in a company. Significantly, it now excludes “…expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project or programme…”. However, the cap on administrative costs of 5% of CSR expenditure.

2.8. Mandatory Impact Assessment: The CSR Rules introduce a new requirement for mandatory impact assessment of specified projects by companies meeting the below threshold. The reports should thereafter be placed before the board and disclosed separately in the annual report.

  • Threshold: This requirement applies to companies that have an average CSR spend of ₹ 10,00,00,000 (Rupees Ten Crores only) or more in the immediately past 3 financial years.
  • CSR Projects to be assessed: Those CSR projects budgeted for ₹ 1,00,00,000 (Rupees One Crore only) or more and which have been completed 1 year prior to undertaking the impact assessment.
  • Impact assessment agency and limitation on costs: An “independent agency” (undefined in the CSR Rules) is required to undertake the impact assessment. The costs of such agency cannot exceed the lesser of ₹ 50,00,000 (Rupees Fifty Lakhs only) or 5% of the total CSR spend for that financial year.

2.9. Mandatory disclosures on the website: If a company has a website, it is mandatorily required  to disclose the composition of the CSR Committee, its CSR Policy and the projects approved by the

2.10.Annual Disclosures: The format of the annual disclosures has been amended, and is more detailed, requiring information on the CSR Committee’s composition, its meetings, amounts transferred to the Unspent CSR Account or to a fund specified in Schedule VII (as applicable), capital asset created/acquired/transferred, etc. Additionally:

  • CFO certification: The CSR Rules now require the company’s CFO (or equivalent) to certify that the CSR funds have been disbursed and utilized in the manner approved by the board of directors. Thus, there is increased focus and responsibility in ensuring that monitoring and evaluation of projects is undertaken by the corporates disbursing the funds.
  • Impact assessment: Details of impact assessment undertaken, along with the reports.
  • Other Expenditure: Specific disclosures of the amounts incurred towards administrative overheads and on impact assessment (if applicable).
  • Additional details on CSR projects: More detailed information to be provided on CSR projects, whether they are new projects for this year, or ongoing projects from the past years, etc.

2.11.Exemption for creating a CSR Committee: If a company’s CSR spend is less than ₹ 50,00,000 (Rupees Fifty Lakhs only), then such company is not required to create a CSR Committee. The board of directors will perform the functions of the CSR Committee in such a

2.12. Penalties for non-compliance: Departing from the previous philosophy of “name and shame”, the Amendments have introduced monetary penalties for the company and every officer in default for non-compliance with the provisions relating to undertaking of CSR expenditure and transfer to Unspent CSR Account/Schedule VII fund (as applicable). A defaulting company is now liable for the lesser of ₹ 1,00,00,000 (Rupees One Crore only) or twice the amount that should have been transferred to the Unspent CSR Account or the Schedule VII specified fund (as  applicable). Additionally, a  defaulting officer is now liable for the lesser of ₹ 2,00,000 (Rupees Two Lakhs only) or one-tenths the amount that should have been transferred to the Unspent CSR Account or the Schedule VII specified fund (as applicable).


 3.1. CSR Implementation Agencies: The Government had, in the draft amendments to the CSR Rules published in March 2020, proposed to only designate Section 8 companies as CSR implementation agencies. However, this proposal has been dropped. The following entities are eligible to be appointed as CSR implementation agencies under the CSR Rules:

  • A Section 8 company, a registered public trust or a registered society, each of which are registered under Section 12A and 80G of the Income Tax Act, 1961 established by the company undertaking CSR activities, either singly or along with any other company; or
  • A Section 8 company, a registered public trust or a registered society, each of which are registered under Section 12A and 80G of the Income Tax Act, 1961 and that does not fall within the above three categories, but such entity must have an established track record of at least three years in undertaking similar programs or projects; or
  • A Section 8 company, a registered trust or a registered society established by the Central or State Government; or
  • Any entity established under an Act of Parliament or a State.

Thus, not-for profit entities established by the corporate (singly or jointly with others) or independently established entities are mandatorily required to have their registrations under Section 12A and Section 80G of the Income Tax Act.

3.2. Mandatory registration of CSR Implementing Agencies: With effect from April 1, 2021 every entity (as listed in Para 1 above) intending to undertake CSR implementation on behalf of eligible corporates is required to mandatorily register itself with the Ministry of Corporate Affairs. Such entities are required to apply in the prescribed form (providing details of their legal entity, its directors/trustees, etc.) and thereafter obtain the unique CSR Registration Number. Going forward, the unique CSR Registration Number must be quoted on the annual report of companies who have appointed such agencies. This requirement does not impact projects already undertaken prior to April 1, 2021.


4.1. Eligible “International Organizations”: For the first time, the CSR Rules permit “international organizations” to assist and play a role in the CSR ecosystem. The CSR Rules define an “International Organization” as one that is notified under the United Nations (Privileges and Immunities) Act, 19 This covers entities such as the International Labour Organization, the World Health Organization, the Food and Agricultural Organization of the World Bank, the United Nations Educational, Scientific and Cultural Organization, the International Monetary Fund, etc.

4.2. Role of International Organizations: The CSR Rules permit companies to appoint an International Organization for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR. However, the costs/fees paid to such entities may be subject to the cap of 5% on administrative overheads, if it relates to the “general management and administration” of CSR functions in a company (which might be the case if the International Organization has been engaged for capacity building).


The Amendments now focus on the “responsibility” part of CSR initiatives of corporates, aiming at deepening their roles in CSR projects and increasing overall accountability of various stakeholders in the CSR ecosystem. The introduction of mandatory registration of CSR implementing agencies coupled   with the mandatory Income Tax registration would increase transparency from NGOs executing CSR projects. International Organizations are also likely to add great value to projects, especially in multi-year projects linked to the achievement of sustainable development goals. With responsibility comes liability, and the Government  has, taking into account feedback received from various stakeholders in 2019, adopted the balanced approach on penalties and introduced only monetary penalties for  non- compliance (as opposed to imprisonment).

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