CSR Amendments 2019

Corporate Social Responsibility, or commonly referred to as CSR, is a way for corporate entities to give back to the society they are functioning in for the welfare of the same. In India, Corporate Social Responsibility was introduced through Section 135 of the Companies Act of 2013. Along with the amendments made to the Act in 2019, Section 135 has also been modified. This article talks about the various changes made to the provisions dealing CSR in the Act.

Corporate Social Responsibility

Corporate Social Responsibility was introduced under Section 135 of the Companies Act, 2013. Amongst the various provisions stated by the Act, the Government of India makes it mandatory for a particular class of profitable companies to contribute their share of profits for the cause of social activities through a dedicated procedure prescribed by the CSR rules and regulations. The shares may be contributed towards acts such as the following:

Eradication of hunger, malnutrition or poverty
Promotion of healthcare and sanitation
Offering support for education and employment that can enhance vocational skills
Encouraging gender equality
Ensuring sustainability
Protecting heritage
Working for the benefits of the country's armed forces
Fostering and training for sports activities
Contributing to relief projects

The following corporate companies are required to constitute a committee specifically for CSR in order to enforce the policy:

Companies that have a net worth of INR 500 Crores or more
Companies having an annual turnover of INR 1,000 Crores or more
Companies having a net profit of INR 5 Crores or more

Funding

According to the rules and regulations of Corporate Social Responsibility, the company will be required to set aside an amount equal to 2% of the average net profits of the said company made during the 3 immediately preceding financial years for CSR activities.

Amendments of 2019

The following are the amendments made to Section 135 of the Companies Act, 2013 through the Companies (Amendment) Act of 2019.

Applicability for Companies

The following is a part of the amendment of Section 135 from the Companies (Amendment) Act, 2019 that talks about applicability of companies.

In section 135 of the principal Act,—(a) in sub-section (5), — (i) after the words “three immediately preceding financial years,”, the words “or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years,” shall be inserted;

As per the issued amendments, companies that have not completed 3 whole years but fall under the following category will have to contribute 2% of their average net profit of the previous 3 years or years after the incorporation, if less than 3 years, on CSR:

Companies that have a networth of INR 500 Crores or more
Companies having an annual turnover of INR 1,000 Crores or more
Companies having a net-profit of INR 5 Crores or more

Transfer to Section VII Funds

The following is a part of the amendment of Section 135 from the Companies (Amendment) Act, 2019 that talks about transferring unspent CSR amounts to various Funds.

(ii) in the second proviso, after the words “reasons for not spending the amount” occurring at the end, the words, brackets, figure and letters “and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year” shall be inserted;

If the amount allocated for CSR activities by a company is unable to spend the targeted amount, then the company is required to transfer the amount to a Fund prescribed in Schedule VII. An example of a fund specified in the Schedule would be the Prime Minister's National Relief Fund. The unspent amount has to be transferred to such a Fund within 30 days post the date of closure of the third financial year.

Transfer to Unspent CSR Account

The following is a part of the amendment of Section 135 from the Companies (Amendment) Act, 2019 that talks about transferring unspent CSR amounts to a special CSR account.

(b) after sub-section (5), the following sub-sections shall be inserted, namely:— “(6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in persuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.

Companies are only required to retain amounts only to the extent of what is necessary for any ongoing projects. However, there will be specific rules and regulations under which a project will be selected as eligible for current projects. Even in such cases of ongoing projects, the amount set aside by the company for the project is required to be put into a special CSR account post 30 days from the end of a financial year. It is from this account that the expenditure for the ongoing project must be utilised in the next 3 years. Additionally, if the amount in the CSR account is not utilised for any CSR activity within the next 3 years, then the amount will once again be transferable to the Funds mentioned in Schedule VII.

Penalty for Non-Compliance

The following is a part of the amendment of Section 135 from the Companies (Amendment) Act, 2019 that talks about penalties for non-compliance.

(7) If a company contravenes the provisions of sub-section (5) or sub-section (6), the company shall be punishable with fine which shall not beless than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

If a company fails to comply with the provisions prescribed in the new amended Section 135 of the Companies Act, 2013, the company will be liable to a penalty of an amount that will be more than INR 50,000 but less than INR 25 Lakhs. Moreover, it also prescribes that every officer of such non-compliant company will be levied with a fine that is more than INR 50,000 but less than INR 5 Lakhs, or up to 3 years of imprisonment as punishment, or even both.

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