A Definite Guide to the New CSR Regime and Its Impact

Ever since India became the first country to announce Corporate Social Responsibility or CSR in 2014, there has been a lot of buzz regarding its influence on the corporate world. As per the Companies Act, 2013 - the Ministry of Corporate Affairs followed a “comply or explain” approach under the CSR model. However, companies have to now showcase a “comply or explain” undertaking after the Ministry made new amends to the Corporate Social Responsibility regime in 2021.

In order to understand the composition of these new amendments and rules, as well as, CSR impact assessment, you have to first get into the details of CSR such as its definition, what it means and what are the compliance policies.

Speaking of which, here is a guide that will help you dive deep briefly into the policies of CSR:

Effect of COVID on CSR

Keeping the pandemic in mind, there has been revision into the definition of CSR that comprises COVID-related activities and international training of athletes. Organizations computing R&D activities of medical equipment, drugs and vaccines in their routine business course might execute it for pandemic-related purposes till FY23 with selected authoritative bodies and shall announce it separately in their annual report.

In order to understand the type of exclusions of activities carried abroad, companies can consider availing services of social impact consulting firms in India.

CSR Estimation

As per the CSR regime, companies with a total worth of more than 500 crores or a thousand crores turnover, or net profit of more than 5 crores are expected to expend a minimum of 2% of the average net profits secured in the past three FYs (Financial Years) for CSR programs. This led to an argument regarding newly formed companies that are yet to complete three FYs since the CSR amendment. In other words, these companies are not obliged to allocate CSR funds as they do not have net profits of 3 FYs.

However, with the new amends being made, these companies have to now allocate CSR funds based on a net average of preceding FYs.

CSR Expenditure

There was a carry-forward method earlier when companies failed to utilize CSR funds in the ongoing FYs. However, as per the new CSR impact assessment norm, companies cannot simply hand over an explanation in their report, as they are now expected to transfer the remaining CSR funds to separate bank accounts or in government funds highlighted in Schedule VII of Companies Act, 2013.

Penalization on Non-compliance

As per the 2020 amendment, companies that fail to comply with CSR will have to pay twice the sum obligated to be transferred or a sum of 1 crore, whichever is less. For defaulting officials, a penalty of INR 2 lacs or one-tenth of such amounts (whichever is less) will be penalized.

Meanwhile, till the above is implemented, failing to comply with CSR will lead to three years imprisonment for defaulting officers or fines, or both.

Conclusion

When CSR first came into motion, conducting impact assessments for CSR projects was not mandatory. However, a detailed study conducted by an independent agency is mandatory for projects worth INR 1 crore. For this, you can take the assistance of reputed social impact consulting firms in India. Hopefully, with these main pointers mentioned above, you can take a holistic approach while assessing the impact of CSR.