This article is written by Chandrasmita Priyadarshini from KIIT School Of Law, Bhubaneshwar. This exhaustive article covers the details of the amendments of the new CSR regime, along with its impact. 


As notified by the Ministry of Corporate Affairs to the Companies (Corporate Social Responsibility) Amendment Rules, 2021 with effect to amend the existing Companies (Corporate Social Responsibility) Rules 2014. According to the Companies Act, 2013, a company having a net worth of Rs 500 crores or more or turnover of Rs 1000 or more or a net profit of Rs 5 crores or more during any financial year is required to constitute a corporate social responsibility committee of the board consisting of three or more directors, of whom at least one should be an independent director. It is a must for the board to disclose the composition of the committee in its report. According to Section 135(3) of the Companies Act, 2013 this committee has to formulate and recommend to the board, a corporate social responsibility policy which is to indicate the activities to be undertaken by the company as specified in Schedule VII, to recommend the amount of expenditure to be incurred on the indicated activities, and monitors the corporate social responsibility policy of the company from time to time. The board has to take into account the recommendations of the committee and approve the suggested policy and report. It has also to disclose the contents of the policy in its report and also to publish the same on the company’s website in a prescribed manner. 

Activities not covered under CSR

The previous CSR rules, 2014 had an inclusive definition of CSR activities as specified activities under Schedule VII. On the other hand The CSR Rules, 2021 has an exclusive definition stating the CSR Activities must not fall within the usual course of business. This defines Corporate Social Responsibility to be such activities done by a company to give effect to the statutory obligation to undertake CSR activities under the Companies Act, 2013. Rule 2(1)(d) of the CSR Rules, 2021 prescribes a list of activities that must not fall within the ambit of Corporate Social Responsibility: 

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  1. Any activity that is done by the company in its original course of business apart from this the exception granted for companies is undertaking Research and Development activities for Covid-19 related activities like vaccines, drugs, and medicines.
  2. Any activity that is done outside India, apart from training of sports personnel representing India in national or international competitions.
  3. Any activity to donate or contribute any amount to political parties under Section 182 of the Companies Act.
  4. Any activity which benefits employees of the companies as per Section 2(k)  of the Code on Wages, 2019.
  5. Any activity that the companies support on a sponsorship basis, for deriving marketing benefits or goods and services
  6. Any activity that is done to fulfill the statutory obligations under any statute.

It must be ensured by the companies that their CSR policy does not include these activities, as these are statutorily excluded from the ambit of ‘Corporate Social Responsibility.’ Any expenditure incurred with respect to these activities cannot be accounted for as CSR expenditure.

New obligations of the Board and CSR Committee

In accordance with the amendment, the board and CSR committee has certain obligations. Where a company is not willing or not required to appoint an independent director under this act, then it shall have so in its Corporate Social Responsibility Committee of two or more directors. As per Section 135(2) the composition of Corporate social responsibility shall be disclosed in the board’s report. According to Section 135(9), there is no need for the CSR committee to be constituted if the company spends an amount that exceeds fifty lakh rupees as these functions are to be carried on by the Board of directors of such a company.

Functions of CSR committee under Section 135(3), The CSR Committee shall:

  1. To formulate form an action plan and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII.
  2. This expenditure shall be recommended for every activity.
  3. CSR policy is to be monitored from time to time.

As specified under Amendment Rule 2021 of Rule 5(2) where it is specified that the CSR committee shall formulate & recommend an annual plan to the Board. This annual plan as suggested by the CSR committee includes:

  1. The activities that are to be undertaken by the CSR programs as specified under schedule VII of the companies act.  
  2. The manner to execute these programs in a specified way.
  3. The means to utilize funds and implement schedules for CSR programs or projects. 
  4. To monitor and report these mechanisms for the above-mentioned projects or programs.  
  5. These are the essential details of needs and impact assessment the CSR committee projects are to be carried by the company. 

This plan can be altered by the board with the recommendation of the CSR committee, with reasonable justification at any time during the financial year. The Board of every company shall as to its responsibility under Section 135(4).

  1. So these recommendations of the CSR committee must be approved by the board of the CSR policy for the company and then such contents of the policy report must be disclosed on the company’s website
  2. It must be ensured that these activities must be taken on by the company as per the CSR policy of the company. These CSR activities taken on by the company shall be by the company itself or the company’s eligible entities. 

CSR expenditure

Amount to be spent by a company under Section 135(5) is to be monitored by the board of the company which ensures how much a company spends in each financial year, which is at least two percent of the average net profits of the company made during the three immediately preceding financial years. In the instance where a company has not completed the period of three financial years, it shall spend two percent of the average net profit made from the date of its incorporation to the immediately preceding financial year. Preference should be given to the local areas and around which the company operates in order to spend the amount remarked for CSR activities. Meaning of net profits under the Rule 2 (1) (h)  is the net profit of a company as per its financial statement prepared in accordance to the provisions mentioned in the Act, but net profits shall not include:- (i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and (ii) any dividend received from other companies in India, which are covered under and complying with the provisions of Section 135 of the Act.

Capital expenditure

CSR amounts can be used for the creation or acquisition of capital assets as mentioned in the Amendment rules. According to the High-Level Committee recommendation, To transfer any such capital asset to a registered vehicle or any non-profit to the company or registered public trust or registered society having charitable objects as per the Amendment rules, these beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or any public authority. The CSR expenditure may be qualified by the Ministry of Corporate Affairs to clarify the costs for any such transfer to be made. MCA may be requested to clarify that the costs for such transfer may qualify towards CSR expenditure. If any capital asset is created by a company before the commencement of the Amendment rules, even then the assets have to be transferred to the vehicles mentioned above within 270 days. 

Utilisation of surplus

According to the new CSR Regime, the utilisation of surplus is the surplus arising out of CSR projects. This Utilization of Surplus should not be a part of the business profit of the company.  The Amendment rules provide that such surplus should be invested again into the same project or it must be transferred to the identified CSR fund/government fund within a period of 6 months of the expiry of the financial year.  

CSR expenditures must be set off

According to the Companies (Amendment) Act, 2020 a provision was added to Section 135(5) of the companies act, 2013 this permits any company for the CSR expenditures to be set off accordingly as per the CSR amounts spent in each financial year. Rule 7(3) states that set off of the excess CSR amount should be made within the next 3 immediately succeeding financial years. According to Rule 7(3), there are two pre-conditions to comply with before the excess CSR amount is set off; the excess CSR amount should not include any surplus generated out of CSR activities; the Board should pass a resolution permitting the set-off.  The “set-off” can only be undertaken by the Companies if they have successfully complied with the pre-conditions listed under Rule 7(3). For excess CSR amounts spent in the current financial year, the option of “setting off” shall be available for the next three financial years.

CSR reporting

The CSR Report has to be submitted/presented in the AGM (Annual General Meeting) according to the latest format specified in the new Amendment rules. An impact assessment has to be compulsorily conducted through an independent agency, attach the findings in the CSR report if the company is above a specified threshold. Any expenditure which has been made towards the impact assessment will also be added in the CSR Expenditure to the extent of 5% of the CSR Expenditure or ₹ 50 lakhs, whichever is less, this recommendation was made based on a High-Level Committee recommendation. Additional disclosure on websites: According to the New Amendment Rule, along with the existing requirement to display CSR policy on the website, it has also been made mandatory to display the composition of the CSR committee and the CSR projects approved by the board.

Impact of the new regime

The Impact assessment of every company under Rule 8(3) of the amendment is to have an average CSR obligation of ten crore rupees or more in the three immediately preceding financial years, this shall make impact assessment of an independent agency of any CSR project having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study. This impact assessment must be attached with the annual report of CSR and reported to the board. Any company entity’s impact assessment regarding the expenditure Corporate Social Responsibility for that specific financial year shall not exceed five percent of the total CSR expenditure.


Corporate social responsibility is how companies manage their business processes to produce an overall positive impact on society along with the profits of the company. The CSR committee manages a company’s sustainability in the market, the social impact of the company,  Strengthening the core business, how a company makes money, and how to be careful and utilization of such finances. The Amendment rules were necessary in order to have a smooth functioning of the existing CSR Committee of the companies. These rules lay importance on the social beneficial legislation. These conditions will facilitate many companies to take review by taking a good look at their CSR reports along with their contents so that they could range up to the new amendment.





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