Guide to CSR Amendment, 2021: A Game Changer



On 21st January 2021, the Ministry of Corporate Affairs introduced the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (“New Rules“). The New Rules make substantive changes to the procedures and specifications previously followed by companies and non-governmental organisations (NGOs). The introduced New Rules amend the existing Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”) issued under the Companies Act, 2013.

Key Changes Introduced in 2021 Amendment

The New Rules have made changes to the definition clause contained in the CSR Rules by changing existing definitions of “Corporate Social Responsibility” (“CSR”) and “CSR Policy”. Some new terms like “Administrative Overheads”, “Public Authority”, “International Organisation” and “Ongoing Projects” have also been added to the CSR Rules.

Amended Definition

Definition of “Corporate Social Responsibility (CSR)”– In the New Rules, CSR will not include activities pursued in the normal course of business. However, any company engaged in the research and development of new vaccines, drugs, and medical devices in their normal course of business may undertake research and development activity of new vaccines, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 as CSR.

Further, an activity pursued by a company outside the country shall not fall under CSR except for the training of Indian sports personnel representing any state or union territory at the national or international level. Additionally, if any amount is contributed by a company to a political party specified under Section 182 of the Companies Act, it will not qualify as CSR.

Definition of “CSR Policy”- Rule 2(1)(f) of the New Rules contains the amended definition of “CSR Policy”. The ambit of the definition has been widened to include the approach and direction given by the Board of a company taking into the account the recommendations of the CSR Committee to execute CSR projects. It also includes guiding principles for selection, implementation, and monitoring of activities as well the formulation of an action plan.

Added Definition Clauses

  1. Definition of “Administration Overheads” It includes the company’s expenditures for general management and administration of CSR and does not contain the expenses allocated for designing, monitoring, evaluation, and implementation. It should not exceed 5% of the total CSR expenditure of the company. It has been inserted under Rule 2(1)(b) in the New Rules.
  2. Definition of “Public authority” Rules 2(1)(j) of the New Rules include the term “Public authority”, defined as per Section 2 of the Right to Information Act, 2005.
  3. Definition of “International organisation” Per Rule 2(1)(g) of the New Rules, “International organisation” is defined as an organisation notified by the Central Government under Section 3 of the United Nations Act, 1947.
  4. Definition of “Ongoing Project” “Ongoing Project” under Rule 2(1)(i) has been defined as a project that has already commenced, which is a multi-year project, not less than one year and not over three years.

CSR Implementation

Mandatory registration The New Rules mandate registration from 1st April 2021, for entities carrying out CSR activities, with the Central Government by filing an e-form CSR-1 to generate a unique CSR registration number, granted automatically.

CSR Committees

Pursuant to the New Rules, the CSR committee will formulate and recommend to the Board an annual action plan, which will include-

  1. approved list of CSR projects
  2. manner of execution of these projects
  3. implementation and method of fund utilisation
  4. mechanism of monitoring and reporting of the projects
  5. details of the requirements of projects and their impact assessment (if applicable)

However, the Board can alter these plans any time during the financial year, subject to confirmation by the CSR committee.

CSR Expenditure If the “administrative overheads” of the company exceed more than 5% of the total CSR amount in the financial year, then it is subjected to the following conditions-

  1. As per Sub Rule 2 of Rule 7, the exceeded expense shall not include the surplus arising out of CSR activities.
  2. The Board of the company shall pass a resolution to that effect.

The CSR amount may be spent by a company for the creation or acquisition of a capital asset, which shall be held by the following firms:

  1. A company established under Section 8 of the Companies Act
  2. Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number
  3. Beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities
  4. A public authority

Transfer of unspent CSR Per Rule 10 of the New Rules, companies will now be required to transfer the unspent CSR amount to the ‘National Unspent CSR Fund’ established by the Central Government, which can later be used for activities mentioned under Schedule VII of the Companies Act. Until this fund is created, all unspent CSR amount shall be transferred to any fund prescribed under Schedule VII of the Companies Act.

Disclosure of CSR Activity In the interest of increasing transparency, companies are now lawfully bound to disclose the composition of the CSR Committee, their CSR Policy and projects approved by the Board of Directors, on their website to enable public viewing and access.

CSR Reporting The Existing Rules regarding reporting of CSR have been altered. Under the New Rules, CSR reporting shall be attached by the Board in the manner specified under Rule 8 of the New Rules.

  1. In case of foreign companies, the New Rules mandate maintaining of balance sheets that contain annual CSR reports as specified under Section 381 (1) (b) of the Companies Act.
  2. Companies having an obligation of an average CSR amount of 10 Crore or more in the three immediately preceding financial years must undertake the impact assessment as per Section 135 (5) of the Companies Act. To provide context, the Board of Directors are lawfully obligated to ensure that a minimum of 2% of the company’s Net Profits of the immediately preceding three years are spent on CSR activities. In case the company has not been in existence for three years, the immediately preceding year is considered to calculate Net Profit. Therefore, if the minimum amount is 10 crore or more, impact assessment per the Companies Act must be done.
  3. Further, as per the New Rules, a company undertaking impact assessment is allowed to table the expenditure towards CSR for that financial year. However, that amount shall not exceed 5% of the total CSR expenditure, or fifty lakh rupees, whichever is less.


The New Rules infuse transparency and accountability in respect to the CSR obligations of companies. Now companies need to keep detailed records of the CSR funds, ongoing projects, undertaken projects and records of CSR committee meetings. The New Rules have introduced novel compliance requirements such as impact assessment, engagement with international organisations etc. While these were present in the earlier rules as well, the New Rules have expanded their ambit and introduced clarity vis-a-vis application of the requirements. Further, they provide a stringent regulatory framework to carry forward CSR activities. The obligations are drafted in such a manner that any misuse, corruption is mitigated. In essence, they provide a free hand to the corporate to carry out CSR activities in an ethical way.


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