Context: The Corporate Affairs Ministry has amended the rules for Corporate Social Responsibility (CSR) expenditure by India Inc to allow companies to undertake multi-year projects.

• It also requires that all CSR implementing agencies be registered with the government.

What Is Corporate Social Responsibility (CSR)?

• Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public.
• By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.
• To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhance society and the environment, instead of contributing negatively to them.

CSR in India

• India became the first country to legislate the need to undertake CSR activities and mandatorily report CSR initiatives under the new Companies Act 2013.
• The Companies Act 2013 replaced the Companies Act of 1956, incorporating an additional section i.e., Section 135 – clause on Corporate Social Responsibility obligations (CSR) for companies listed in India.
• The clause covers the essential prerequisites pertaining to the execution, fund allotment and reporting for successful project implementation.

How do the new rules enable corporations to undertake multi-year CSR 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

Key amendments

• Provisions appearing in Rule 6 of Companies (CSR Policy) Rules, 2014 which states that CSR activities do not include activities undertaken in pursuance of normal course of business of a company, has been deleted.
• In August, 2020, MCA issued Companies (CSR Policy) Amendment Rules, 2020 (CSR Rules) and amended Schedule VII of the Companies Act, 2013 (Act).
• Prior to the issue of CSR Rules, activities undertaken by a company in pursuance of its normal course of business were excluded from the ambit of definition of 'CSR Policy'.
• Restricts companies from authorising either a Section 8 company or a registered public charitable trust to conduct CSR projects on their behalf.
• Earlier, companies can conduct CSR expenditure through implementing agencies such as Private trusts (i.e., Reliance Foundation, Bharti Foundation etc.)
• Allow companies to set off CSR expenditure above the required 2 per cent expenditure in any fiscal year against required expenditure for up to three financial years.

What are the changes required for implementing agencies?

• A large number of companies conduct CSR expenditure through implementing agencies, but the new amendment restricts companies from authorising either a Section 8 company or a registered public charitable trust to conduct CSR projects on their behalf.
• A Section 8 company is a company registered with the purpose of promoting charitable causes, applies profits to promoting its objectives and is prohibited from distributing dividends to shareholders.
• Further, all such entities will have to be registered with the government by April 1.
• Experts note that the change would impact CSR programmes of a number of large Indian companies that conduct projects through private trusts.