Recent Amendments to the CSR Rules and Implications for the Not-for-Profit

Background

On September 24, 2024, the Ministry of Corporate Affairs (MCA) introduced the Companies (Accounts) Amendment Rules, 2024, through G.S.R. 587(E), amending the Companies (Accounts) Rules, 2014. These changes aim to bring greater clarity and streamline reporting requirements for companies, particularly concerning corporate social responsibility (CSR) filings for the financial year 2023-2024.

The CSR-2 form was introduced by the Ministry of Corporate Affairs (MCA) through the Companies (Account) Amendment Rules, 2022. It acts as a reporting tool for companies governed by Section 135(1) of the Companies Act, 2013, which mandates them to engage in Corporate Social Responsibility (CSR) activities.

These companies are required to submit annual reports detailing their CSR efforts. The CSR-2 form streamlines reporting process by requiring the documentation of CSR projects, expenditures, and their impact.

Key Highlights of the Amendment

The amendment adds a new proviso to Rule 12(1B), specifically impacting the Corporate Social Responsibility (CSR) reporting requirements for the financial year 2023-2024. Following

this amendment, companies are now required to submit Form CSR-2 separately by December 31, 2024. This filing is required to be done after the submission of Form AOC-4, Form AOC-4-NBFC (Ind AS), or Form AOC-4 XBRL, as applicable, in accordance with the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015.

Impact of the Amendment

A notification issues in 2023 established a deadline of March 31, 2024, for CSR-2 filings. However, the recent amendment now sets the deadline for CSR-2 filings for FY 2023-24 to December 31, 2024. The extension for filing Form CSR-2 offers companies additional flexibility, particularly given the increased emphasis on CSR compliance in recent years. As CSR activities have become an integral part of corporate governance and transparency, the MCA’s decision to extend the deadline ensures that companies have sufficient time to fulfil their obligations.

Actionable Insights for NGOs on CSR Involvement

CSR-2 Form serves as a reporting mechanism for companies to disclose their collaborations with NGOs and ensures transparency in how CSR funds are utilized. NGOs, in turn, play a critical role in executing the social initiatives that companies are required to support under the Companies Act, 2013.

CSR Fund Transfer and Unspent Amounts

1. Fund Transfer for Unspent CSR Amount: NGOs are required to assess unspent funds from ongoing projects and allocate them to the Schedule VII fund, ensuring transparency by documenting key details such as the transfer amount, date, and any shortfall. They are required to update financial statements and make appropriate disclosures with the CSR donor. Timely transfers and maintaining detailed records of approvals and correspondence are essential for compliance. Additionally, NGOs are required to confirm the undertaking of CSR projects funded by unspent allocations from the last three years, categorizing them as ongoing or new projects, and prepare detailed financial reports on fund utilization for both categories.
2. CSR Compliance and Reporting: Impact Assessment of CSR Projects: For large CSR projects, particularly those with budgets exceeding ₹1 crore, impact assessments are required to be conducted by an independent agency as mandated by Rule 8(3). NGOs involved in such projects are required to cooperate fully, providing necessary data, documentation, and access to project sites to facilitate thorough evaluation NGOs are required to collaborate with companies to submit detailed reports on CSR fund utilization and the impact generated. Implementing Agency Registration: NGOs are required to register as an implementing agency and ensure their CSR number is readily available for filling out details related to ongoing projects and financial amounts. Proper registration is necessary to be considered a valid partner. CSR funding is available only to NGOs that hold certifications such as 80G, 12A, a Non-Governmental Organizations Registration Certificate, and a Foreign Contribution Regulation Act Registration Certificate.
3. CSR Spending and Projects: Spending on Ongoing Projects and CSR Compliance: NGOs are required to carefully monitor the funds spent on ongoing projects during the fiscal year, ensuring transparency on whether these include enduring projects. Additionally, NGOs must verify and document the initiation of any CSR project in the current financial year, specifically focusing on those funded through unspent CSR allocations from the past three financial years. To maintain proper records for ongoing CSR projects, NGOs are required to keep data on the CSR amount paid during the fiscal year, the number of ongoing projects, and include key details such as the project ID, project name, the financial year in which the project began, the amount spent at the start of the year, the amount spent during the current year (in ₹), the cumulative amount spent by the end of the year (in ₹), the project's status (completed/ongoing), and the location, including the state and district of implementation.

Administrative Overheads: NGO are required to document the amount paid on administrative overheads and maintain clear distinctions between administrative overheads and program costs to ensure transparency in fund usage.

Total Spending for the Financial Year: NGO are required to compile and document total spending for the financial year.

Capital Assets Created or Acquired through CSR Spending: Under Rule 7(4) of the Companies (CSR Policy) Rules, 2014, capital assets created or acquired using CSR funds cannot be owned by the company. These assets are required to be transferred to NGOs, Trusts, or Section 8 Companies, and the responsibility lies with the NGO or implementing agency to ensure the transfer to beneficiaries or public authorities within six months, with a possible 90-day extension if approved by the board. For assets like schools or healthcare centres, NGOs are required to maintain proper documentation, including the asset's location, registration, creation date, CSR amount spent, and beneficiary details, to ensure compliance with CSR guidelines.