Background
The broad framework of CSR has been provided in Section 135 of the Companies Act, 2013, Schedule VII of the Act and Companies (CSR Policy) Rules, 2014. Further, Ministry had also issued clarifications including FAQs from time to time on various issues concerning CSR. A number of significant developments have taken place since then. The Ministry has notified the amendments in Section 135 of the Act as well in the CSR Rules on 22 January, 2021 with an aim to strengthen the CSR ecosystem, by improving disclosures and by simplifying compliances. In response to such amendments, Ministry has received several references and representations. from stakeholders seeking clarifications on the various issues related to CSR.
New Developments
Clarifications on unspent CSR amount: On 10 May 2021, the ICAI issued a Frequently Asked Question (FAQ) to clarify the effect of the amendments on accounting treatment of amounts to be incurred towards CSR. Key clarifications are as follows:
- CSR expenditure would be recognised as an expense in the statement of profit and loss as and when such expenditure is incurred on the CSR activities as per the board approved CSR policy and CSR projects during the Financial Year.
- For the 'unspent amount', a legal obligation arises to transfer to specified unspent CSR account depending upon the fact whether such unspent amount relates to ongoing projects or not. Therefore, liability needs to be recognised for such unspent amount as at the end of the Financial Year as per Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
- Further, as per Ind AS 34, Interim Financial Statements, CSR obligation will be recognised based on the principles for recognition of the same in annual financial statements.
- The conclusions drawn above will equally apply for companies preparing financial statements as per the Companies (Accounting Standards) Rule, 2006.
(Source: FAQ on 'Accounting for amounts to be incurred towards CSR pursuant to the Companies (CSR Policy) Amendment Rules, 2021' issued by ICAI on 10 May 2021)
Clarification on offsetting excess CSR spent for FY 2019-20: The MCA through a notification dated 20 May 2021 has provided clarification where a company has contributed any amount to 'PM CARES Fund' on 31 March 2020, which is over and above the minimum amount as prescribed under Section 135(5) of the 2013 Act for FY2019-20, and such excess amount or part thereof is offset against the requirement to spend under Section 135(5) for FY2020-21 in terms of the aforementioned appeal. This set off would not be viewed as a violation subject to the following conditions:
- The amount offset as such should have factored the unspent CSR amount for previous FYs, if any
- The Chief Financial Officer (CFO) should certify that the contribution to PM CARES Fund was indeed made on 31 March 2020 in pursuance of the appeal and the same should also be certified by the statutory auditor of the company and
- The details of such contribution should be disclosed separately in the annual report on CSR as well as in the board's report for FY2020-21 in terms of Section 134(3)(o) of the 2013 Act.
(Source: MCA circular dated 20 May 2021)
Additions to eligible CSR activities: MCA, through circular dated 22 April 2021 and 5 May 2021 has clarified that spending of CSR funds for following activities as an eligible CSR activity. Companies may undertake these activities directly by themselves or in collaboration as shared responsibility with other companies, subject to the fulfillment of the CSR rules.
- Creating health infrastructure for COVID-19 care
- Establishment of medical oxygen generation and storage plants
- Manufacturing and supply of oxygen concentrators, ventilators, cylinders and other medical equipment for countering COVID19 or
- Other similar activities
- x Setting up makeshift hospitals and temporary COVID-19 care facilities (Companies may undertake these activities in consultation with state governments subject to the fulfillment of CSR rules.)
(Source: MCA general circular no. 05/2021 dated 22 April 2021 and 09/2021 dated 5 May 2021)
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