Corporate Social Responsibility in India: Submission of New Form CSR-2
Starting 2022, CSR reporting in India will include a new disclosure framework under Form CSR-2 from FY 2020-21 onwards. We briefly discuss the reporting changes.
Companies in India have been mandated to submit a comprehensive report on their corporate social responsibility (CSR) activities in a new 11-page form – CSR-2.
This will need to be submitted to the Registrar of Companies for the financial year 2020-21, and onwards. The CSR-2 reporting for FY 2020-21 must be submitted by the end of March 2022.
Through the new reporting format, the government hopes to gain a fuller sense of how companies are spending their CSR resources and the types of activities being organized. It is also hoped to introduce transparency in the CSR compliance domain.
India notifies new CSR reporting mandate via Form CSR-2
The gazette notification was released by the Ministry of Corporate Affairs (MCA) on February 11, 2022 (see here) and the new CSR reporting requirement is with immediate effect.
The new rules impacting CSR reporting in India are called the Companies (Accounts) Amendment Rules, 2022.
Corporate social responsibility compliance and spending in India
CSR provisions under India’s company law came into effect April 1, 2014.
Under the Companies Act, 2013, companies in India with a net worth of INR 5 billion, or reporting a turnover of INR 10 billion or more, or showing net profit of INR 50 million or more for three preceding years must spend two percent of their average net profit on CSR activities.
In 2021, the government clarified that CSR expenditure prior to FY 2020-21 could not be set off against future CSR expenditure obligations. However, CSR expenditure in excess of the mandatory two percent can be set off against mandatory CSR expenditure in the three subsequent financial years. Notably, corporate donations to government schemes would not be accepted as CSR spend.
Further, companies must transfer any unspent CSR funding into a separate bank account and these funds cannot be used for business purposes. Further, any interest generated on these unspent CSR funds must be spent on CSR activities alone.
CSR spending in India was a cumulative INR 201.50 billion in FY 2018-19 (25,099 companies), INR 246.88 billion in FY 2019-20 (22,531 companies), and INR 88.28 billion in FY 2020-21 (1619 companies) – the drastic decline recorded as the pandemic struck in 2020.
Changes to current disclosure framework and what stakeholders are saying
CSR-2 will require, among various information parameters, reporting about the constitution of the company’s CSR committee, its meetings, as well the disclosure of details of the CSR committee, CSR policy, and approved CSR projects on the company’s website. The company will also need to submit details on its CSR project investments and the CSR funds that have gone unspent. Details about the impact assessment of CSR projects (as under Companies (CSR Policy) Rules, 2014) will also need to be reported in the form as well as if any capital assets have been created or acquired via the CSR funds in a given financial year.
Experts say the broad scope of CSR-2 will expand the data accessible to the MCA that could be used to inform future CSR related policymaking.
On the other hand, the amendments to CSR reporting increase the compliance burden of companies. In some areas, the information is already being disclosed, such as under the main director’s report that is part of the company’s annual report.
What does the MCA notification say?
Now “every company covered under the provisions of sub-section (1) to section 135 shall furnish a report on Corporate Social Responsibility in Form CSR-2 to the Registrar for the preceding financial year (2020-2021) and onwards as an addendum to Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the case may be:
Provided that for the preceding financial year (2020-2021), Form CSR-2 shall be filed separately on or before March 31, 2022, after filing Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the case may be.”
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