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India Inc.'s compliance burden will be increased by a new CSR rule.

Updated: Jul 12, 2022

The Centre has now mandated corporate India to furnish a comprehensive report on their corporate social responsibility (CSR) activities, specifying an 11-page form (CSR-2) for this purpose. It is expected to give the government a comprehensive picture of the CSR funds spent and activities carried out.

According to the Ministry of Corporate Affairs (MCA), this document must be filed to the Registrar of Companies for the preceding financial year (2020-21) and onwards. The CSR-2 must be submitted by the end of March 2022 for information relevant to FY 2020-21.

There was a mixed response

Corporates and legal experts have had conflicting reactions to this development, with some claiming that it will increase corporate compliance costs. They pointed out that several of the information currently required by CSR-2 are already included in the main directors' report, which is part of the annual report.

Some business observers, on the other hand, believed that the information trove on CSR — which came as a result of CSR-2 — may be useful for MCA's CSR section to do data mining and analytics in order to implement better policies on this front.

Certain companies must report on the formation of their CSR committee, meetings, whether or not the company has released details about its CSR committee, CSR policy, and authorized CSR projects on their website, among other things, according to Form CSR-2.

In addition, the company must affirm that an impact evaluation of CSR projects was completed in accordance with the Companies (CSR Policy) Rules, 2014. The corporation is also expected to disclose extensive information about its investment in CSR projects, as well as the amount of money that has remained unspent, as part of the report. This new form, according to Maneet Pal Singh, Partner, I.P. Pasricha & Co, would result in increased openness incorporate CSR expenditure but will increase the regulatory burden on corporations.

"We believe the MCA's action is effective," Singh said, "but in the future, MCA should make attempts to obtain the most information with the least rise in compliances." According to Pritika Kumar, Founder & Counsel, Cornellia Chambers, this is a significant modification that would improve the way corporate social responsibility is managed in India.

This change will also make it easier for impact-driven organizations to collaborate with corporations whose CSR goals are similar to theirs. She believes that this amendment is a step in the right direction. The present system under the CSR guidelines, according to Snigdhaneel Satpathy, Partner, Saraf and Partners, already requires a company to file a full report of its CSR operations, which must be annexed to the board report.

"In this perspective, the recent decision to impose a separate reporting requirement for companies' CSR operations to be appended to their financial statements is needless and is precisely the type of irritation that adds compliance burden while increasing the cost of doing business." "Such steps are not in sync with the government's overarching purpose," Satpathy said, citing the government's macro-level focus on improving ease of doing business and the general effort to move toward reduced reporting requirements.

Spending on corporate social responsibility

Companies with a net worth of 500 crores or more, a turnover of 1,000 crores or more, or a net profit of 5 crores or more for the preceding three years are required by the Companies Act 2013 to spend 2% of their average net profit on CSR activities.

It may be remembered that India Inc's (1619 companies) CSR spend for FY 2020-21 was $8,828.11 crore, a significant decrease from the cumulative spending of $20,150.27 crore (25,099 companies) in FY19 and $24,688.66 crore (22,531 companies) in FY20.


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