The ministry had set up a High-Level Committee on CSR in 2018 chaired by then Secretary, Corporate Affairs Injeti Srinivas for amending the law aimed to strengthen the CSR ecosystem, by improving and strengthening disclosures and by simplifying compliances. It also aims to address the inadequacies of the present CSR architecture by removing ambiguities, bringing in objectivity, and by simplifying language.

Though one may view these new norms as compliance overreach, however, in the overall scheme of things where still thrift and societal contributions are not very prevalent, this be viewed as a welcome move.

In a significant overhaul of the Corporate Social Responsibility (CSR) Rules, the Ministry of Corporate Affairs has introduced several changes to the CSR framework vide various notifications as below:

  1. Ministry of Corporate Affairs Notification SO. 324(E) dated January 22, 2021 notifying Section 21 of the Companies (Amendment) Act, 2019
  2. Ministry of Corporate Affairs Notification SO. 325(E) dated January 22, 2021 notifying Section 27 of the Companies (Amendment) Act, 2020
  3. The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021


  1. Applicability – Section 135(1) of the Act says:

“Every company having

  • net worth of rupees five hundred crore or more, or
  • turnover of rupees one thousand crore or more or
  • a net profit of rupees five crore or more

during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

Provided that where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.”

2. Amount to be spent – Section 135(5) says:

“The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy”

It means now it has been clarified that Companies incorporated less than 3 years ago are required to calculate the CSR amount to be spent averaging the profits of financial years elapsed.

The company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.


Step-wise process of the CSR provisions along with important details are as under:

  1. The societies or trusts are required to register the CSR project by filing e-Form CSR-1 with MCA. Each CSR project would be given a unique registration number upon submission of the Form CSR-1 which can be used to track the project.


  • A three year limit has been specified for any CSR project.
  • This form is not for the CSR projects or programmes approved prior to the April 1, 2021.


The CSR Committee every year is required to formulate and recommend to the Board an annual action plan which shall include the following:

  • the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;
  • the manner of execution of such projects or programmes as specified in sub-rule (1) of rule 4 of The Companies (CSR Policy) Rules, 2014 (“the Rules”);
  • the modalities of utilisation of funds and implementation schedules for the projects or programmes;
  • monitoring and reporting mechanism for the projects or programmes; and
  • details of need and impact assessment, if any, for the projects undertaken by the company.


  • Where the amount to be spent by a company does not exceed fifty lakh rupees, the requirement to constitute the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company including formulation of annual action plan.
  • The Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect.

3. Now there can be 4 situation on the basis of the amount spent by the Company

  • Company has spent more than it required to spend
  • Company has fully spent as per the calculation
  • Company has some unspent amount but in any of its ongoing project which would spent by the it thereafter
  • Company has not spent and also no ongoing project to do the compliance of spending the amount as per Section 135(5)

4. In all the above 4 cases, following compliance are required to be for every year:

  1. Annual Report on CSR activities is required to be annexed with the Board’s Report. Two different formats has been prescribed on the basis of the FY for which is to be prepared – Annexure I of the Rules is report for Financial Year commenced prior to April 1, 2021 & Annexure II for Financial Year commencing on or after April, 2021.
  2. Second requirement is to mandatory disclosure of all CSR projects and activities as approved by the Board besides CSR Committee’s composition on the company’s website for public access.
  3. Next is the requirement of Impact Assessment – Every company having average CSR obligation of ten crore rupees or more u/s 135(5) of the Act in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of one crore rupees or more.


The CSR projects which have been completed atleast one year before undertaking the impact study. The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR.

A Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed five percent of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is less.

  • 4. Excess Amount spent: Where a company spends an amount in excess of requirement provided u/s 135(5) , such excess amount may be set off against the requirement to spend under sub-section (5) of section 135 up to immediate succeeding three financial years. But this set-off has following conditions:
  • the excess amount available for set off shall not include the surplus not spent by the Company; and
  • the Board of the company shall pass a resolution to that effect.

5. Unspent in ongoing CSR Project: Any amount remaining unspent under sub-section (5), pursuant to any ongoing project undertaken by a company in pursuance of its CSR Policy, shall be transferred by the company within a period of 30 days from the end of the financial year to a special account.

This Special Account is to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account.

Such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer. If the Company fails to spent it in this timeline, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.


  • Ongoing Project” means a multi-year project undertaken by a Company in fulfilment of its CSR obligation having timelines not exceeding three years excluding the financial year in which it was commenced, and shall include such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the board based on reasonable justification;
  • In case of ongoing project, the Board of a Company shall monitor the implementation of the project with reference to the approved timelines and year-wise allocation and shall be competent to make modifications, if any, for smooth implementation of the project within the overall permissible time period.

6. Unspent amount and no ongoing CSR project: Until a fund is specified in Schedule VII for the purposes of subsection (5) and(6) of section 135 of the Act, the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act.


  • Company  – Penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be,

OR, Rs. 1 crore, whichever is less,

  • Every officer of the company who is in default – Penalty of 1/10th of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be,

OR, Rs. 2 Lakh, whichever is less.