Spending and Reporting CSR: Eligible Activities, Unspent Amounts and CSR-2

Once a company knows its CSR obligation, the next questions are practical ones: what counts as CSR, who can carry it out, what happens to money that isn't spent by year end, and how it's all reported. The 2021 amendments to the CSR rules tightened each of these. This guide covers them.

What Counts as CSR

CSR spending must go to activities listed in Schedule VII of the Companies Act, 2013. They include:

• Eradicating hunger and poverty, and promoting health care and sanitation.
• Promoting education, including special education and vocational skills.
• Promoting gender equality and empowering women, and reducing inequality.
• Environmental sustainability, ecological balance and animal welfare.
• Protecting national heritage, art and culture.
• Measures for armed forces veterans and their dependants.
• Training to promote sports.
• Contributions to specified funds like PM CARES and the Prime Minister's National Relief Fund.
• Supporting technology incubators and specified research and development.
• Rural development and slum area development.
• Disaster management, relief and rehabilitation.

What doesn't count

• Activities undertaken in the normal course of the company's business.
• Activities that benefit only the company's employees and their families.
• Sponsorship for marketing or brand-building.
• Contributions to political parties.
• Activities the company is required to carry out under another law.
• Most activities outside India.

The Act also asks companies to give preference to the local area and areas around where they operate.

Who Can Carry Out CSR

• The company itself, directly.
• A Section 8 company, registered trust or registered society, with the required income-tax registrations and, generally, a three-year track record, or one set up by the company or the government.
• In collaboration with other companies, each reporting its own share.

Every implementing agency must be registered with the MCA by filing Form CSR-1, which gives it a unique CSR registration number. Funds given to an unregistered agency may not count towards the obligation.

Unspent CSR Amounts

Ongoing projects

For an ongoing project, a multi-year project the board has approved, any amount unspent at the year end must be transferred to a special Unspent CSR Account with a scheduled bank within 30 days of the year end. It must be spent on the project within the next three financial years. Anything still unspent after that is transferred to a Schedule VII fund within 30 days of the end of the third year.

Other unspent amounts

Unspent money not relating to an ongoing project must be transferred to a Schedule VII fund, such as PM CARES, within six months of the year end.

Penalties

A company that fails to transfer unspent amounts as required faces a penalty of twice the amount it should have transferred, or ₹1 crore, whichever is less. Each officer in default faces a penalty of one-tenth of the amount, or ₹2 lakh, whichever is less.

Excess spending

If a company spends more than its obligation, the excess can be set off against its obligation for up to the next three years, with a board resolution.

Other Rules

• Administrative overheads can't exceed 5% of the year's total CSR expenditure.
• Companies with an average CSR obligation of ₹10 crore or more in the three preceding years must have larger completed projects independently assessed for impact.
• Any surplus arising from CSR activities must be ploughed back into CSR, not added to the company's profits.

Reporting

• The board's report includes an annual report on CSR in the prescribed format, covering the obligation, spending, projects and any unspent amounts.
• The company files Form CSR-2 with the MCA, reporting its CSR details, along with its financial statements.
• The CSR policy, committee composition and approved projects are disclosed on the company's website.

Getting Help

Think Filing helps companies choose eligible projects, vet implementing agencies' CSR-1 registrations, track spending and unspent amounts, and prepare the annual CSR report and Form CSR-2.