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Creation or acquisition of Capital Asset- Corporate Social Responsibility



The concept of corporate social responsibility (CSR) holds that businesses should examine how their actions may affect the environment and society. It is the possibility that an organization ought to assume a positive part locally and think about the natural and social effect of business choices.


It is closely linked to sustainability- creating economic, social and environmental value- and ESG, which stands for Environmental, Social and Governance.


The focus has shifted from CSR to social purpose in recent years. Many businesses have changed their focus from having a community investment plan and a 'nice to have' mentality to taking a comprehensive approach in which their purpose is incorporated into everything they do.


From being directional to being required, the idea of CSR has changed. The lawmakers' goal appears to be to compel businesses to contribute back to the society from which they receive their earnings in order to promote societal development.


In 2021, The Government of India notified amendments to the Companies (Corporate Social Responsibility) Rules, 2014 and Section 135 of the Companies Act, 2013 on January 22nd, 2021, which means that these are now effective.


A new definition of CSR: A negative list, or a list of activities that do not constitute CSR, has been introduced, which includes: (a) activities undertaken in the normal course of business. However, companies involved in R&D of vaccines, drugs and medical devices may include covid-19-related R&D as part of CSR, subject to specific conditions; (b) any activity undertaken outside India except in the case of training of Indian sportspersons representing at national or international levels; (c) direct or indirect contribution to any political party; (d) activities that benefit the employees of the company; (e) activities such as company sponsorships that derive marketing benefits; and (f) activities carried out for the fulfilment of any statutory obligation.


Activities that can now be included as CSR:

Acquisition or creation of a capital asset provided that it is not owned by the company: The asset created using CSR funds must be owned either by the organization supported, section 8 company, a registered public trust or society, or the people served by the project (for instance, collectives such as self-help groups), or by a public authority.


In the event that such capital expenditure was previously made as part of CSR, the assets must be transferred within six months. This deadline may be extended with the board's consent and after giving adequate rationale for a 90-day maximum extension. Companies will need to examine previous capital expenditures made... Immovable property or assets with a joint usage may make this more complicated. If such assets are recorded, the carrying value must be written off.


This can help the educational trusts and societies in acquisition of school land and building through CSR funds and thus, a great amendment by the legislatures towards promotion of education.


Impact assessment

Under Rule 8(3)(a), every company, which is obligated spend a minimum CSR amount of INR 10 crore and above, should undertake impact assessment (through an independent agency) for those CSR projects that have outlays of INR 1 crore and above. The impact assessment can be undertaken only after one year has passed since the date of completion of the project.

Further, in the annual report post 1 April 2020, the Companies have to give details about creation or acquisition of capital asset in a financial year with detailed address, amount spent and details of the beneficiary.


Concluding thoughts

The new CSR Rules establish a strict regulatory framework for engaging in CSR initiatives in India together with Section 135 of the Act. Companies are required to keep thorough records of CSR Committee meetings, CSR fund distributions, and projects carried out with implementing partners in order to ensure compliance with the new regulatory framework.

 

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