New CSR form to enhance corporate compliance, help govt in keeping a tab

With the Ministry of Corporate Affairs (MCA) introducing an extensive format for reporting corporate social responsibility (CSR), experts say while there is huge increase in the compliance burden, the exercise will enable the government to generate an extensive database of  CSR activities in the country.

“Currently, the government is aware of the amount that is being spent on CSR, but it will now be able to track where this amount is being spent, utilised, and how,” said Ankit Singhi, partner, Corporate Professionals.

The government had mandated that Corporate India publish a comprehensive report on their specific CSR initiatives. With the new 11-page form notified by the MCA on February 11, companies will have to provide the details of the CSR amount spent in the three preceding financial years and details of all ongoing projects.

This additional information can be used by the corporate affairs ministry in drafting effective policies for CSR, said experts.

“Over the past few years, the spotlight on CSR spends has increased and this seems to be another step in that direction. While it is likely to add some compliance burden on corporates, it will enhance the transparency and disclosures around CSR activities and provide better oversight,” said Pratiq Shah, partner, Deloitte India.

Companies will have to file the new Form CSR-2 for the preceding financial year (2020-21), on or before March 31, 2022. This is in addition to the Form AOC-4 for filing the company's financial statement with the Registrar of Companies. These disclosures are also part of the annual report on CSR the MCA had mandated companies to file.  

“Corporations will be burdened with compliance and costs. Corporates are now more wary of Covid-19 because it has already strained company finances. Given CSR-2's policy, it may be useful for the CSR department,” said Sonam Chandwani, managing partner at KS Legal & Associates.

If any capital assets have been created or acquired through CSR spend, companies will have to provide details, including address, location, pincode of the property, along with amount spent and its registered owner.

The new mechanism has been put in place to ensure the CSR sum is spent in an appropriate and accountable manner and the money unspent is not ploughed back into the company or the coffers of the promoter.

The stringent laws are also driven by the fact that many companies were funnelling CSR money back into their accounts or even abusing the CSR provision for money laundering.