The annual report on CSR in the board’s report

Every company covered by Section 135 of the Companies Act, 2013 must include an annual report on CSR in its board’s report, in the format set out in Annexure II to the CSR Rules. It is a short, standard statement of the company’s CSR policy, committee, obligation, spending, unspent money, capital assets and, where they apply, impact assessments, signed by a director and by the chair of the CSR committee.

It is one of two statutory CSR reports. The other is Form CSR-2, filed with the Registrar of Companies, which goes into more detail project by project. Both describe the same facts, so they should be built from the same records.

This guide is for CSR teams, company secretaries and finance teams preparing the report, and for anyone reading one. It walks through the format item by item, works through the numbers, covers the website disclosures and the chief financial officer’s certificate, and lists the errors that cause trouble.

What the law requires

Section 134(3)(o) of the Act also requires the board’s report to include details of the CSR policy and the initiatives taken during the year. In practice, the annual report on CSR is attached to the board’s report as an annexure and covers all of these points.

Every company that meets a Section 135 test files it, including a company with no CSR committee because its obligation is ₹50 lakh or less and nothing sits in an Unspent CSR Account. That company says so in item 2, and its board does the committee’s work. See which companies must spend on CSR.

Which format, and what changed in 2022

The current format is Annexure II, whose heading says it is for financial years beginning on or after 1 April 2020. Annexure I is the older format for earlier years.

Annexure II was revised by the Companies (CSR Policy) Amendment Rules, 2022, in force from 20 September 2022, partly to cut duplication with Form CSR-2. The main changes:

• Totals, not project tables. The 2021 format asked for details of each project. The revised format asks only for the total spent on ongoing and other projects; the project detail goes in CSR-2.
• Impact assessments by summary and link. Companies give an executive summary and web link for each impact assessment instead of attaching the full report.
• More on unspent money. The table for the preceding three years now shows the balance left in each Unspent CSR Account and any deficiency.

The format, item by item

The report is signed by the chief executive officer, managing director or a director, and by the chair of the CSR committee. A foreign company’s report is also signed by the person resident in India whom it has named to the Registrar under Section 380(1)(d).

Working the numbers: items 5 and 6

Three rules sit behind these lines. Net profit for CSR is worked out under Section 198, on a profit-before-tax basis but with adjustments and two exclusions in the CSR Rules, so it rarely equals the profit before tax in the accounts; see calculating net profit for CSR. Only excess spending from 2020-21 onwards can be set off, within three years and by board resolution, and surplus can’t be counted as excess; see setting off excess spending. And money given to an implementing agency counts as spent only when the agency uses it: the FAQs say “mere disbursal of funds for implementation of a project does not amount to spending unless the implementing agency utilises the whole amount” (FAQ 7.4).

Unspent money and capital assets: items 7 and 8

Item 7 tracks each of the last three years’ Unspent CSR Accounts: how much went in, what is left, what was spent this year, anything sent to a Schedule VII fund and any deficiency. A deficiency means a required transfer wasn’t made in full, which can lead to the penalties in Section 135(7). The rules on the accounts themselves are in our guide to unspent CSR money.

Item 8 lists capital assets, such as buildings, equipment or water plants, created or bought with CSR money during the year. Rule 7(4) limits who may own them: a Section 8 company, registered public trust or registered society with charitable objects and a CSR registration number; the project’s beneficiaries, as self-help groups, collectives or entities; or a public authority. The format asks for the address and other details as recorded in the revenue records, so collect them when the asset is handed over, not at the year-end. See capital assets in CSR.

The website disclosures

Rule 9 requires the board to disclose the composition of the CSR committee, the CSR policy and the projects approved by the board on the company’s website, if it has one, for public access. The MCA’s FAQs confirm this covers every approved project, whatever its size (FAQ 10.4). Item 3 of the annual report gives the links.

Good practice goes further: keep the pages current through the year, publish the annual action plan and impact assessment reports, keep earlier years’ reports available, and check that the links in the board’s report still work.

The CFO’s certificate, and where else the numbers appear

Rule 4(5) requires the board to satisfy itself that CSR funds were used for the purposes and in the manner it approved, and the chief financial officer, or the person responsible for financial management, to certify it. That certificate, backed by utilisation certificates from implementing agencies, is the evidence behind items 5 and 6. Collect it before the board approves its report.

The same figures appear in several other places, and they must agree:

• Form CSR-2, which records them project by project for the Registrar.
• The notes to the financial statements and the auditor’s report, which also cover CSR spending and unspent amounts: check the current requirements of Schedule III to the Act and of the Companies (Auditor’s Report) Order, 2020.
• The BRSR, for India’s top 1,000 listed companies; see the BRSR.

The simplest way to keep them consistent is one project register: for each project, its Schedule VII item, location, ongoing status, budget, spending, implementing agency and CSR registration number, and any asset and its owner. Every report then draws on the same numbers.

Common errors

• The wrong net profit, such as profit before tax from the accounts, without the Section 198 adjustments and the CSR Rules’ exclusions.
• Counting money paid to an agency as spent when the agency hasn’t used it by the year-end.
• Overheads above 5%, or an implementing agency’s own costs shown as the company’s overheads. FAQ 3.3 says the agency’s expenses on managing CSR activities “shall not amount to administrative overheads and cannot be claimed by the company”.
• Setting off excess spending from before 2020-21, or counting surplus as excess.
• No reasons given for a shortfall in item 9, or a vague one.
• Dead or missing web links in item 3.
• Capital assets held by an ineligible owner, or without the details item 8 needs.
• Figures that don’t match Form CSR-2, the notes to the accounts or the BRSR.
• A missing impact assessment summary when Rule 8(3) applies.

Defaults in the board’s report can attract the penalty in Section 134(8), separate from the Section 135(7) penalties for unspent money; see penalties for breaking the CSR rules.