Capital assets in CSR: who can own them

A company can spend CSR money on buildings, vehicles, equipment and other capital assets, but it can’t own them. Since 22 January 2021, Rule 7(4) of the CSR Rules has said who may hold any capital asset created or acquired with CSR money: 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.

This guide is for CSR teams, company secretaries and finance staff, and for the NGOs, panchayats and community groups that end up holding the assets. It explains the rule, each kind of permitted holder, what counts as a capital asset, the questions the Rules leave open, the costs that count, what the annual report must disclose and how to settle ownership before anything is built.

What Rule 7(4) says

The rule came in with the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, which took effect on 22 January 2021. Before then, the Rules didn’t say who should hold CSR assets.

Where the Rules are silent, the Ministry of Corporate Affairs (MCA) sometimes fills the gap in its frequently asked questions on CSR (General Circular 14/2021, 25 August 2021), cited here as “FAQ 3.6” and so on. They are its reading of the law, not law, but companies and auditors rely on them.

The three permitted holders

Non-profits with a CSR registration number

Route (a) needs both charitable objects and a CSR registration number, which an entity gets by filing Form CSR-1 (see Form CSR-1). A society with charitable objects but no registration number can’t hold the asset. A company’s own foundation can, if it is a Section 8 company, trust or society with charitable objects and a registration number: the rule doesn’t bar entities a company set up. In states where registering a public trust isn’t compulsory, FAQ 5.4 reads “registered public trust” in Rule 4(1) to include a trust registered under the Income Tax Act. Rule 7(4)(a) uses the same words, so the same reading is likely, but the FAQ doesn’t say so in terms.

Beneficiaries as a group

Route (b) lets the people a project serves own what it creates, as long as they are organised: a self-help group (SHG), a collective or an entity. This suits livelihood projects, where a producer company the farmers own can hold the processing unit, or water projects, where a users’ association can own the pump and tank.

Public authorities

“Public authority” has the meaning in section 2(h) of the Right to Information Act, 2005. Broadly, that covers bodies set up by or under the Constitution, a central or state law, or a government notification or order, and bodies owned, controlled or substantially financed by government. Panchayats, municipalities and government departments are the usual holders, which makes this the natural route for classrooms, health centres, roads and community buildings. Get the authority’s written agreement to take the asset on, and to run it.

What counts as a capital asset

Neither the Rules nor the FAQs define a capital asset. A practical test is the ordinary accounting one: a tangible item used over more than one year, such as land, a building, machinery, equipment, a vehicle or furniture. Consumables, such as food, medicines and stationery, aren’t capital assets. Nor are services, such as training or salaries.

Improving an asset that already belongs to a permitted holder, such as adding classrooms to a government school, raises no ownership question: the new rooms belong to the school’s owner. Be careful with assets on land whose ownership is unclear or private.

Items handed to individuals: the open question

Route (b) names beneficiaries “in the form of self-help groups, collectives, entities”, not individuals. The Rules don’t say whether things handed to individual people, such as bicycles, sewing machines, tablets, hearing aids or houses rebuilt after a disaster, are capital assets that must sit with a permitted holder. One reading treats them as distributions to beneficiaries rather than capital assets of the project. Another treats them as capital assets, which individuals can’t hold.

Until the MCA clarifies the point:

• decide how your company treats such items, and record the decision in the CSR policy or the annual action plan;
• apply it consistently and disclose on the same basis every year;
• prefer group or public ownership for anything shared, such as a tool library or a community computer centre;
• take advice for high-value items, especially houses and land.

Costs that count

• Building or buying the asset is CSR spending on the project, like any other project cost.
• Transfer costs count: FAQ 3.6 says “stamp duty and registration fees” on transferring a capital asset under Rule 7(4) qualify as admissible CSR expenditure in the year of transfer.
• Running and maintenance. FAQ 6.1 says that after an ongoing project is completed, the board “is free to design any other project related to operation and maintenance” of it, case by case. Plan for this from the start: an unused building helps nobody.
• Money from selling project materials later is surplus (FAQ 3.4). Under Rule 7(2), surplus can’t become business profit: it goes back into the same project, into the Unspent CSR Account, or to a Schedule VII fund within six months of the year’s end.

Assets created before 2021

The proviso to Rule 7(4) gave companies 180 days from the 2021 amendment’s commencement to bring older CSR assets into line, extendable by up to 90 days with the board’s approval on reasonable justification. That window closed in 2021. A company that still holds an older CSR asset should take advice on moving it to a permitted holder.

What the annual report must show

The annual report on CSR, which forms part of the board’s report, uses the format in Annexure II to the CSR Rules for financial years starting on or after 1 April 2020. Since the format was revised on 20 September 2022, item 8 asks whether any capital assets were created or acquired with CSR money in the year, how many, and for each:

The fields “should be captured as appearing in the revenue record”, with the flat or house number and the municipal office, municipal corporation or gram panchayat, and, for immovable property, its area and boundaries. Collect these details as you go, not in a rush at year-end. Our guide to the annual report on CSR covers the rest of the format.

Settle ownership before you build

Rule 7(4) is easy to comply with if ownership is decided first and hard to fix afterwards. In the project agreement:

• name the holder and attach its written consent to take on the asset;
• put title in the holder’s name from the start: land and building records, vehicle registration, equipment invoices;
• limit use to the project’s purpose, and say what happens if the holder closes or no longer needs the asset (it should pass to another permitted holder, never back to the company);
• assign running costs, maintenance and insurance, with dates;
• ask for reports on the asset’s condition and use, so the board can show the money did what it was meant to.

Our guide to CSR agreements has a full clause list.

Common mistakes

• Title stays with the company or its contractor after the work is finished.
• The holder has charitable objects but no CSR registration number, or the reverse.
• A public authority never formally agreed to take the asset, so it sits locked and unused.
• No one budgets for running costs, so equipment fails within a year or two.
• Assets go up on land whose ownership is disputed or private.
• The annual report omits the pincode, the boundaries or the owner’s details.

For NGOs

If you will hold an asset, make sure your registration number is current and your objects are charitable, agree the use and maintenance terms in writing, and keep the title documents safe. Report on the asset’s condition every year, and never sell or transfer it without the agreement the contract requires: proceeds from selling CSR project materials are surplus that must stay in CSR. If a community group will own the asset, help it register and keep its accounts. See how NGOs can get CSR funding.

The Academy’s CSR Law in Depth course covers Rule 7(4) with sorting exercises and worked examples.