CS Professional · CSR and Social Governance

Corporate Social Responsibility: formula sheet

Full chapter guide

Key formulas

CSR spending requirement: Minimum annual CSR spend = 2% × average net profit of the three immediately preceding financial years; Section 135(5). Net profit is worked out under section 198. A company that has not completed three years since incorporation uses the immediately preceding financial years it has.
Applicability thresholds: Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore, in the immediately preceding financial year; Section 135(1). Meeting any one limit is enough.
CSR Committee size: At least 3 directors, including at least 1 independent director; Where a company need not appoint an independent director under section 149(4), it needs 2 or more directors in the Committee.
Small CSR obligation: If amount to be spent ≤ ₹50 lakh, no CSR Committee is needed; the Board performs its functions; Section 135(9).
Penalty for default: Company: lower of 2 × amount to be transferred or ₹1 crore. Officer in default: lower of 1/10 of that amount or ₹2 lakh; Section 135(7). Applies to default under sub-sections (5) or (6).
Applicability test: Net worth ≥ ₹500 crore OR Turnover ≥ ₹1,000 crore OR Net profit ≥ ₹5 crore (in the immediately preceding financial year); Any one condition is enough. The thresholds are 'or more', so a figure exactly equal to the limit qualifies.
Committee size: At least 3 directors, including at least 1 independent director; Where a company need not appoint an independent director under section 149(4), it must have two or more directors on the Committee.
Minimum CSR spend: At least 2% of the average net profits of the three immediately preceding financial years; Net profit is calculated as per section 198, excluding the sums prescribed. A company not yet three years old uses the preceding years available since incorporation.
Small spend relaxation: If CSR amount ≤ ₹50 lakh, no CSR Committee; the Board discharges its functions; Section 135(9). The test is the amount to be spent, not the company's size.
Penalty for default (company): Lower of 2 × amount not transferred, or ₹1 crore; Section 135(7). Applies to default under sub-section (5) or (6).
Penalty for default (officer): Lower of 1/10 of the amount not transferred, or ₹2 lakh; Applies to every officer in default.
Applicability thresholds: Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore (immediately preceding financial year); Any one condition is enough. Section 135(1).
Committee composition: At least 3 directors, including at least 1 independent director; If the company need not appoint an independent director under section 149(4), the Committee needs 2 or more directors.
Committee functions: Formulate and recommend Policy + recommend expenditure + monitor Policy; Section 135(3). Three functions, all recommendatory or supervisory.
Board duties: Approve Policy + disclose it and put it on website + ensure activities are undertaken + ensure 2% spend; Section 135(4) and (5). Disclosure of Committee composition is in the Board's report under section 135(2).
Minimum CSR spend: Spend ≥ 2% × average net profit of the 3 immediately preceding financial years; Net profit is calculated as per section 198 and excludes prescribed sums. For a company not yet three years old, use the immediately preceding years completed.
Small-spend relief: If amount to be spent ≤ ₹50 lakh, no Committee; Board performs its functions; Section 135(9).
CSR spending obligation: Minimum CSR spend = 2% × average net profit of the immediately preceding three financial years; Net profit is computed as prescribed under the CSR rules. Use it to size the plan and the policy's recommended expenditure.
Policy: who does what: CSR Committee formulates and recommends → Board approves → policy disclosed in Board's report and placed on website; State all three links in this order in your answer.
Annual action plan: who does what: CSR Committee formulates and recommends → Board approves; The Board may later alter the plan on the Committee's recommendation, recording reasons.
Contents of annual action plan: (a) List of CSR projects approved under Schedule VII and the manner of execution + (b) modalities of fund utilisation and implementation schedules + (c) monitoring and reporting mechanism + (d) details of need and impact assessment, if any; Four items under Rule 5(2) of the CSR Rules. Quote them as a list.
Committee threshold: CSR obligation not exceeding ₹50 lakh → no Committee needed; Board discharges its functions (Section 135(9)); Where the obligation exceeds ₹50 lakh, a CSR Committee is required.
Minimum CSR spend: CSR obligation = 2% × average net profit of the three immediately preceding financial years; If the company has not completed three years since incorporation, use the immediately preceding years it has completed.
Average net profit: Average = (Net profit Year 1 + Year 2 + Year 3) ÷ 3; Each year's net profit is computed under Section 198, not simply taken from the profit and loss account.
Unspent amount: Unspent amount = CSR obligation − CSR amount actually spent; Board must give reasons in its report under Section 134(3)(o).
Ongoing project transfer: Transfer to Unspent CSR Account within 30 days from end of financial year; spend within 3 financial years from transfer; else transfer to Schedule VII Fund within 30 days of completion of third year; Applies to Section 135(6), for ongoing projects meeting prescribed conditions.
Non-ongoing unspent amount: Transfer to a Schedule VII Fund within six months of the expiry of the financial year; Applies where the unspent amount does not relate to an ongoing project.
Penalty on company: Lower of (2 × amount required to be transferred) and ₹1 crore; Section 135(7).
Penalty on officer in default: Lower of (1/10 of amount required to be transferred) and ₹2 lakh; Section 135(7).
Committee exemption: If CSR amount ≤ ₹50 lakh, no CSR Committee is needed; the Board discharges its functions; Section 135(9).
Minimum CSR spend: CSR spend ≥ 2% × average net profit of the 3 immediately preceding financial years; Section 135(5). Net profit is calculated as per section 198, excluding sums prescribed. If the company is under three years old, use the preceding years available.
Source of eligibility: Eligible CSR activity = activity falling in an area or subject in Schedule VII and not excluded by the CSR Rules; Both tests must be met. The policy must indicate activities in Schedule VII areas (section 135(3)(a)).
Political contribution: Political contribution under section 182 ≠ CSR expenditure; Section 182 needs a Board resolution and payment by account payee cheque, draft or electronic clearing. Contravention: company fine up to 5 × amount; officer in default up to 6 months' imprisonment and fine up to 5 × amount.
Local area preference: Preference to local area and areas around it where the company operates; Proviso to section 135(5). It is a preference, not a bar on other areas.
Annual CSR spend: Minimum spend = 2% × average net profit of the three immediately preceding financial years; Net profit is calculated under section 198 and excludes the sums the Rules specify. If the company is less than three years old, use the immediately preceding years available.
Unspent amount, ongoing project: Transfer to Unspent CSR Account within 30 days from the end of the financial year; spend within 3 financial years from transfer; otherwise transfer to a Schedule VII Fund within 30 days from completion of the third financial year; Section 135(6). Applies only to ongoing projects that meet the prescribed conditions.
Unspent amount, other than ongoing project: Board's report states reasons; transfer to a Schedule VII Fund within 6 months of the end of the financial year; Second proviso to section 135(5).
Penalty for default: Company: lower of 2 × amount not transferred or ₹1 crore. Officer in default: lower of one-tenth of that amount or ₹2 lakh; Section 135(7). It applies to default under sub-section (5) or (6).
Impact assessment trigger: Average CSR obligation ≥ ₹10 crore in the three preceding years, and projects with outlay ≥ ₹1 crore completed at least one year earlier; From the CSR Rules, not from section 135. Assessment spend may be booked as CSR, up to the cap the Rules set (5% of the year's CSR spend or ₹50 lakh, whichever is higher).
Small CSR obligation: If the amount to be spent does not exceed ₹50 lakh, no CSR Committee is needed; the Board performs its functions; Section 135(9).

Quick revision

Section 135 applies on net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the immediately preceding financial year.
The CSR Committee has three or more directors, with at least one independent director.
If a company need not appoint an independent director under Section 149(4), its CSR Committee needs two or more directors.
The Board's report must disclose the composition of the CSR Committee.
The Committee recommends the CSR Policy and the amount to be spent, and monitors the policy.
The Board approves the policy, discloses its contents in its report and places it on the company website, if any.
Spend at least two per cent of the average net profit of the three immediately preceding financial years.
Net profit is calculated as per Section 198, excluding sums that are prescribed.
Give preference to the local area and areas around where the company operates.
Unspent amount for an ongoing project goes to the Unspent CSR Account within thirty days of the end of the financial year and must be spent within three financial years.
Other unspent amount goes to a Schedule VII Fund within six months of the end of the financial year, and the Board's report must give reasons.
If the amount to be spent is ₹50 lakh or less, no CSR Committee is needed and the Board performs its functions.
Penalty on the company is twice the amount not transferred or ₹1 crore, whichever is less; for each officer in default it is one-tenth of that amount or ₹2 lakh, whichever is less.

Common mistakes

Treating CSR and philanthropy as the same thing. Fix: State that philanthropy is voluntary and often ad hoc, while CSR is policy-based, linked to the business and, for covered companies, a legal duty.
Saying the two per cent is on current year profit. Fix: Write 'average net profit of the three immediately preceding financial years', computed as per section 198.
Requiring all three conditions to be met Fix: The section uses 'or'. One condition is enough.
Testing the current year or any earlier year Fix: Use the immediately preceding financial year for the applicability test.
Saying the CSR Committee approves the CSR Policy. Fix: The Committee formulates and recommends. The Board approves the Policy under section 135(4).
Requiring all three thresholds to be met. Fix: They are alternatives. Meeting any one of net worth, turnover or net profit triggers section 135.
Saying the Board prepares the policy and the plan on its own. Fix: Always write the sequence: the Committee formulates and recommends, then the Board approves.
Treating the policy and the annual action plan as the same document. Fix: The policy is general and continuing. The plan is yearly and lists specific projects, schedules and monitoring. Keep their contents separate.
Using only the last year's profit instead of the three-year average. Fix: Applicability looks at the immediately preceding year. The spending obligation uses the average of three preceding years.
Taking profit after tax or profit before tax from the accounts as net profit. Fix: Remember the Explanation to Section 135: net profit is calculated under Section 198. Apply its additions and deductions, and do not deduct income-tax payable.

Exam tips

Start every answer with a crisp definition. Examiners reward a clear opening and structured phases.
For evolution questions, use headed phases with one feature each, not a long paragraph.
In numerical cases, show the threshold tests and the average net profit working. Marks go to the steps.
Quote Section 135 sub-sections where you are sure, such as (1) for thresholds, (5) for spending and (7) for penalty.
Link global frameworks to the Indian law in a line. It shows you understand why the law exists.
Write the three limits at the top of your answer before computing anything.
Always name the year tested: the immediately preceding financial year.
In case-based questions, state the provision, apply the figures, then give a one-line conclusion.