CSR Projects and Implementation Agency: formula sheet

Key formulas

Minimum CSR spend

CSR obligation ≥ 2% × average net profit of the 3 immediately preceding financial years

Net profit is calculated under section 198 and excludes sums prescribed by the Rules. A company that has not completed three years since incorporation uses the preceding years it has.

Ongoing project timeline

Ongoing project = multi-year project, timeline ≤ 3 years excluding the year of commencement

Projects started earlier also qualify if they run within the timelines in the CSR Policy. A longer project is not an ongoing project in the Rules' sense.

Unspent amount, ongoing project

Transfer to Unspent CSR Account within 30 days of financial year end; spend within 3 financial years from transfer; else transfer to Schedule VII Fund within 30 days of the third year's end

This is section 135(6).

Unspent amount, not an ongoing project

Transfer to a Schedule VII Fund within 6 months of the financial year's expiry

The Board must also give reasons in its report under section 134(3)(o). This is the second proviso to section 135(5).

Local area rule

Preference to the local area and areas around where the company operates

First proviso to section 135(5).

Penalty for default

Company: lower of 2 × amount not transferred or ₹1 crore. Officer in default: lower of 1/10 of the amount or ₹2 lakh

Section 135(7).

Modes of implementation

Direct by company OR through an eligible implementing agency

The Board must specify the mode for every project in the CSR policy and annual action plan.

Eligible agency types

Section 8 company / registered public trust / registered society

Eligible if set up by the company, or by the Central or State Government, or if independent with registration and track record.

Statutory bodies

Entity established under an Act of Parliament or State legislature

Qualifies as an agency by its statutory origin. The track-record test does not apply to it.

Independent agency test

Income-tax exemption and donation-approval registration + track record ≥ 3 years in similar activities

Applies only to agencies not set up by the company or the government. Both conditions must be met.

Registration

Agency files Form CSR-1 with the Registrar and gets a CSR registration number

The company should check this number before releasing funds.

Section 8 company conditions

Charitable-type objects + profits applied to objects + no dividend + Central Government licence

These come from section 8(1) of the Companies Act, 2013.

Section 8 default penalty

Company: fine ₹10,00,000 to ₹1,00,00,000. Officer in default: fine ₹25,000 to ₹25,00,000

Section 8(11). Fraud makes officers liable under section 447.

Who must register

Every entity in Rule 4(1) that intends to undertake CSR activity must register via Form CSR-1

Applies to implementing agencies, not to the company spending directly. Applicable from 1 April 2021.

Mode of filing

CSR-1 is filed electronically with the Registrar

Rests on the Section 398 approach of electronic filing in the prescribed manner.

Signing and verification

Signed and submitted by the entity + digitally verified by a CA, CS or CWA in practice

The verifier must be a practising professional.

Outcome

Registrar registers the entity and generates a unique CSR Registration Number

The number is generated electronically.

Eligible agency types

Section 8 company / registered public trust / registered society (company-established or outside): 12A and 80G required | Outside agency: also at least 3 years' track record | Government-established body | Statutory body

A Section 8 company, registered public trust or registered society must hold 12A and 80G, whether set up by the company or an outside entity. The 3-year track record applies only to outside agencies. Government-established and statutory bodies are separate categories. Check the exact wording of Rule 4(1) in your material.

CSR Committee composition

Three or more directors, at least one independent director

Section 135(1). If the company need not appoint an independent director under section 149(4), two or more directors are enough.

Committee functions

Formulate and recommend policy + recommend expenditure + monitor policy

Section 135(3). The annual action plan recommendation comes from the CSR Rules.

Board duties

Approve policy + disclose and place on website + ensure activities are undertaken

Section 135(4).

Minimum CSR spend

At least 2% × average net profit of the three immediately preceding financial years

Section 135(5). Net profit is computed under section 198, as per the Explanation.

Committee exemption

Amount to be spent ≤ ₹50,00,000 → no Committee; Board discharges its functions

Section 135(9).

Ongoing project unspent amount

Transfer to Unspent CSR Account within 30 days of financial year end; spend within 3 financial years

Section 135(6). If still unspent, transfer to a Schedule VII Fund within 30 days of the third year ending.

Unspent amount, non-ongoing

Transfer to a Schedule VII Fund within six months of the end of the financial year

Second proviso to section 135(5). The Board's report must give reasons.

Impact assessment trigger

Average CSR obligation of last 3 FYs ≥ ₹10 crore AND project outlay ≥ ₹1 crore AND project completed ≥ 1 year ago

All three conditions must be met. Under the CSR Rules, the report goes to the Board and is annexed to the annual report on CSR.

Impact assessment cost cap

Higher of (5% × total CSR expenditure of the year) or ₹50 lakh

The cost can be counted as CSR expenditure up to this limit.

Ongoing project: unspent amount

Transfer to Unspent CSR Account within 30 days of FY end; spend within 3 financial years of transfer; else transfer to Schedule VII fund within 30 days of completing the third financial year

Section 135(6). Applies only to ongoing projects that meet the prescribed conditions.

Other unspent amount

Transfer to a Schedule VII fund within 6 months of the expiry of the financial year

Second proviso to section 135(5). The Board report must give reasons for not spending.

Penalty for default (section 135(7))

Company: lower of 2 × amount not transferred or ₹1 crore. Officer in default: lower of 1/10 of amount not transferred or ₹2 lakh

Apply the 'whichever is less' test separately for the company and the officer.

Minimum spend

At least 2% of average net profit of the three immediately preceding financial years

Net profit is calculated under section 198. Preference goes to the local area and areas around it.

Committee exemption

CSR amount to be spent ≤ ₹50 lakh → no CSR Committee; the Board performs its functions

Section 135(9). This affects who monitors.

Quick revision

• Section 135(1) sets the thresholds for a CSR Committee: net worth ₹500 crore or more, turnover ₹1,000 crore or more, or net profit ₹5 crore or more in the immediately preceding financial year.
• The Committee formulates the CSR Policy, recommends the expenditure amount and monitors the policy.
• The Board approves the policy, discloses it in its report, places it on the website, and ensures the activities are undertaken.
• Minimum spend is two per cent of average net profits of the three immediately preceding financial years.
• Preference goes to the local area and areas around where the company operates.
• Unspent amount for an ongoing project goes to the Unspent CSR Account within 30 days of financial year end.
• Funds in the Unspent CSR Account must be spent within three financial years, failing which they go to a Schedule VII Fund within 30 days.
• Unspent amount not related to an ongoing project goes to a Schedule VII Fund within six months of the financial year end.
• Excess spending may be set off against future years, as prescribed.
• Where the CSR amount does not exceed ₹50 lakh, no Committee is needed and the Board performs its functions.
• Penalty on company: twice the amount to be transferred or ₹1 crore, whichever is less. Officer in default: one-tenth of that amount or ₹2 lakh, whichever is less.
• Implementing agency registration is on Form CSR-1; confirm current details in the CSR Rules.

Common mistakes

• Treating any multi-year project as an ongoing project. Fix: Remember the limit: timeline not exceeding three years excluding the year of commencement. A longer project does not fit this definition.
• Saying unspent money on every project must go to the Unspent CSR Account. Fix: Only unspent money relating to an ongoing project goes to the Unspent CSR Account. Other unspent money goes to a Schedule VII Fund within six months.
• Treating any registered NGO as an eligible agency. Fix: For an agency not set up by the company or the government, always check the income-tax registrations and the three-year track record.
• Applying the three-year track record to every agency. Fix: State that the track-record test applies to independent agencies. A body set up by the company or the government is judged on its establishment and registration.
• Saying the company must file CSR-1 for its own CSR spend. Fix: CSR-1 is filed by the implementing entity. CSR-2 belongs to the company's reporting.
• Saying any NGO can implement CSR without registration. Fix: Tax registrations are not enough. A trust or society with 12A and 80G still needs CSR-1 and a CSR Registration Number.
• Saying the Board prepares the annual action plan and the Committee approves it. Fix: Remember: the Committee recommends, the Board approves. Approval always sits with the Board.
• Listing only the project names as the contents of the action plan. Fix: Add manner of execution, fund utilisation modalities, implementation schedules, monitoring mechanism and impact assessment details.
• Saying every company must conduct impact assessment. Fix: Always state the ₹10 crore average obligation test, then the ₹1 crore outlay and one-year completion tests for the project.
• Sending all unspent CSR money to the Unspent CSR Account. Fix: Only unspent amounts of ongoing projects go to the Unspent CSR Account. Other unspent amounts go to a Schedule VII fund within six months of the financial year end.

Exam tips

• Start every answer with the Schedule VII link, then the exclusions. Examiners reward this order.
• Quote the ongoing project test exactly: multi-year, not more than three years excluding the year of commencement.
• In unspent amount cases, show the figures and the dates. Compute the 2% first and state the balance.
• Use the words 'preference' and 'shall give preference' for the local area rule. Do not say it is mandatory spending only in the local area.
• End with a clear conclusion in one line: counts or does not count, and the action the Board should take.
• Answer in the order provision, facts, analysis, conclusion. Examiners reward the test being applied to the facts.
• List all four agency groups when the question asks "how can a company implement CSR". Missing the statutory and independent groups is a common loss of marks.
• When the case gives an NGO's age, check the three-year track record first and say so.