CS Professional · CSR and Social Governance

Guidelines on CSR: formula sheet

Full chapter guide

Key formulas

Evolution sequence: Philanthropy → Voluntary Guidelines 2009 → NVGs 2011 → Companies Act, 2013 (Section 135 and Schedule VII) → CSR Rules and later amendments; Use this as the skeleton of any answer on evolution.
Nature of the two regimes: Voluntary guidelines = encouraged, no penalty; Companies Act, 2013 = binding on companies meeting prescribed thresholds; This is the core difference students are asked to state.
NVG 2011 scope: Nine principles on social, environmental and economic responsibilities of business; Name the 2011 document in full; do not shorten it to CSR Guidelines 2011 alone.
Applicability test: Net worth ≥ ₹500 crore OR Turnover ≥ ₹1,000 crore OR Net profit ≥ ₹5 crore (immediately preceding financial year); Any one test is enough. Use the preceding year's figures.
Net profit for CSR: Net profit as per section 198, excluding sums prescribed; Do not simply take profit before or after tax from the P&L account. Apply section 198 adjustments.
Minimum CSR spend: 2% × average net profit of the three immediately preceding financial years; If the company is under three years old, use the immediately preceding years since incorporation.
CSR Committee size: At least 3 directors, with at least 1 independent director; Where no independent director is required under section 149(4), at least 2 directors.
Committee exemption: Amount to be spent ≤ ₹50 lakh → no Committee; Board discharges its functions; Section 135(9).
Applicability thresholds: Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore (immediately preceding financial year); Any one test triggers section 135(1). They are alternatives, not cumulative.
CSR 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), at least 2 directors.
Committee functions: Formulate and recommend policy + recommend expenditure + monitor policy; Section 135(3). Policy must indicate activities in areas or subjects specified in Schedule VII.
Board duties: Approve policy + disclose it in report and on website + ensure activities are undertaken + ensure the prescribed spend; Section 135(4) and (5).
Minimum spend: 2% × average net profit of the 3 immediately preceding financial years; Net profit is calculated as per section 198. If the company has not completed three years since incorporation, the immediately preceding years are used.
Small spend relief: Amount to be spent ≤ ₹50 lakh ⇒ no CSR Committee; Board performs its functions; Section 135(9). The test is the amount to be spent, not profit.
Minimum CSR spend: CSR spend ≥ 2% × average net profit of the three immediately preceding financial years; Net profit is calculated as per section 198 and excludes the sums prescribed. A company that has not completed three years since incorporation uses the immediately preceding years it has.
Test for counting an activity: Counts as CSR = falls within a Schedule VII item + not excluded by the CSR Rules + implemented through a permitted route; Apply all three tests in this order in your answer.
Administrative overheads cap: Admin overheads ≤ 5% of total CSR expenditure of the financial year; The cap applies to total CSR expenditure of the year, not to the obligation.
Implementing agency conditions: Section 8 company / registered trust / registered society + Form CSR-1 registration + 3-year track record (if not set up by the company or Government); The agency must be eligible and registered before it receives CSR funds.
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; On failure, transfer to a Schedule VII Fund within 30 days of completion of the third financial year.
Unspent amount, other than ongoing project: Transfer to a Schedule VII Fund within 6 months of the expiry of the financial year; The Board report must also give reasons for not spending.
Penalty for default (sub-sections (5) and (6)): Company: lower of 2 × amount required to be transferred or ₹1 crore. Officer in default: lower of 1/10 of that amount or ₹2 lakh; Taken from section 135(7).
CSR obligation: CSR amount = 2% × average of net profits of the 3 immediately preceding financial years; Net profit is worked out under section 198. A company that has not completed three financial years since incorporation uses the immediately preceding financial years, as available (section 135(5)).
Ongoing project: unspent amount: Transfer to Unspent CSR Account within 30 days of the end of the financial year; spend within 3 financial years of transfer; else transfer to a Schedule VII Fund within 30 days of completing the third financial year; Section 135(6). The project must meet the conditions in the CSR Rules.
Other than ongoing project: unspent amount: Transfer to a Schedule VII Fund within 6 months of the expiry of the financial year; Section 135(5), second proviso. The Board must also give reasons in its report.
Penalty on the company: Lower of (2 × amount required to be transferred) and ₹1 crore; Section 135(7), for default under sub-section (5) or (6).
Penalty on each officer in default: Lower of (1/10 × amount required to be transferred) and ₹2 lakh; Section 135(7).
Small CSR obligation: If the amount to be spent ≤ ₹50 lakh, no CSR Committee is required; the Board performs its functions; Section 135(9).
Impact assessment (CSR Rules): Applies where average CSR obligation ≥ ₹10 crore in the 3 preceding years; projects with outlay ≥ ₹1 crore, completed ≥ 1 year ago; Cost allowed as CSR: lower of 5% of the year's total CSR spend or ₹50 lakh. Rule-based, not in section 135 itself.

Quick revision

Section 135 applies on any one test: 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 CSR Committee has three or more directors, with at least one independent director.
If the company need not appoint an independent director under Section 149(4), the Committee needs two or more directors.
If the CSR amount to be spent is ₹50 lakh or less, no Committee is needed and the Board performs its functions.
The Committee formulates and recommends the CSR Policy, recommends the expenditure and monitors the Policy.
The Board approves the Policy, discloses it in its report, places it on the website if any, and ensures the activities are undertaken.
Spend at least 2% of the average net profit of the three immediately preceding financial years; give preference to the local area.
Net profit is calculated under Section 198; the Rules prescribe sums excluded.
Unspent amount for an ongoing project goes to the Unspent CSR Account within thirty days of year end, and must be spent within three financial years.
Other unspent amounts go to a Schedule VII Fund within six months of the end of the financial year, and the Board report must give reasons.
Excess spending can be set off against later years, as prescribed in the Rules.
Penalty on the company is twice the amount not transferred or ₹1 crore, whichever is less; on each officer in default, one-tenth of that amount or ₹2 lakh, whichever is less.

Common mistakes

Saying the 2009 or 2011 guidelines were legally binding. Fix: Remember both were voluntary. Binding force begins with the Companies Act, 2013.
Writing the NVG title incompletely or mixing it with the 2009 guidelines. Fix: Learn the 2011 title in full: National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business.
Requiring all three tests to be met Fix: Remember the word "or". One test is enough.
Using current year figures Fix: Section 135(1) refers to the immediately preceding financial year.
Saying all three thresholds must be met. Fix: The section uses 'or'. Meeting any one of net worth, turnover or net profit triggers the duty.
Using the current year's profit for the 2% spend. Fix: Applicability looks at the immediately preceding financial year; the spend uses the average net profit of the three immediately preceding years.
Treating every charitable or social spend as CSR. Fix: Anchor to a Schedule VII item first. If you cannot name one, say the spend is not eligible.
Forgetting the exclusions after matching Schedule VII. Fix: Always run the exclusions: business as usual, employees only, political contributions, marketing and outside India.
Using the current year's profit instead of the average of the three preceding years. Fix: Always write 'average of the three immediately preceding financial years' and list each year separately.
Using book profit or tax profit instead of section 198 net profit. Fix: Start from the section 198 rules: exclude capital profits and unrealised or revaluation gains, and deduct the section 198(4) items. Do not deduct income-tax under section 198(5)(a).

Exam tips

Write the evolution as a clear sequence. Examiners reward order and labels.
Always state which regime is voluntary and which is binding.
Name the 2011 document in full at least once.
Link Section 135 and Schedule VII in the same sentence when describing the mandate.
In comparison answers, use five or six distinct points and finish with a one-line conclusion.
Always name the test year as the immediately preceding financial year. Examiners look for this.
If the facts include a one-time sale of an asset or an unrealised gain, the question is almost certainly testing section 198. Recompute net profit.
Write the three thresholds with 'or more' wording and the 'any one test' conclusion.