Social Impact Assessment and CSR Audit: formula sheet

Key formulas

Who must do impact assessment (Rule 8)

Average CSR obligation of the immediately preceding three financial years ≥ ₹10 crore

The test uses the three-year average CSR obligation, not one year's spend. Smaller companies may do it voluntarily.

Which projects (Rule 8)

Outlay ≥ ₹1 crore AND completed at least one year before the study

Both conditions must be met. Ongoing or recently completed projects are outside the mandatory requirement.

Who conducts it

Independent agency

The assessment is done through an independent agency. The report is placed before the Board and annexed to the annual report on CSR.

Cost of assessment

Cap = higher of (5% of total CSR expenditure for the year) or ₹50 lakh

The company may book impact assessment cost as CSR expenditure within this cap.

CSR spending requirement (Section 135(5))

Minimum spend = 2% × average net profit of the three immediately preceding financial years

Net profit is calculated as per Section 198, excluding sums prescribed.

Company-level trigger

Average CSR obligation of the 3 immediately preceding financial years ≥ ₹10 crore

Use the obligation under Section 135(5), meaning 2% of average net profit, not the amount actually spent. The trigger comes from Rule 8(3) of the Companies (CSR Policy) Rules, 2014.

Project-level trigger

Project outlay ≥ ₹1 crore AND completed at least 1 year before the study

Both conditions must be met. Ongoing projects and recently completed projects are not covered.

Who conducts it

Independent agency

The study is not done by the CSR team or the implementing agency of that project.

Reporting

Report placed before the Board; its executive summary annexed to the annual report on CSR

The Board sees the full findings and the public disclosure is through the executive summary in the Board's report.

Expenditure cap

Bookable as CSR = lower of (5% × total CSR expenditure of the year) and ₹50 lakh

The cap is in Rule 8(3). Any cost above the cap is a business expense and is not counted as CSR.

Section 135(5) obligation

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

Net profit is calculated as per Section 198 with the prescribed exclusions.

SROI ratio

SROI = Present value of social value created ÷ Value of investment

A ratio of 3 is written 3:1 or 'for every ₹1 invested, ₹3 of value'. Both numerator and denominator should be in present value terms.

Net social value

Net social value = Present value of social value − Value of investment

Positive means value created exceeds the investment.

Adjusted outcome value

Impact value = Gross outcome value × (1 − deadweight) × (1 − attribution) × (1 − displacement)

Each adjustment is a proportion between 0 and 1. Drop-off over later years is applied separately.

Results chain

Inputs → Activities → Outputs → Outcomes → Impact

Outputs are counted; outcomes and impact are changes in people's lives.

Change over baseline

Change = Endline value of indicator − Baseline value of indicator

For net impact, also compare with a similar group not covered by the project, where one is available.

CSR Committee composition

Minimum 3 directors, at least 1 independent director

Section 135(1). If the company need not appoint an independent director under Section 149(4), it needs 2 or more directors.

Committee's monitoring role

Formulate and recommend policy + recommend amount + monitor policy from time to time

Section 135(3)(a), (b) and (c).

Board's duties

Approve policy + disclose contents in report + place on website, if any + ensure activities are undertaken

Section 135(4)(a) and (b). Website placement is in the manner prescribed.

Board's report disclosures

Committee composition + policy contents + reasons for non-spending

Sections 135(2), 135(4)(a) and the second proviso to 135(5).

Minimum spend

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

Section 135(5). Net profit is calculated under Section 198. For a company not yet three years old, use the immediately preceding years completed.

Committee exemption

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

Section 135(9).

Unspent amount for ongoing project

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

Section 135(6). If not spent, transfer to a Schedule VII Fund within 30 days of the end of the third year.

Penalty for default under 135(5) or (6)

Company: lesser of 2 × amount not transferred or ₹1 crore. Officer in default: lesser of 1/10 of the amount or ₹2,00,000

Section 135(7).

Prescribed CSR amount

CSR obligation = 2% × average net profit of the three immediately preceding financial years

Net profit is calculated as per Section 198, excluding sums prescribed in the Rules. A company that has not completed three financial years uses the immediately preceding financial years available.

Applicability thresholds (Section 135(1))

Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore in the immediately preceding financial year

Any one test is enough. Committee needs three or more directors with at least one independent director; two or more directors if no independent director is required under Section 149(4).

No committee threshold (Section 135(9))

Amount to be spent ≤ ₹50 lakh → CSR Committee not required; Board discharges its functions

The CSR duty remains. Only the committee is dispensed with.

Unspent amount, ongoing project (Section 135(6))

Transfer to Unspent CSR Account within 30 days from the end of the financial year; spend within 3 financial years from the date of transfer; if not, transfer to a Schedule VII Fund within 30 days from completion of the third financial year

The account is opened in any scheduled bank, separately for each financial year.

Unspent amount, not ongoing project (Section 135(5), second proviso)

Transfer to a Schedule VII Fund within six months of the expiry of the financial year; Board report states reasons for not spending

This applies unless the unspent amount relates to an ongoing project.

Penalty (Section 135(7))

Company: twice the amount required to be transferred or ₹1 crore, whichever is less. Officer in default: one-tenth of that amount or ₹2 lakh, whichever is less

Applies to default in complying with sub-section (5) or (6).

Set-off (third proviso to Section 135(5))

Excess spend may be set off against the requirement for succeeding financial years, as prescribed

The number of years and the manner come from the CSR Rules. Check them before quoting.

Quick revision

• SIA measures the social change a project causes, not just the amount spent.
• Outputs are what a project delivers; outcomes and impact are the lasting change in people's lives.
• Check the CSR Rules for when an impact assessment is required and who must carry it out.
• Impact assessment findings should feed back into project design and the Board's decisions.
• Monitoring happens during the project; assessment looks at results; audit verifies compliance.
• Monitoring needs defined indicators, baselines, timelines and regular reports to the Board.
• Reporting covers the CSR policy, projects, spending and impact in the prescribed disclosures.
• The Audit Committee under section 177 can review matters such as end use of funds and scrutiny of investments, and has access to records and external advice.
• Under section 177(8), the Board's report must disclose the Audit Committee's composition and any recommendation the Board did not accept, with reasons.
• A CSR audit checks policy, approvals, spending, implementing agency records and disclosures.
• In case answers, name the provision, apply the facts, then give a clear conclusion.

Common mistakes

• Saying Section 135 itself requires social impact assessment. Fix: Say that Section 135 sets the spending duty and policy framework, while the impact assessment duty sits in Rule 8 of the CSR Policy Rules, 2014.
• Testing the ₹10 crore limit on the current year's CSR spend. Fix: Use the average CSR obligation of the immediately preceding three financial years.
• Testing the ₹10 crore threshold against actual CSR spend or net profit. Fix: Always compute each year's obligation as 2% of that year's three-year average net profit, then average the three obligations, as Rule 8(3) requires.
• Applying impact assessment to every project of a covered company. Fix: Apply the ₹1 crore outlay and one-year completion tests to every project separately.
• Treating outputs as impact, for example saying 500 tree saplings planted is the impact. Fix: Count is an output. Impact is the lasting change, such as increased green cover or income, net of what would have happened anyway.
• Skipping the baseline and measuring only at the end. Fix: Say the baseline is collected before the project starts. Without it there is nothing to compare with.
• Saying the CSR Committee approves the CSR Policy. Fix: The committee formulates and recommends. The Board approves under Section 135(4)(a).
• Treating website disclosure as compulsory for every company. Fix: The Section says the policy is placed on the company's website, if any, in the prescribed manner.
• Treating the CFO certificate as the CSR audit itself. Fix: Say the CFO certifies utilisation as management; the audit is an independent review of compliance, records and disclosures.
• Applying one deadline to every unspent amount. Fix: Ongoing project: Unspent CSR Account within 30 days, spend within three financial years. Other unspent: Schedule VII Fund within six months of the financial year's expiry.

Exam tips

• Open with a crisp definition, then link it to Section 135 and Rule 8. Examiners reward this provision-analysis-conclusion flow.
• In case questions, show both gates (₹10 crore company test, ₹1 crore and one-year project test) before concluding.
• For 'need' or 'importance' questions, give four or five points: accountability, outcome measurement, better design, stakeholder trust, Board decision-making.
• Write the cost cap as 'higher of 5% or ₹50 lakh' and show the arithmetic.
• Do not cite a section number for the impact assessment duty. Refer to Rule 8 of the CSR Policy Rules, 2014.
• Open any numerical answer by computing the average CSR obligation. Show the three years and the division. Marks are given for the trigger test.
• Write the conditions as a short list: ₹10 crore average obligation, ₹1 crore outlay, one year since completion, independent agency. Examiners look for all four.
• For the cap, show both 5% and ₹50 lakh and state that the lower applies. Never give the answer without the comparison.