Corporate and Other Laws · Accounts of Companies

Corporate Social Responsibility (CSR) under Section 135 for CA Inter

Updated 4 October 2026 · Fact-checked

CSR under Section 135 requires a company that crosses a net worth, turnover or net profit threshold to set up a CSR Committee, adopt a CSR Policy and spend at least 2% of its average net profit of the three preceding financial years on Schedule VII activities. Unspent money is transferred as the section directs.

Understand Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) means a large company must give back to society from its profits. Section 135 of the Companies Act, 2013 turns this into a legal duty for companies that cross certain size limits.

The duty applies to a company having net worth of ₹500 crore or more, or turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more during the immediately preceding financial year. Meeting any one limit is enough. Such a company must form a CSR Committee of the Board with three or more directors, at least one of whom is an independent director. If the company need not appoint an independent director under section 149(4), the committee needs two or more directors.

The Committee does three jobs. It formulates and recommends a CSR Policy showing the activities to be done in areas specified in Schedule VII. It recommends the amount to be spent. It monitors the Policy from time to time. The Board then approves the Policy after considering the Committee's recommendations, discloses its contents in its report, places it on the company's website, if any, and ensures the activities are carried out.

The Board must ensure the company spends in every financial year at least 2% of the average net profits of the three immediately preceding financial years. Net profit is calculated as per section 198 and excludes sums that are prescribed. A company that has not completed three financial years since incorporation uses the immediately preceding financial years it has. Preference must be given to the local area and areas around it where the company operates.

If the money is not spent, the Board's report must give reasons. Unspent money on an ongoing project goes to a special Unspent Corporate Social Responsibility Account within 30 days from the end of the financial year. Unspent money not on an ongoing project goes to a Fund specified in Schedule VII within six months of the expiry of the financial year. Penalties apply for default.

Key rules to remember

Applicability (any one): Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore in the immediately preceding financial year; Tested on the immediately preceding financial year. One condition is enough.
CSR spend: Minimum CSR spend = 2% × average net profit of the three immediately preceding financial years; Net profit is computed under section 198 and excludes prescribed sums. For a young company, use the immediately preceding years completed.
CSR Committee: 3 or more directors, including at least 1 independent director; 2 or more directors if section 149(4) does not require an independent director; If the spend amount does not exceed ₹50 lakh, no Committee is needed and the Board performs its functions.
Unspent amount, ongoing project: Transfer to Unspent CSR Account within 30 days from end of financial year; spend within 3 financial years from transfer; otherwise transfer to Schedule VII Fund within 30 days from completion of the third financial year; The account is opened in any scheduled bank, one for each financial year.
Unspent amount, not ongoing project: Transfer to a Fund specified in Schedule VII within 6 months of expiry of the financial year; The Board report must also state reasons for not spending.
Penalty on company: Lower of (2 × amount required to be transferred) and ₹1 crore; For default under sub-section (5) or (6).
Penalty on officer in default: Lower of (1/10 of amount required to be transferred) and ₹2 lakh; Applies to every officer of the company who is in default.
Excess spend: Excess over the required amount may be set off against requirement of succeeding financial years, as prescribed; The number of years and manner are prescribed by rules.

How to solve Corporate Social Responsibility (CSR) questions

Use this order for any CSR question, whether theory, a case study or a calculation.

1Test applicability: check net worth, turnover and net profit for the immediately preceding financial year. Any one limit being met is enough.
2If numbers are given, compute the average net profit of the three immediately preceding financial years, using net profit as per section 198 after excluding prescribed sums.
3Multiply the average by 2% to get the minimum CSR spend. Compare it with the amount actually spent.
4Check the Committee: three or more directors with an independent director, or two or more if no independent director is required. If the spend is ₹50 lakh or less, the Board acts as the Committee.
5Check the process: Committee recommends the Policy and the amount, Board approves, discloses and ensures activities are undertaken.
6Handle any shortfall: decide whether it relates to an ongoing project (Unspent CSR Account in 30 days) or not (Schedule VII Fund in six months), and note the Board report reasons.
7State the penalty if there is default, giving both company and officer amounts under the lower-of rule.
8Write the conclusion in provision-facts-conclusion format.

Quickest way: Three-line CSR check for MCQs and short answers

When to use it: Use for MCQs and for short case-study answers when time is tight.

Line 1: Is any one of ₹500 crore net worth, ₹1,000 crore turnover or ₹5 crore profit met? If no, no CSR duty.
Line 2: Spend = 2% of the three-year average net profit. Do the calculation once and watch the units.
Line 3: Shortfall? Ongoing project means Unspent CSR Account in 30 days. Otherwise a Schedule VII Fund in six months.
For MCQs, eliminate options that say all three limits must be met or that use the current-year profit instead of the three-year average.
In written answers, use headings Provision, Facts, Conclusion. Quote the limits and rates, then apply them with a short calculation to earn step marks.

Common mistakes in Corporate Social Responsibility (CSR)

Thinking all three thresholds must be satisfied.
The three limits are listed together in one sentence, so students read them as cumulative.
Fix: Remember the word 'or'. Meeting any one of net worth, turnover or net profit limits triggers Section 135.
Using the current year's profit to compute the 2% spend.
Applicability uses the immediately preceding year, so students mix it up with the spending base.
Fix: Applicability looks at the immediately preceding financial year. The spend is 2% of the average of the three immediately preceding years.
Quoting the wrong deadline for unspent amounts.
There are two routes with different periods: 30 days and six months.
Fix: Ongoing project: Unspent CSR Account within 30 days of financial year end. Other unspent amount: Schedule VII Fund within six months.
Saying the CSR Committee is always compulsory.
Students stop reading after sub-section (1).
Fix: If the amount to be spent does not exceed ₹50 lakh, the Committee is not required and the Board discharges its functions.
Applying the penalty as a flat figure.
Students remember ₹1 crore and ₹2 lakh and forget the lower-of rule.
Fix: Company: lower of twice the amount to be transferred and ₹1 crore. Officer: lower of one-tenth of that amount and ₹2 lakh. Compute both and pick the lower.
Confusing the CSR Committee's role with the Board's.
Both deal with the Policy, so the roles blur.
Fix: Committee formulates, recommends and monitors. Board approves the Policy, discloses it and ensures activities are undertaken.

Worked examples

Example 1

XYZ Ltd has net worth of ₹300 crore, turnover of ₹800 crore and net profit of ₹6 crore in the immediately preceding financial year. Its net profits (as per section 198) for the three immediately preceding financial years were ₹4 crore, ₹6 crore and ₹8 crore. (a) Does Section 135 apply? (b) What is the minimum CSR spend? (c) What is the position if only ₹10 lakh is spent?

Show the solution

Provision: Section 135 applies if net worth is ₹500 crore or more, or turnover is ₹1,000 crore or more, or net profit is ₹5 crore or more in the immediately preceding financial year.
Facts: net worth ₹300 crore and turnover ₹800 crore are below the limits, but net profit of ₹6 crore is above ₹5 crore. One limit is enough, so Section 135 applies.
Average net profit = (4 + 6 + 8) ÷ 3 = 18 ÷ 3 = ₹6 crore.
Minimum CSR spend = 2% × ₹6 crore = ₹12 lakh.
The amount to be spent (₹12 lakh) does not exceed ₹50 lakh, so a CSR Committee need not be constituted and the Board performs its functions.
Shortfall = ₹12 lakh − ₹10 lakh = ₹2 lakh. The Board report must state reasons. If it is not for an ongoing project, ₹2 lakh must be transferred to a Schedule VII Fund within six months of expiry of the financial year. If it is for an ongoing project, transfer it to the Unspent CSR Account within 30 days from the end of the financial year.
If the company defaults, the penalty on the company is the lower of 2 × ₹2 lakh = ₹4 lakh and ₹1 crore, which is ₹4 lakh. The officer in default pays the lower of ₹20,000 (one-tenth of ₹2 lakh) and ₹2 lakh, which is ₹20,000.

Answer: Section 135 applies because net profit exceeds ₹5 crore. Minimum CSR spend is ₹12 lakh. The Committee is not mandatory since the amount is within ₹50 lakh. The ₹2 lakh shortfall must be handled as unspent CSR, with reasons in the Board report. On default, the company's penalty is ₹4 lakh and the officer's is ₹20,000.

Example 2

A company has an ongoing CSR project. At the end of the financial year, ₹80 lakh of the required CSR amount remains unspent on that project. State what the company must do and what happens if the amount is still not spent. Also state the penalty if the company defaults in transferring the amount.

Show the solution

Provision: unspent amount pursuant to an ongoing project, fulfilling prescribed conditions, must be transferred within 30 days from the end of the financial year to a special account called the Unspent Corporate Social Responsibility Account in any scheduled bank.
Facts: ₹80 lakh is unspent on an ongoing project, so it goes to the Unspent CSR Account within 30 days of the financial year end.
The company must spend this amount within three financial years from the date of transfer.
If it is not spent within that period, the company must transfer it to a Fund specified in Schedule VII within 30 days from the date of completion of the third financial year.
Penalty on default: company pays the lower of twice the amount required to be transferred (2 × ₹80 lakh = ₹1.6 crore) and ₹1 crore. So the company pays ₹1 crore.
Officer in default pays the lower of one-tenth of ₹80 lakh (₹8 lakh) and ₹2 lakh. So the officer pays ₹2 lakh.

Answer: Transfer ₹80 lakh to the Unspent CSR Account within 30 days of year end, spend it within three financial years, else move it to a Schedule VII Fund within 30 days of the third financial year ending. On default, the company's penalty is ₹1 crore and each officer in default pays ₹2 lakh.

Exam tips

In MCQs, watch for 'and' versus 'or' in applicability. The correct rule is 'or'.
Always show the average net profit calculation as a separate line. Step marks are awarded even if the final figure is wrong.
Learn the two unspent-amount routes as a pair: 30 days for ongoing projects, six months otherwise.
Learn the Committee numbers: three directors with one independent, or two directors where no independent director is required. Add the ₹50 lakh exemption.
For penalties, always work out both limbs and state the lower. A question may give a small amount where the percentage limb is lower than the cap.

Practice questions from Accounts of Companies

Corporate Social Responsibility (CSR) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Corporate Social Responsibility (CSR): frequently asked questions

Who must follow Section 135 CSR rules?

A company with net worth of ₹500 crore or more, or turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the immediately preceding financial year. Any one condition is enough.

How is the 2% CSR amount calculated?

Take the net profit for each of the three immediately preceding financial years, computed as per section 198 and excluding prescribed sums. Find the average and multiply by 2%. A company less than three years old uses the immediately preceding financial years it has completed.

Is a CSR Committee always required?

No. If the amount to be spent does not exceed ₹50 lakh, the Committee requirement does not apply and the Board of Directors performs its functions. Otherwise, a Committee of three or more directors with at least one independent director is needed, or two or more directors where no independent director is required.

What happens to unspent CSR money?

If it relates to an ongoing project, it goes to the Unspent CSR Account within 30 days from the end of the financial year and must be spent within three financial years. Otherwise it goes to a Schedule VII Fund within six months of the expiry of the financial year, and the Board report must give reasons.