Corporate and Economic Laws · Corporate Governance and Social Responsibility and Sustainability

CSR Committee, CSR Policy and Board Responsibilities

Updated 11 October 2026 · Fact-checked

Under Section 135 of the Companies Act, 2013, a company meeting the net worth, turnover or net profit threshold must form a CSR Committee of three or more directors, including one independent director. The Committee recommends the CSR Policy and spending. The Board approves the Policy, ensures it is carried out, discloses it and spends at least 2% of average net profit.

Understand CSR Committee, CSR Policy and Board Responsibilities

Section 135 makes large companies spend part of their profit on social causes. The law does not leave this to chance. It sets up a chain of responsibility: the CSR Committee proposes, the Board decides and ensures delivery, and the Board's report tells shareholders what happened.

Who must form a Committee. Every 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 must constitute a CSR Committee of the Board. It must have three or more directors, and at least one must be an independent director. If a company is not required to appoint an independent director under Section 149(4), its Committee needs two or more directors.

What the Committee does. It has three functions. First, it formulates and recommends to the Board a CSR Policy that indicates the activities the company will undertake in areas or subjects specified in Schedule VII. Second, it recommends the amount to be spent on those activities. Third, it monitors the Policy from time to time.

What the Board does. After taking the Committee's recommendations into account, the Board approves the CSR Policy. It discloses the contents of the Policy in its report and places it on the company's website, if any, in the prescribed manner. It must also ensure that the activities in the Policy are actually undertaken. The Board's report under Section 134(3) must disclose the composition of the CSR Committee.

Small CSR spenders. Where the amount to be spent does not exceed ₹50 lakh, the Committee is not required. The Board of Directors then discharges the Committee's functions itself.

The annual action plan is not in the Section 135 text supplied here. It comes from the CSR Rules made under the Act. Treat it as the Committee's year-wise plan of projects, which the Board approves. Check the current CSR Rules for its contents before the exam.

Key rules to remember

Thresholds for CSR applicability: 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 no independent director is required under Section 149(4): 2 or more directors.
Committee functions: Formulate and recommend Policy + recommend expenditure + monitor Policy; Section 135(3). The Committee recommends; it does not approve.
Board duties: Approve Policy + disclose it in the report and on the website + ensure activities are undertaken; Section 135(4).
Minimum CSR spend: CSR spend ≥ 2% × average net profit of the 3 immediately preceding financial years; Net profit is calculated under Section 198, excluding prescribed sums. For a company not yet three years old, use the immediately preceding years available.
Committee not required: Amount to be spent ≤ ₹50 lakh → Board performs the Committee's functions; Section 135(9).
Penalty for default (sub-sections 5 and 6): 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).

How to solve CSR Committee, CSR Policy and Board Responsibilities questions

Use this order for any question on the CSR Committee, Policy or Board duties. It keeps your answer tied to the section and the facts.

1Check applicability first. Test the preceding year's net worth, turnover and net profit against ₹500 crore, ₹1,000 crore and ₹5 crore. One test met is enough.
2Work out the CSR amount: 2% of the average net profit of the three immediately preceding financial years.
3Decide whether a Committee is needed. If the amount does not exceed ₹50 lakh, the Board performs its functions.
4If a Committee is needed, test its composition: three or more directors, at least one independent. Apply the two-director rule if no independent director is required.
5Separate roles. Mark each task as Committee (recommend, monitor) or Board (approve, disclose, ensure).
6Check disclosure: Committee composition and Policy contents in the Board's report, and the Policy on the website if any.
7If money is unspent, state the reasons in the Board's report and apply the transfer rule: ongoing project to the Unspent CSR Account, otherwise to a Schedule VII Fund.
8Write a clear conclusion that names the section and states the compliance position or penalty.

Quickest way: Three-line compliance check

When to use it: Use this for MCQs and for short case scenarios on whether a company has complied.

Line 1 (who): Is any threshold met? Is the CSR amount above ₹50 lakh? If not, no Committee is needed.
Line 2 (structure): Count directors and independent directors in the Committee.
Line 3 (roles): Committee recommends and monitors; Board approves, discloses and ensures. Spot the option that swaps these roles.

Common mistakes in CSR Committee, CSR Policy and Board Responsibilities

Saying all three thresholds must be met before CSR applies.
Students read the list as cumulative.
Fix: The text uses 'or'. Meeting any one of net worth, turnover or net profit is enough.
Saying the CSR Committee approves the CSR Policy.
The Committee does most of the drafting work, so it feels like the decision-maker.
Fix: The Committee formulates and recommends. The Board approves the Policy after considering the recommendations.
Requiring an independent director in every Committee.
Students forget the proviso.
Fix: If the company is not required to appoint an independent director under Section 149(4), two or more directors are enough.
Using the current year's profit to compute the 2% spend.
Students confuse the applicability test with the spending base.
Fix: Applicability looks at the immediately preceding year. The 2% is on the average net profit of the three immediately preceding financial years.
Forming a Committee although the CSR amount is ₹50 lakh or less.
Students stop at the thresholds and skip sub-section (9).
Fix: Where the amount to be spent does not exceed ₹50 lakh, the Board discharges the Committee's functions.
Forgetting the Board's disclosure duties.
Students focus on the Committee and spending.
Fix: Remember three disclosures: Committee composition in the Board's report, Policy contents in the report, and the Policy on the website if any.

Worked examples

Example 1

Ganga Textiles Ltd had a net worth of ₹320 crore, turnover of ₹850 crore and net profit of ₹6 crore in the immediately preceding financial year. Its average net profit for the three preceding years, computed under Section 198, is ₹4 crore. Is CSR applicable? What must it spend? Is a Committee required?

Show the solution

Applicability: net worth ₹320 crore is below ₹500 crore and turnover ₹850 crore is below ₹1,000 crore. But net profit ₹6 crore is at least ₹5 crore, so one threshold is met.
CSR applies under Section 135(1).
Minimum spend = 2% × ₹4 crore = ₹8 lakh.
Committee test: ₹8 lakh does not exceed ₹50 lakh, so the Committee requirement under sub-section (1) does not apply.
The Board of Directors discharges the Committee's functions, including recommending the Policy and monitoring it.

Answer: CSR applies because net profit meets the ₹5 crore threshold. The company must spend at least ₹8 lakh. No CSR Committee is needed, and the Board performs its functions.

Example 2

Kaveri Power Ltd, a listed company, must spend ₹2 crore on CSR. Assume it is required to appoint independent directors under Section 149(4) because it is listed. It proposes a CSR Committee of the Managing Director and two non-executive directors, none independent. The Committee will approve the CSR Policy and put it on the website. Advise the company.

Show the solution

The amount exceeds ₹50 lakh, so a Committee is required.
Composition: it must have three or more directors with at least one independent director. Because Kaveri is listed and must appoint independent directors under Section 149(4), the proviso allowing a two-director Committee does not apply to it.
The proposed Committee has three directors but none independent, so it is non-compliant. An independent director must be added or substituted.
If a company were not required to appoint an independent director under Section 149(4), two or more directors would be enough. Then a three-member Committee without an independent director would meet the composition rule. That is not Kaveri's position on the assumption stated.
Functions: the Committee formulates and recommends the Policy, recommends the expenditure and monitors the Policy. It cannot approve the Policy.
The Board approves the Policy after considering the recommendations, discloses its contents in its report, and places it on the website, if any.

Answer: On the assumption that Kaveri must appoint independent directors, the proposal is non-compliant. Include at least one independent director in the Committee. The Committee should only recommend the Policy, while the Board approves it and handles the disclosure and website publication.

Exam tips

In MCQs, watch for option wording that gives the Committee a Board power such as approving the Policy or ensuring activities are undertaken.
For composition questions, count total directors and independent directors separately, and check whether the company must have an independent director at all.
Always compute the 2% on the three-year average net profit and show the arithmetic. Marks go for the step as well as the answer.
In case-based answers, name the section (Section 135) and state the rule before applying it. Close with a clear advice line.
Remember the ₹50 lakh rule. It is a common trap in scenario questions on small CSR amounts.

Practice questions from Corporate Governance and Social Responsibility and Sustainability

CSR Committee, CSR Policy and Board Responsibilities in other exams

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

CSR Committee, CSR Policy and Board Responsibilities: frequently asked questions

What is the composition of the CSR Committee under Section 135?

The Committee must have three or more directors, and at least one must be an independent director. If the company is not required to appoint an independent director under Section 149(4), two or more directors are enough.

What does the CSR Committee do?

It formulates and recommends the CSR Policy to the Board, recommends the amount to be spent on the activities, and monitors the Policy from time to time. It does not approve the Policy. That is the Board's job.

What must the Board disclose about CSR?

The Board's report must disclose the composition of the CSR Committee and the contents of the CSR Policy. The Policy must also be placed on the company's website, if any, in the prescribed manner. If the company fails to spend the required amount, the report must give reasons.

Is a CSR Committee compulsory for every company covered by Section 135?

No. Where the amount to be spent does not exceed ₹50 lakh, the Committee need not be constituted. The Board of Directors then performs the Committee's functions.

Where do I find the annual action plan requirements?

They are in the CSR Rules made under the Act, not in the text of Section 135. Read the current Rules for the contents of the plan and how it is approved.