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

CSR Expenditure, Schedule VII Activities and Unspent Amount

Updated 11 October 2026 · Fact-checked

Under Section 135(5) of the Companies Act, 2013, a covered company must spend in every financial year at least 2% of its average net profit of the three preceding financial years, computed under Section 198, on CSR activities. Unspent money goes to an Unspent CSR Account (ongoing projects) or a Schedule VII Fund (other cases).

Understand CSR Expenditure, Schedule VII Activities and Unspent Amount

Section 135 makes CSR a spending duty, not a choice, for companies that cross a size test. The test is net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the immediately preceding financial year. Meeting any one limit is enough.

The amount to spend is at least 2% of the average net profit of the three immediately preceding financial years. Net profit is calculated under Section 198, so you do not simply take the profit shown in the statement of profit and loss. Section 198 does not give credit for items such as capital profits and unrealised or notional gains. It allows deductions for items such as directors' remuneration, usual working charges and interest. The Explanation to Section 135 also says net profit excludes such sums as may be prescribed. If the company is less than three years old, the average is taken over the years since incorporation.

The money must be spent in pursuance of the CSR Policy, on activities in areas or subjects specified in Schedule VII. The company must give preference to the local area and areas around where it operates.

If the company spends less than required, the Board must give reasons in its report under Section 134(3)(o). What happens to the shortfall depends on its type. If it relates to an ongoing project, it goes to a special Unspent Corporate Social Responsibility Account in a scheduled bank within 30 days from the end of the financial year. It must be spent within three financial years from the date of transfer. If it is not, the company transfers it to a Schedule VII Fund within 30 days of completing the third year. If it is not an ongoing project, the unspent amount goes to a Schedule VII Fund within six months of the end of the financial year.

If the company spends more than required, it may set off the excess against the requirement of succeeding financial years, for the number of years and in the manner prescribed. The detailed conditions sit in the CSR Rules, not in the Act. Default attracts a penalty, which is capped for the company and for each officer in default.

Key rules to remember

Applicability test (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 condition is enough. It is tested on the immediately preceding financial year.
Minimum CSR spend (Section 135(5))
CSR spend ≥ 2% × (Net profit Year 1 + Year 2 + Year 3) ÷ 3
Use the three immediately preceding financial years. Net profit is computed under Section 198. If the company is under three years old, use the years since incorporation.
Unspent amount, non-ongoing project
Transfer to a Schedule VII Fund within 6 months of the end of the financial year
Board must also give reasons in its report under Section 134(3)(o).
Unspent amount, ongoing project (Section 135(6))
Transfer to Unspent CSR Account within 30 days of year end; spend within 3 financial years from transfer; else transfer to Schedule VII Fund within 30 days of completing the third year
The project must meet the prescribed conditions to qualify as ongoing.
Set-off of excess spend
Excess spend may be set off against requirement of succeeding financial years
The number of years and manner are as prescribed. Do not quote a number of years unless the question gives it.
Penalty (Section 135(7))
Company: lower of 2 × amount not transferred or ₹1 crore. Officer in default: lower of 1/10 of that amount or ₹2 lakh
Applies to default under sub-section (5) or (6).
CSR Committee relaxation (Section 135(9))
If amount to be spent ≤ ₹50 lakh, no CSR Committee is needed; the Board discharges its functions
Not a relaxation from spending, only from forming the Committee.

How to solve CSR Expenditure, Schedule VII Activities and Unspent Amount questions

Most questions give profit figures and ask for the CSR obligation, the unspent treatment or a compliance comment. Use this order every time.

  1. 1Check applicability: test net worth, turnover and net profit of the immediately preceding year against ₹500 crore, ₹1,000 crore and ₹5 crore. One is enough.
  2. 2Find the net profit for each of the three preceding years under Section 198. Remove items that get no credit, such as capital profits and unrealised gains, and allow the permitted deductions. Use the figure the question calls Section 198 profit if given.
  3. 3Average the three years and multiply by 2% to get the minimum obligation. Handle a company under three years old by using the years available.
  4. 4Compare the actual spend with the obligation. If the spend is higher, note the excess that may be set off in later years. If lower, compute the shortfall.
  5. 5Classify the shortfall: ongoing project or not. Ongoing goes to the Unspent CSR Account within 30 days of year end. Otherwise it goes to a Schedule VII Fund within six months.
  6. 6State the later deadlines: three financial years to spend from the Unspent CSR Account, then 30 days to transfer any balance to a Schedule VII Fund.
  7. 7Check that the activity falls in Schedule VII and that local area preference is respected.
  8. 8Close with the Board's duty to give reasons in its report and, if in default, the penalty.

Quickest way: Three-line CSR check

When to use it: Use it for MCQs and for the opening of a long answer when the figures are simple.

  1. Average the three prior years' Section 198 profit, then take 2%. That is the floor.
  2. Ask: ongoing project? Yes means Unspent CSR Account in 30 days, then 3 years. No means Schedule VII Fund in 6 months.
  3. Spent more than the floor? The excess can be set off against later years as prescribed. Spent less? Compute the shortfall and route it.

Common mistakes in CSR Expenditure, Schedule VII Activities and Unspent Amount

  • Taking 2% of the current year's profit

    Students think CSR works like a dividend on this year's earnings.

    Fix: Use the average net profit of the three immediately preceding financial years, not the current year.

  • Using accounting profit instead of Section 198 net profit

    The question gives a profit before tax figure and students apply 2% directly.

    Fix: Section 135 says net profit is calculated under Section 198. Adjust for items that get no credit, such as capital profits and unrealised gains, and for allowed deductions, whenever the question asks for it.

  • Mixing up the two transfer routes for unspent money

    Both routes have time limits and a Fund or Account, so they blur together.

    Fix: Ongoing project means Unspent CSR Account in 30 days. Any other unspent amount means a Schedule VII Fund in six months.

  • Saying the company needs a CSR Committee whenever it is covered

    Students remember sub-section (1) and forget sub-section (9).

    Fix: If the amount to be spent does not exceed ₹50 lakh, the Committee is not required and the Board performs its functions.

  • Stating the set-off period as a fixed number in the Act

    Students recall the rules and attribute them to the Section.

    Fix: The Act says excess may be set off for such number of succeeding years and in such manner as prescribed. Say that, unless the question gives the period.

  • Applying the applicability test to the current year

    Students assume the test looks at the year of spending.

    Fix: The test uses the immediately preceding financial year.

Worked examples

Example 1

Ganga Fabrics Ltd has Section 198 net profits of ₹9 crore, ₹12 crore and ₹15 crore in the three preceding financial years. It is covered by Section 135. Compute the minimum CSR spend for the current year. If it spends ₹80 lakh, of which none relates to an ongoing project, state the position of the shortfall.

Show the solution
  1. Total of three years = 9 + 12 + 15 = ₹36 crore.
  2. Average net profit = 36 ÷ 3 = ₹12 crore.
  3. Minimum CSR spend = 2% × ₹12 crore = ₹24 lakh... recompute: ₹12 crore = ₹1,200 lakh; 2% of 1,200 = ₹24 lakh.
  4. Actual spend of ₹80 lakh exceeds ₹24 lakh, so there is no shortfall.
  5. Excess = 80 − 24 = ₹56 lakh. This may be set off against the requirement of succeeding financial years, for such number of years and in such manner as prescribed.

Answer: Minimum CSR spend is ₹24 lakh. There is no shortfall, and the excess ₹56 lakh may be set off against later years as prescribed.

Example 2

Yamuna Pharma Ltd must spend ₹60 lakh on CSR for the year ended 31 March. It spends ₹40 lakh. Of the ₹20 lakh unspent, ₹12 lakh relates to an ongoing project and ₹8 lakh does not. State the treatment of each part and what happens if the ongoing amount is not used.

Show the solution
  1. Total shortfall = 60 − 40 = ₹20 lakh, split ₹12 lakh ongoing and ₹8 lakh other. Check: 12 + 8 = 20.
  2. The Board must state the reasons for not spending in its report under Section 134(3)(o).
  3. The ₹12 lakh for an ongoing project must be moved to a special Unspent CSR Account in a scheduled bank within 30 days from the end of the financial year, that is, by 30 April.
  4. That ₹12 lakh must be spent within three financial years from the date of transfer.
  5. If any of it remains after that, the company transfers the balance to a Schedule VII Fund within 30 days from the date of completion of the third financial year.
  6. The ₹8 lakh not relating to an ongoing project must be transferred to a Schedule VII Fund within six months of the expiry of the financial year, that is, by 30 September.
  7. Failure to transfer attracts a penalty on the company of the lower of twice the amount not transferred or ₹1 crore, and on each officer in default the lower of one-tenth of that amount or ₹2 lakh.

Answer: ₹12 lakh goes to the Unspent CSR Account by 30 April and is spent within three financial years, failing which the balance goes to a Schedule VII Fund within 30 days after the third year. ₹8 lakh goes to a Schedule VII Fund by 30 September. Default carries the stated penalties.

Exam tips

  • Write the sequence: preceding three years, Section 198 profit, average, 2%. Examiners give marks for the method even if the arithmetic slips.
  • In MCQs, watch the deadline words: 30 days for the Unspent CSR Account, six months for a Schedule VII Fund, three financial years to spend.
  • Do not list Schedule VII items from memory unless asked. The supplied text only says activities must fall in areas or subjects specified in Schedule VII, so focus on the compliance rule it supports.
  • In case-style answers, finish with a recommendation: transfer by the date, record reasons in the Board's report, and avoid the penalty.
  • Check whether the question tests the CSR Committee. Where the spend is ₹50 lakh or less, the Board does the Committee's work.

Practice questions from Corporate Governance and Social Responsibility and Sustainability

CSR Expenditure, Schedule VII Activities and Unspent Amount in other exams

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

CSR Expenditure, Schedule VII Activities and Unspent Amount: frequently asked questions

How is the 2% CSR amount calculated?

Take the net profit of each of the three immediately preceding financial years, computed under Section 198. Find the average and take 2% of it. If the company is less than three years old, use the years since incorporation.

What happens to unspent CSR money?

If it relates to an ongoing project, it goes to the Unspent CSR Account within 30 days of the end of the financial year. Otherwise it goes to a Schedule VII Fund within six months. The Board must also give reasons in its report.

Can excess CSR spending be carried forward?

Yes. A company that spends more than required may set off the excess against the requirement for succeeding financial years. The Act leaves the number of years and the manner to the prescribed rules.

Is a CSR Committee always required?

No. A covered company must form a Committee of three or more directors, including at least one independent director. If the amount to be spent does not exceed ₹50 lakh, no Committee is needed and the Board performs its functions.