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CSR and Social Governance · Corporate Social Responsibility

Applicability of Section 135 of the Companies Act, 2013

Updated 11 October 2026 · Fact-checked

Section 135 applies to a company that, in the immediately preceding financial year, had net worth of ₹500 crore or more, or turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. Meeting any one test is enough. If it applies, the company needs a CSR Committee and must spend the prescribed CSR amount.

Understand Applicability of Section 135 of the Companies Act, 2013

Corporate Social Responsibility under the Companies Act, 2013 is a legal duty for larger companies, not a choice. Section 135 decides which companies carry that duty. It uses three financial tests: net worth, turnover and net profit.

The test is read against the immediately preceding financial year. The words were changed from "any financial year" in 2018. So you look at one year only, the year just ended, not at any year in the past.

The three tests are alternatives. A company needs to cross only one. A firm with a small profit but a turnover of ₹1,200 crore is covered. A firm with a turnover of ₹300 crore but a net profit of ₹6 crore is also covered.

Section 135 does not itself say that the obligation is a one-time trigger. Because the test is applied to the preceding year, it is checked again each year. The Rules made under the section deal with when a company stops being covered. The Act says nothing on this in the text you must rely on here, so state the cessation rule as coming from the CSR Rules and do not quote a rule number unless you are sure of it.

Applicability also decides the structure. A covered company must form a CSR Committee of three or more directors, with at least one independent director. Where the amount to be spent does not exceed ₹50 lakh, the Committee need not be formed and the Board performs its functions.

Key rules to remember

Applicability test
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. The thresholds are 'or more', so a figure exactly equal to the limit qualifies.
Committee size
At least 3 directors, including at least 1 independent director
Where a company need not appoint an independent director under section 149(4), it must have two or more directors on the Committee.
Minimum CSR spend
At least 2% of the average net profits of the three immediately preceding financial years
Net profit is calculated as per section 198, excluding the sums prescribed. A company not yet three years old uses the preceding years available since incorporation.
Small spend relaxation
If CSR amount ≤ ₹50 lakh, no CSR Committee; the Board discharges its functions
Section 135(9). The test is the amount to be spent, not the company's size.
Penalty for default (company)
Lower of 2 × amount not transferred, or ₹1 crore
Section 135(7). Applies to default under sub-section (5) or (6).
Penalty for default (officer)
Lower of 1/10 of the amount not transferred, or ₹2 lakh
Applies to every officer in default.

How to solve Applicability of Section 135 of the Companies Act, 2013 questions

Use this order for any applicability question. It keeps you inside the section and shows the examiner a clear provision, analysis and conclusion.

  1. 1Identify the financial year to test. Write that it is the immediately preceding financial year.
  2. 2List the three figures given: net worth, turnover and net profit. Mark any that the question leaves out.
  3. 3Compare each figure with its limit: ₹500 crore, ₹1,000 crore and ₹5 crore. Remember that equal to the limit counts.
  4. 4Conclude that the section applies if any one test is met. Say which one.
  5. 5State the consequences: CSR Committee, Board approval of policy, and the 2% spend on the three-year average net profit.
  6. 6Check the ₹50 lakh point. If the spend is ₹50 lakh or less, say the Committee is not needed and the Board acts.
  7. 7If the question asks about a later year, retest on that year's figures and mention the Rules on when the obligation ceases.
  8. 8Close with a clear one-line conclusion.

Quickest way: Three-limit scan

When to use it: Use when the question gives figures for one or more years and asks whether Section 135 applies.

  1. Write 500 / 1,000 / 5 on your sheet in crore.
  2. Tick any figure that meets or beats its limit.
  3. One tick means applicable; no tick means not applicable for that year.
  4. Compute 2% of the three-year average profit only if the question asks for the spend.
  5. Compare the spend with ₹50 lakh to decide on the Committee.

Common mistakes in Applicability of Section 135 of the Companies Act, 2013

  • Requiring all three conditions to be met

    Students read the thresholds as a combined test.

    Fix: The section uses 'or'. One condition is enough.

  • Testing the current year or any earlier year

    The old wording 'any financial year' is still remembered.

    Fix: Use the immediately preceding financial year for the applicability test.

  • Treating the limits as 'more than' instead of 'or more'

    Careless reading of figures like exactly ₹5 crore.

    Fix: A company with net profit of exactly ₹5 crore is covered.

  • Using one year's profit for the spend

    Mixing the applicability test with the spend calculation.

    Fix: Applicability uses the preceding year. The 2% spend uses the average net profit of the three immediately preceding years.

  • Saying every covered company must form a CSR Committee

    Students forget sub-section (9).

    Fix: If the amount to be spent is ₹50 lakh or less, no Committee is needed and the Board performs its functions.

  • Quoting a rule number for cessation without certainty

    Students try to memorise the Rules by number.

    Fix: Describe the rule in words and cite only the section numbers you are sure of.

Worked examples

Example 1

Ananya Textiles Ltd had, in the immediately preceding financial year, net worth of ₹320 crore, turnover of ₹850 crore and net profit of ₹5.4 crore. Is Section 135 applicable?

Show the solution
  1. Test year: the immediately preceding financial year.
  2. Net worth ₹320 crore is below ₹500 crore: not met.
  3. Turnover ₹850 crore is below ₹1,000 crore: not met.
  4. Net profit ₹5.4 crore is at least ₹5 crore: met.
  5. Any one condition is enough.

Answer: Section 135 applies to Ananya Textiles Ltd because its net profit meets the ₹5 crore threshold. It must have a CSR Committee, subject to the ₹50 lakh relaxation, and must follow the CSR spend provisions.

Example 2

Kaveri Foods Ltd has net worth of ₹200 crore, turnover of ₹900 crore and net profit of ₹4 crore in the preceding year. Average net profit of the last three years is ₹4 crore. Is Section 135 applicable, and what does it mean for the CSR Committee if the company is covered in a later year with a required spend of ₹8 lakh?

Show the solution
  1. Net worth ₹200 crore is below ₹500 crore.
  2. Turnover ₹900 crore is below ₹1,000 crore.
  3. Net profit ₹4 crore is below ₹5 crore.
  4. None of the three tests is met, so the section does not apply for this year.
  5. Suppose in a later year it becomes covered with a required spend of ₹8 lakh.
  6. ₹8 lakh does not exceed ₹50 lakh, so under sub-section (9) no Committee is required.
  7. The Board discharges the Committee's functions.

Answer: Section 135 does not apply to Kaveri Foods Ltd for this year. If it becomes covered later with a required spend of ₹8 lakh, it need not constitute a CSR Committee, and its Board performs the Committee's functions.

Exam tips

  • Write the three limits at the top of your answer before computing anything.
  • Always name the year tested: the immediately preceding financial year.
  • In case-based questions, state the provision, apply the figures, then give a one-line conclusion.
  • Link applicability to its consequences: Committee, policy, 2% spend and the ₹50 lakh relaxation.
  • If the question raises cessation, state the rule from the CSR Rules in plain words and avoid uncertain rule numbers.

Practice questions from Corporate Social Responsibility

Applicability of Section 135 of the Companies Act, 2013 in other exams

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

Applicability of Section 135 of the Companies Act, 2013: frequently asked questions

Do all three thresholds have to be met for CSR to apply?

No. Meeting any one of net worth ₹500 crore or more, turnover ₹1,000 crore or more, or net profit ₹5 crore or more is enough. The test is on the immediately preceding financial year.

Which financial year is used to test applicability?

The immediately preceding financial year. The law was amended from 'any financial year' to this wording in 2018.

Does a company with a small CSR amount need a CSR Committee?

If the amount to be spent does not exceed ₹50 lakh, the Committee requirement does not apply. The Board of Directors performs the Committee's functions.

When does CSR stop applying to a company?

The Act tests the preceding year, so the position is rechecked each year. The CSR Rules set out when a company that no longer meets the thresholds is no longer bound. Read that rule in the Rules and state it in words in your answer.