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CS Professional · CSR and Social Governance

CSR Policy for CS Professional: Section 135 Chapter Guide

CSR Policy is the Board-approved plan for how a company meets its duty under Section 135 of the Companies Act, 2013. Eligible companies form a CSR Committee, adopt a policy based on Schedule VII, spend at least 2% of average net profit of the three preceding years, and handle unspent amounts as the law requires.

What this chapter covers

This chapter covers the full life cycle of a company's CSR duty under Section 135. It starts with who must comply, moves to the CSR Committee and its functions, then to the CSR Policy and the Schedule VII areas it must draw from. It ends with spending, unspent amounts, reporting, monitoring and impact assessment.

The section follows a clear sequence: a threshold triggers the duty, the Committee recommends, the Board approves, the company spends, and the Board reports. If you learn the chapter in that sequence, the sub-sections fall into place and you can answer any case from the facts.

The chapter is the base for the rest of Elective 4.1. CSR and Social Governance carry 50 marks each in this paper. The CSR part builds on this chapter, and questions on implementation, partners, projects and assessment assume you know the Section 135 rules cold. Your answers in the written paper should follow the case-based format: provision, analysis of facts, conclusion.

Section 135 is a short, precise provision, and case questions on it reward exact detail. You are tested on thresholds, committee size, the 2% rule, time limits for transfers, and penalties. These are numbers and conditions you can learn fully and apply directly. Students who state the rule with its exact conditions and then apply it to the facts score well. This chapter also supports every later chapter in the paper, so time spent here pays back repeatedly.

CSR Policy: topics in the order to study them

  1. 1Applicability of Section 135 CSR ProvisionsStart here because every other rule applies only if the company crosses a threshold: net worth ₹500 crore or more, turnover ₹1,000 crore or more, or net profit ₹5 crore or more in the immediately preceding financial year.
  2. 2CSR Committee: Constitution and FunctionsNext, learn who runs the process: three or more directors with at least one independent director, and the exceptions that follow from the applicability rules.
  3. 3Formulation of CSR Policy and Schedule VII ActivitiesThe Committee's main output is the policy, so study it after the Committee, together with the Schedule VII areas it must be built on.
  4. 4CSR Expenditure, Unspent Amount and ImplementationOnce the policy exists, you learn how money is spent: the 2% rule, local area preference, set-off, ongoing projects, the Unspent CSR Account and penalties.
  5. 5CSR Reporting, Monitoring and Impact AssessmentFinish with disclosure and review, because it checks the whole cycle and ties back to the Board's report and the Committee's monitoring role.

How to prepare CSR Policy

Treat this chapter as a process with numbers. Build the process first, then fix the numbers and time limits, then practise applying them to facts.

  1. Read Section 135 sub-section by sub-section and write each one as a one-line rule in your own words. Keep the exact numbers beside it.
  2. Draw one flow chart: threshold, Committee, policy, Board approval, spending, unspent amount, reporting. Redraw it from memory until it is automatic.
  3. Make a small table on paper for time limits and amounts: six months, thirty days, three financial years, ₹50 lakh, and the penalty limits of ₹1 crore and ₹2 lakh. Revise it daily.
  4. Learn the Schedule VII areas by theme rather than word for word, so you can match a company's project to the right area in a case.
  5. Practise the 2% calculation using the average net profit of the three preceding financial years. Also practise the case where the company is under three years old.
  6. Write three or four full case answers in the format of provision, analysis, conclusion. Check each against the exact conditions of the law.
  7. In the last week, revise only your rule lines, the flow chart and the numbers table.

Common mistakes in CSR Policy

  • Treating the three applicability thresholds as cumulative.

    Fix: Remember the word 'or'. Meeting any one of the net worth, turnover or net profit tests in the immediately preceding financial year is enough.

  • Calculating the 2% on the current year's profit.

    Fix: Use the average net profit of the three immediately preceding financial years, calculated under section 198. For a company not yet three years old, use the preceding years it has completed.

  • Mixing up the two transfer routes for unspent amounts.

    Fix: Link each route to its trigger: an ongoing project goes to the Unspent CSR Account within thirty days; otherwise the amount goes to a Schedule VII Fund within six months.

  • Saying a company with a spend of ₹50 lakh or less must still form a Committee.

    Fix: State that where the amount does not exceed ₹50 lakh, the Committee requirement does not apply and the Board discharges its functions.

  • Confusing the roles of the Committee and the Board.

    Fix: Write it as: Committee formulates, recommends and monitors; Board approves, discloses and ensures the activities are undertaken.

  • Writing general CSR theory instead of applying the provision to the case facts.

    Fix: Quote the rule, test each fact against it, and end with a clear conclusion on compliance or default and its consequence.

Last-day revision: CSR Policy

  • 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.
  • The CSR Committee has three or more directors, with at least one independent director.
  • If a company need not appoint an independent director under section 149(4), its Committee needs two or more directors.
  • If the amount to be spent does not exceed ₹50 lakh, no Committee is needed and the Board performs its functions.
  • The Committee recommends the policy and the amount, and monitors the policy. The Board approves the policy.
  • The Board must disclose the policy contents in its report and place it on the company's website, if any.
  • Minimum spend is 2% of the average net profit of the three immediately preceding financial years, calculated under section 198.
  • Preference must go to the local area and areas around where the company operates.
  • Excess spend may be set off against future years as prescribed.
  • Unspent amount for an ongoing project goes to the Unspent CSR Account within thirty days of year-end and must be spent within three financial years.
  • Other unspent amounts go to a Schedule VII Fund within six months of year-end, and the Board's report must give reasons.
  • Penalty on the company is twice the amount to be transferred or ₹1 crore, whichever is less. For each officer in default it is one-tenth of that amount or ₹2 lakh, whichever is less.

CSR Policy practice questions

CSR Policy in other exams

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

CSR Policy: frequently asked questions

Which companies must comply with Section 135?

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 during the immediately preceding financial year. Meeting any one test is enough.

How much must a company spend on CSR?

At least 2% of the average net profits made during the three immediately preceding financial years. Net profit is calculated under section 198, excluding such sums as may be prescribed.

What happens to CSR money that is not spent?

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

Is a CSR Committee always required?

No. If the amount to be spent does not exceed ₹50 lakh, the Committee is not required and the Board performs its functions.

Do I need to memorise Schedule VII word for word?

No. Learn the areas by theme so you can match a project to the right area in a case. Be exact on the rules in Section 135 itself.