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CSR and Social Governance · CSR Policy

Applicability of Section 135 CSR Provisions for Companies

Updated 11 October 2026 · Fact-checked

Section 135 of the Companies Act, 2013 applies to a company that had 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. Meeting any one test is enough. Then the company must form a CSR Committee and spend on CSR.

Understand Applicability of Section 135 CSR Provisions

Corporate Social Responsibility is a legal duty for only some companies. Section 135 of the Companies Act, 2013 decides which ones. It uses three size tests: net worth, turnover and net profit.

The tests are alternatives. A company needs to cross only one of them. A company with a small turnover but a net profit of ₹6 crore is still covered.

The tests are applied to the immediately preceding financial year. The text says "during the immediately preceding financial year". This wording came in by the 2018 amendment, which replaced "any financial year". So you look at the year just ended before the year in which you are deciding, not at any earlier year.

Once a company is covered, three duties follow. It must constitute a CSR Committee of the Board (subject to the small-spend exception), the Board must approve a CSR Policy, and the Board must ensure the company spends at least two per cent of average net profit of the three preceding financial years. Net profit is calculated in accordance with section 198, excluding such sums as are prescribed.

Note what the section itself does not say. It does not carve out holding, subsidiary or foreign companies in its text. Questions on those usually depend on the CSR Rules made under the Act. If you need such a rule, state it in plain words, without a section number, and apply the same three tests to the entity concerned.

Key rules to remember

Applicability thresholds (any one)
Net worth ≥ ₹500 crore OR Turnover ≥ ₹1,000 crore OR Net profit ≥ ₹5 crore
Tested for the immediately preceding financial year. One test is enough.
Committee composition
CSR Committee = 3 or more directors, at least 1 independent director
If the company need not appoint an independent director under section 149(4), it needs 2 or more directors.
Small-spend exception
If CSR amount under s.135(5) ≤ ₹50 lakh, no Committee needed; the Board performs its functions
Section 135(9). The exception applies to 'does not exceed' fifty lakh rupees.
Minimum CSR spend
CSR spend ≥ 2% × average net profit of 3 immediately preceding financial years
For a company not yet three years old, the preceding years since incorporation are used. Net profit is worked out under section 198.
Disclosure
Board's report (s.134(3)) must disclose the CSR Committee composition
Section 135(2).

How to solve Applicability of Section 135 CSR Provisions questions

Use this order for any applicability question. It keeps your answer in the provision, analysis, conclusion format the examiner expects.

  1. 1State the rule: section 135(1) applies if net worth, turnover or net profit crosses the stated limit in the immediately preceding financial year.
  2. 2Identify the year to test. Pick the financial year just before the year in question. Ignore other years.
  3. 3Pick the right figure for each test from the facts. Do not confuse net worth with paid-up capital, or net profit with turnover.
  4. 4Compare each figure with its limit. Use ≥ for all three tests. Say which tests are met.
  5. 5Conclude: if any one test is met, section 135 applies. Name the consequences: Committee, Policy, 2% spend.
  6. 6Check the Committee point. Compute the likely CSR amount; if it is ₹50 lakh or less, the Board can act as the Committee.
  7. 7If the facts mention a holding, subsidiary or foreign company, apply the same tests to that entity and state the relevant CSR Rule in plain words.

Quickest way: Three-limit scan

When to use it: Use it for short-answer or MCQ-style case facts where figures are given for several years.

  1. Write 500 | 1,000 | 5 in the margin (₹ crore).
  2. Circle the figures for the immediately preceding year only.
  3. Tick if any one reaches its limit. One tick means covered.
  4. Add one line on Committee and 2% spend.

Common mistakes in Applicability of Section 135 CSR Provisions

  • Requiring all three tests to be met.

    The three limits are listed together, so they look cumulative.

    Fix: Remember they are alternatives. Any one is enough.

  • Testing the wrong financial year.

    Students use the current year or the average of three years.

    Fix: The tests use the immediately preceding financial year. The three-year average is only for the 2% spend amount.

  • Treating exactly ₹5 crore profit as not covered.

    Students read 'more than' instead of 'or more'.

    Fix: The text says 'or more'. A figure equal to the limit is covered.

  • Using turnover or profit before tax interchangeably.

    Facts give several figures and students pick the biggest.

    Fix: Use the figure named for each test. Net profit for the 2% spend is computed under section 198, with prescribed sums excluded.

  • Saying a Committee is always required once the company is covered.

    Students forget sub-section (9).

    Fix: If the CSR amount does not exceed ₹50 lakh, no Committee is needed and the Board performs its functions.

  • Quoting a section number for rules on foreign or group companies.

    Students assume it is in section 135 itself.

    Fix: Section 135's text has no such carve-out. State the rule from the CSR Rules in words, without inventing a section.

Worked examples

Example 1

Arka Textiles Ltd had, in the financial year just ended, net worth of ₹320 crore, turnover of ₹1,150 crore and net profit of ₹3.5 crore. Is section 135 applicable?

Show the solution
  1. Rule: section 135(1) applies if net worth ≥ ₹500 crore, or turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore in the immediately preceding financial year.
  2. Net worth ₹320 crore is below ₹500 crore. Not met.
  3. Turnover ₹1,150 crore is above ₹1,000 crore. Met.
  4. Net profit ₹3.5 crore is below ₹5 crore. Not met.
  5. One test is enough, so the company is covered.

Answer: Yes. Arka Textiles is covered because its turnover crosses ₹1,000 crore. It must constitute a CSR Committee (unless the small-spend exception applies), approve a CSR Policy and spend at least 2% of average net profit of the three preceding years.

Example 2

Veda Pharma Ltd is covered by section 135. Its net profit under section 198 for the last three years was ₹20 crore, ₹30 crore and ₹25 crore. Compute the minimum CSR spend. Is a CSR Committee required?

Show the solution
  1. Average net profit = (20 + 30 + 25) ÷ 3 = 75 ÷ 3 = ₹25 crore.
  2. Minimum spend = 2% of ₹25 crore = ₹0.5 crore = ₹50 lakh.
  3. Sub-section (9): where the amount does not exceed ₹50 lakh, the Committee requirement does not apply.
  4. ₹50 lakh does not exceed ₹50 lakh, so the exception applies and the Board discharges the Committee's functions.

Answer: The minimum CSR spend is ₹50 lakh. Because it does not exceed ₹50 lakh, Veda Pharma need not constitute a CSR Committee; its Board performs the Committee's functions.

Exam tips

  • Always write the three limits with the words 'immediately preceding financial year'. Examiners look for it.
  • Show each test separately in a case answer, then conclude. A bare 'applicable' loses marks.
  • Keep the applicability test (one year) separate from the spend base (three-year average).
  • Add the sub-section (9) point whenever the facts give figures that let you compute the CSR amount.
  • For foreign or group company questions, apply the tests to the entity concerned and state the rule in words, not a made-up section.

Practice questions from CSR Policy

Applicability of Section 135 CSR Provisions 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 CSR Provisions: frequently asked questions

When is CSR mandatory for a company in India?

CSR is mandatory when a company had 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.

Do all three thresholds have to be met?

No. They are alternative tests. Meeting any one brings the company under section 135.

Is a CSR Committee always needed for an applicable company?

No. If the amount to be spent under section 135(5) does not exceed ₹50 lakh, the Committee need not be constituted. The Board of Directors performs the Committee's functions.

What if the company does not need an independent director?

A company not required to appoint an independent director under section 149(4) must have two or more directors on its CSR Committee. Other companies need three or more directors with at least one independent director.

How do holding, subsidiary and foreign companies fit in?

Section 135 applies the same size tests to a company. For group or foreign company questions, use the CSR Rules as taught in your study material, apply the tests to the entity in question and state the rule in plain words.