CSR and Social Governance · CSR Policy

CSR Expenditure, Unspent Amount and Implementation

Updated 11 October 2026 · Fact-checked

Under section 135(5), a company covered by section 135 must spend, every year, at least 2% of its average net profit of the three immediately preceding financial years, calculated under section 198. Unspent money goes to an Unspent CSR Account (ongoing projects) or a Schedule VII Fund (other cases), within the stated time limits.

Understand CSR Expenditure, Unspent Amount and Implementation

Section 135 does not stop at forming a CSR Committee. The real obligation is money: the Board must ensure the company spends a minimum amount on CSR every year. The minimum is 2% of the average net profit of the three immediately preceding financial years. If the company has not completed three years since incorporation, the average is taken over the immediately preceding financial years it has.

Net profit is not the figure in your profit and loss account as it stands. The Explanation to section 135 says it is calculated under section 198 and excludes sums that the CSR Rules prescribe. Section 198 says some items are not credited (for example capital profits, profits on forfeited shares, premium on shares or debentures, unrealised or notional gains) and some items are deducted (for example usual working charges, directors' remuneration, interest, depreciation as per section 123, bad debts written off). Income-tax is not deducted.

If the company does not spend the full amount, the law treats two cases differently. If the unspent amount relates to an ongoing project, it must be moved within 30 days from the end of the financial year to a special Unspent Corporate Social Responsibility Account in a scheduled bank. The company must spend it within three financial years from the date of transfer. If it does not, it must transfer the balance to a Schedule VII Fund within 30 days of completing the third financial year.

If the unspent amount does not relate to an ongoing project, the Board must give reasons in its report under section 134(3)(o) and transfer the amount to a Schedule VII Fund within six months of the end of the financial year. A company that spends more than required may set off the excess against the requirement of succeeding financial years, in the manner prescribed.

The Act speaks of the manner of spending, set-off and ongoing projects only in outline. Details such as the definition of an ongoing project, the number of years for set-off, implementing agencies and administrative overheads sit in the CSR Rules. When you write an answer, state the Act's rule first and then say the detail is as prescribed in the rules.

Key rules to remember

Minimum CSR spend: Minimum CSR spend = 2% × (Net profit of year 1 + year 2 + year 3) ÷ 3; Use the three immediately preceding financial years. If the company is under three years old, average the years it has completed. Net profit is computed under section 198.
Unspent amount: Unspent amount = Minimum CSR spend − Actual eligible CSR spend; Check first whether the shortfall relates to an ongoing project.
Ongoing project: transfer deadline: Transfer to Unspent CSR Account within 30 days from end of the financial year; Section 135(6). The account is opened in any scheduled bank, separately for that financial year.
Ongoing project: spending period: Spend within 3 financial years from the date of transfer; else transfer to Schedule VII Fund within 30 days of completing the third financial year; Section 135(6).
Other than ongoing project: Transfer to Schedule VII Fund within 6 months of the end of the financial year, and state reasons in Board's report; Second proviso to section 135(5).
Penalty on company: Lower of (2 × amount not transferred) and ₹1 crore; Section 135(7), for default under sub-section (5) or (6).
Penalty on officer in default: Lower of (1/10 of amount not transferred) and ₹2 lakh; Section 135(7).
Set-off of excess: Excess spend may be set off against requirement of succeeding financial years; Third proviso to section 135(5). The number of years and the manner are as prescribed in the CSR Rules.
Small CSR obligation: If amount to be spent ≤ ₹50 lakh, no CSR Committee is needed; the Board performs its functions; Section 135(9).

How to solve CSR Expenditure, Unspent Amount and Implementation questions

Use this order for any numerical or case question on CSR spending.

1List the net profit of each of the three immediately preceding years. If the question gives accounting profit, adjust it as per section 198 and the rules before using it.
2Add the three figures and divide by three. If the company has existed for fewer than three years, divide by the number of years completed.
3Multiply the average by 2% to get the minimum CSR spend. Apply any set-off of earlier excess only if the question gives facts for it.
4Compare with the actual spend. If actual spend is equal or higher, state compliance and note any excess available for set-off.
5If there is a shortfall, ask: does it relate to an ongoing project? If yes, apply section 135(6). If no, apply the second proviso to section 135(5).
6Give the deadline, the account or Fund, and the Board's duty to give reasons in its report.
7State the consequence of default under section 135(7), working out both penalty limbs and taking the lower one.
8Write a one-line conclusion.

Quickest way: Average, 2%, gap, route

When to use it: For short numerical questions where time is tight.

Average the three net profits.
Take 2% of the average.
Subtract actual spend to get the gap.
Pick the route: ongoing project means Unspent CSR Account within 30 days; otherwise Schedule VII Fund within 6 months.
If penalty is asked, compute 2 × gap against ₹1 crore for the company, and gap ÷ 10 against ₹2 lakh for the officer; take the lower in each.

Common mistakes in CSR Expenditure, Unspent Amount and Implementation

Using the current year's profit instead of the average of the three preceding years.
Students link CSR to this year's profit by habit.
Fix: Always write 'average of the three immediately preceding financial years' and list each year's figure.
Using book profit without adjusting under section 198.
The question gives a profit figure and students apply 2% directly.
Fix: Check whether the question gives net profit or accounting profit. Remove items not credited under section 198(3), such as capital profits, and do not deduct income-tax.
Mixing up the two unspent routes.
Both involve transferring money after the year ends, but with different periods and destinations.
Fix: Ongoing project: Unspent CSR Account in 30 days, then three years to spend. Not ongoing: Schedule VII Fund in six months.
Applying the penalty without comparing the two limbs.
Students remember '2 times' and '₹1 crore' but forget it is the lower of the two.
Fix: Compute both and take the lesser. For officers, one-tenth of the amount or ₹2 lakh, whichever is less.
Saying the committee is mandatory for every company covered by section 135.
Section 135(1) is remembered, but sub-section (9) is missed.
Fix: If the amount to be spent does not exceed ₹50 lakh, the Board discharges the committee's functions.
Giving rule details like set-off years from memory as if they were in the Act.
The Act only says set-off is 'as may be prescribed'.
Fix: Cite the proviso and say the number of years and manner are as per the CSR Rules. Check the rules before using any figure.

Worked examples

Example 1

Sundaram Textiles Ltd is covered by section 135. Its net profits computed under section 198 for the three preceding years were ₹6 crore, ₹9 crore and ₹12 crore. It spent ₹40 lakh on CSR in the current year, all on projects that are completed. Compute the CSR obligation and state the consequences of the shortfall.

Show the solution

Average net profit = (6 + 9 + 12) ÷ 3 = 27 ÷ 3 = ₹9 crore.
Minimum CSR spend = 2% × ₹9 crore = ₹18 lakh.
Actual spend is ₹40 lakh, which is more than ₹18 lakh.
Excess = 40 − 18 = ₹22 lakh. There is no shortfall, so no transfer is needed.
The excess may be set off against the requirement of succeeding financial years, in the manner and for the period prescribed in the CSR Rules.

Answer: The minimum obligation is ₹18 lakh. The company has spent ₹40 lakh, so there is no unspent amount. The excess of ₹22 lakh is available for set-off against later years as prescribed.

Example 2

Kaveri Pharma Ltd had average net profit of ₹50 crore over the three preceding years. It spent ₹60 lakh on CSR, of which ₹30 lakh was on an ongoing project that is incomplete. Find the shortfall, state what the company must do, and the penalty if it makes no transfer. Assume the whole shortfall relates to the ongoing project.

Show the solution

Minimum CSR spend = 2% × ₹50 crore = ₹1 crore = ₹100 lakh.
Actual spend = ₹60 lakh, so the shortfall = 100 − 60 = ₹40 lakh.
Assume that the shortfall is for the ongoing project. Under section 135(6), the company must transfer ₹40 lakh to the Unspent CSR Account in a scheduled bank within 30 days from the end of the financial year.
It must then spend the amount within three financial years from the date of transfer. If it does not, it must transfer the balance to a Schedule VII Fund within 30 days of completing the third financial year.
If it makes no transfer, penalty on the company is the lower of 2 × ₹40 lakh = ₹80 lakh and ₹1 crore. The lower is ₹80 lakh.
Penalty on each officer in default is the lower of ₹40 lakh ÷ 10 = ₹4 lakh and ₹2 lakh. The lower is ₹2 lakh.

Answer: The shortfall is ₹40 lakh. It must go to the Unspent CSR Account within 30 days of year end and be spent within three financial years. On default, the company faces a penalty of ₹80 lakh and each officer in default faces ₹2 lakh.

Exam tips

Write the section number next to each rule: 135(5) for the 2% spend, 135(6) for ongoing projects, 135(7) for penalty, 135(9) for the committee exemption.
In case questions, first identify whether the shortfall relates to an ongoing project. This single fact decides the whole answer.
Show the calculation line by line. Marks are given for average, 2% and the gap even if the final figure has an error.
For anything the Act leaves to rules (set-off period, ongoing project definition, implementing agency conditions), say it is 'as prescribed' and state it only if you are sure of it.
Close each answer with a short conclusion: compliant, or non-compliant with the required action and penalty.

Practice questions from CSR Policy

CSR Expenditure, Unspent Amount and Implementation in other exams

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

CMA FinalCSR Expenditure, Schedule VII Activities and Unspent Amount

CSR Expenditure, Unspent Amount and Implementation: 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, and find the average. Multiply that average by 2%. If the company is less than three years old, use the years it has completed.

What happens to unspent CSR money for an ongoing project?

The company transfers it within 30 days from the end of the financial year to the Unspent CSR Account in a scheduled bank. It must spend the money within three financial years of the transfer. If it fails, it moves the balance to a Schedule VII Fund within 30 days of completing the third financial year.

What if the unspent CSR amount is not for an ongoing project?

The Board must state the reasons in its report under section 134(3)(o). The company must transfer the amount to a Fund specified in Schedule VII within six months of the end of the financial year.

Can excess CSR spending be set off in later years?

Yes. The Act allows a company that spends more than required to set off the excess against its requirement for succeeding financial years. The number of years and the manner are as prescribed in the CSR Rules.

Is a CSR Committee always required?

No. If the amount the company has to spend under section 135(5) does not exceed ₹50 lakh, the committee is not needed. The Board of Directors performs the committee's functions.