CS Professional · CSR and Social Governance

Guidelines on CSR for CS Professional

Guidelines on CSR are the legal rules that decide which companies must spend on corporate social responsibility, who governs it, what they can spend on, and what happens to unspent money. Section 135 of the Companies Act, 2013 is the core. In the exam, apply it step by step to the facts given.

What this chapter covers

This chapter covers the legal framework for CSR in India. It starts with how CSR moved from voluntary giving to a statutory duty. It then moves to Section 135: which companies are covered, how the CSR Committee is formed, what the Board must do, how much must be spent, and what happens when money is left unspent.

The chapter also covers Schedule VII (the areas where CSR money can go) and the CSR Policy. The finer rules on the CSR Rules, such as implementation, reporting formats and impact assessment, come from the CSR Rules made under the Act. Use your ICSI study material and the current Rules for those details.

This chapter is the legal base for the CSR half of the paper. Later chapters on planning, implementation, monitoring and reporting all assume you know who must spend, how much, and on what. If you get this chapter right, the rest of the CSR part becomes easier to follow.

CSR in this paper is written and case-based, so you will be asked to apply Section 135 to a company's facts and reach a conclusion. Questions often turn on a threshold, a committee composition, an unspent amount or a penalty. These are exact rules, so precise answers earn marks that vague answers lose. The chapter is also the base for the other CSR chapters, so time spent here pays back across the whole CSR part.

Guidelines on CSR: topics in the order to study them

1Evolution of CSR Guidelines in IndiaRead this first. It gives the context and shows why the law moved from voluntary to mandatory, which makes the later rules easier to remember.
2Section 135 and Applicability of CSRThis is the core. You need the three thresholds, the two per cent rule and the average net profit basis before anything else makes sense.
3CSR Committee and Board ResponsibilitiesOnce you know who is covered, learn who acts: committee size, independent director, the exemption up to ₹50 lakh and the split of duties between Committee and Board.
4Schedule VII Activities and CSR Policy RulesAfter roles are clear, learn what the Committee recommends and the Board approves: the policy and the areas where money can be spent.
5CSR Expenditure, Unspent Amount and ReportingStudy this last. It joins everything: how much to spend, ongoing projects, the Unspent CSR Account, set-off, penalties and disclosure.

How to prepare Guidelines on CSR

Treat this chapter as a chain: applicability, governance, policy, spending, then consequences. Learn the section text closely, because the exam rewards exact conditions.

Read Section 135 sub-section by sub-section. Note each time limit, amount and condition in a one-page sheet.
Learn the three applicability tests: 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 is enough.
Practise the spending rule: at least 2% of the average net profit of the three immediately preceding financial years, with net profit worked out under Section 198. Do two or three numerical examples with ₹ figures.
Build a table of the unspent amount routes in your notes: ongoing project goes to the Unspent CSR Account within thirty days of year end, to be spent within three financial years; any other unspent amount goes to a Schedule VII Fund within six months of year end.
Learn the committee rules and penalties together. Write the committee composition, the ₹50 lakh exemption, the company penalty and the officer penalty in your own words.
Write practice answers in the exam pattern: provision, analysis of facts, conclusion. Time each answer and check your section references against the text.
Revise the Schedule VII areas and policy contents from the current Rules and your study material, and attempt past questions.

Common mistakes in Guidelines on CSR

Requiring all three applicability tests to be met.
Fix: Remember it is any one of the three. Say 'net worth, turnover or net profit' in your answer.
Using the current year's profit to compute the 2% spend.
Fix: Use the average net profit of the three immediately preceding financial years, calculated under Section 198. Show the average step in your working.
Mixing the two unspent amount routes.
Fix: First decide whether the amount relates to an ongoing project. If yes, Unspent CSR Account; if no, Schedule VII Fund.
Forming a three-member Committee with no independent director.
Fix: State the rule fully: three or more directors with at least one independent director, and two or more directors where no independent director is required.
Confusing the Committee's role with the Board's role.
Fix: The Committee formulates, recommends and monitors. The Board approves, discloses and ensures activities are carried out.
Stating penalties without the 'whichever is less' cap.
Fix: Write both the multiple and the cap, for company and officer separately, and apply the lower figure in numerical cases.

Last-day revision: Guidelines on CSR

Section 135 applies on any one test: 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.
The CSR Committee has three or more directors, with at least one independent director.
If the company need not appoint an independent director under Section 149(4), the Committee needs two or more directors.
If the CSR amount to be spent is ₹50 lakh or less, no Committee is needed and the Board performs its functions.
The Committee formulates and recommends the CSR Policy, recommends the expenditure and monitors the Policy.
The Board approves the Policy, discloses it in its report, places it on the website if any, and ensures the activities are undertaken.
Spend at least 2% of the average net profit of the three immediately preceding financial years; give preference to the local area.
Net profit is calculated under Section 198; the Rules prescribe sums excluded.
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 the end of the financial year, and the Board report must give reasons.
Excess spending can be set off against later years, as prescribed in the Rules.
Penalty on the company is twice the amount not transferred or ₹1 crore, whichever is less; on each officer in default, one-tenth of that amount or ₹2 lakh, whichever is less.

Guidelines on CSR practice questions

Guidelines on CSR in other exams

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

Guidelines on CSR: frequently asked questions

Is the CSR Committee compulsory for every company covered by Section 135?

No. If the amount to be spent under Section 135(5) does not exceed ₹50 lakh, the Committee is not required. The Board of Directors performs the Committee's functions in that case.

How is the minimum CSR spend calculated?

The company must spend at least 2% of the average net profit of the three immediately preceding financial years. Net profit is calculated under Section 198, and sums prescribed in the Rules are excluded. A company that has not completed three years uses the preceding years it has.

What happens to unspent CSR money?

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 of year end. In both cases the Board report must explain.

Should I memorise the Schedule VII list for the exam?

Know its main areas well enough to test whether an activity qualifies in a case study. Use the current text in your study material, because the exam asks you to apply it to given facts rather than recite it.