CSR and Social Governance · Guidelines on CSR

CSR Expenditure, Unspent Amount and Reporting under Section 135

Updated 11 October 2026 · Fact-checked

A company covered by section 135 must spend at least 2% of its average net profit of the three preceding financial years on CSR. Unspent money for an ongoing project goes to the Unspent CSR Account within 30 days of year end. Other unspent money goes to a Schedule VII Fund within six months.

Understand CSR Expenditure, Unspent Amount and Reporting

Section 135(5) fixes how much a covered company must spend. The Board must ensure that the company spends, every financial year, at least two per cent of the average net profit of the three immediately preceding financial years. If the company has not completed three financial years since its incorporation, it uses the immediately preceding financial years, as available. Net profit is calculated under section 198, so capital profits, unrealised gains and similar items are left out, and the sums in section 198(4) are deducted. Section 135 also says that net profit does not include sums prescribed in the CSR Rules. Examples are profit arising from branches outside India and dividends received from other companies in India that are covered under and complying with section 135.

Spending is only half the duty. If the company does not spend the full amount, the Board must give reasons in its report under section 134(3)(o). The law then asks one question: does the unspent amount relate to an ongoing project? This question decides where the money goes.

For an ongoing project (a multi-year project as defined in the CSR Rules), section 135(6) applies. The company transfers the unspent amount within thirty days from the end of the financial year to a special Unspent Corporate Social Responsibility Account in a scheduled bank. It must spend that money within three financial years from the date of transfer. If it fails, it transfers the balance to a Fund specified in Schedule VII within thirty days from the date of completion of the third financial year.

For any other unspent amount, section 135(5) second proviso applies. The company transfers it to a Fund specified in Schedule VII within six months of the expiry of the financial year.

If a company spends more than required, it may set off the excess against the requirement of succeeding years, in the manner prescribed. Under the CSR Rules, the set-off is limited to the next three financial years, and the excess cannot come from surplus earned through CSR activities. The CSR Committee recommends the set-off and the Board approves it.

Reporting and impact assessment come from the Board's report and the CSR Rules. The Board's report discloses the CSR Committee's composition, the policy contents and the reasons for any shortfall. The report also carries an annual CSR report in the prescribed format. Under the Rules, a company with an average CSR obligation of ₹10 crore or more in the three preceding years must carry out impact assessment of eligible projects (those with an outlay of at least ₹1 crore that were completed at least one year earlier). It may spend a limited portion on this assessment and count it as CSR spend, up to the lower of 5% of the year's total CSR expenditure or ₹50 lakh.

Key rules to remember

CSR obligation: CSR amount = 2% × average of net profits of the 3 immediately preceding financial years; Net profit is worked out under section 198. A company that has not completed three financial years since incorporation uses the immediately preceding financial years, as available (section 135(5)).
Ongoing project: unspent amount: Transfer to Unspent CSR Account within 30 days of the end of the financial year; spend within 3 financial years of transfer; else transfer to a Schedule VII Fund within 30 days of completing the third financial year; Section 135(6). The project must meet the conditions in the CSR Rules.
Other than ongoing project: unspent amount: Transfer to a Schedule VII Fund within 6 months of the expiry of the financial year; Section 135(5), second proviso. The Board must also give reasons in its report.
Penalty on the company: Lower of (2 × amount required to be transferred) and ₹1 crore; Section 135(7), for default under sub-section (5) or (6).
Penalty on each officer in default: Lower of (1/10 × amount required to be transferred) and ₹2 lakh; Section 135(7).
Small CSR obligation: If the amount to be spent ≤ ₹50 lakh, no CSR Committee is required; the Board performs its functions; Section 135(9).
Impact assessment (CSR Rules): Applies where average CSR obligation ≥ ₹10 crore in the 3 preceding years; projects with outlay ≥ ₹1 crore, completed ≥ 1 year ago; Cost allowed as CSR: lower of 5% of the year's total CSR spend or ₹50 lakh. Rule-based, not in section 135 itself.

How to solve CSR Expenditure, Unspent Amount and Reporting questions

Use this order for any question on CSR spending, unspent amount or reporting. It follows the way the law is built.

1Confirm that section 135(1) applies: 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.
2Compute net profit under section 198 for each of the three preceding years. Remove capital profits and unrealised gains, and allow the section 198(4) deductions. Take the average.
3Work out 2% of that average. This is the obligation. Adjust for any valid set-off of earlier excess spending.
4Compare the amount actually spent with the obligation. Treat only eligible spending as CSR spend. If there is no shortfall, go straight to reporting.
5If there is a shortfall, ask whether it relates to an ongoing project. If yes, apply section 135(6): 30 days, Unspent CSR Account, three financial years. If no, apply the six-month rule and a Schedule VII Fund.
6State the Board's duty to give reasons in its report under section 134(3)(o), and mention the committee composition and policy disclosure.
7Check for impact assessment if the ₹10 crore average threshold is met, and for the exemption from the committee if the amount is ₹50 lakh or less.
8Close with the consequence: penalty under section 135(7), calculated at the lower of the two limits for the company and for each officer.

Quickest way: Average, 2%, shortfall, route

When to use it: Use this when a numerical question gives profits and spending and asks what the company must do about the unspent amount.

Write the three years' section 198 profits. Add them and divide by three.
Multiply by 2% to get the obligation. Subtract the amount spent to get the shortfall.
Tag the shortfall: ongoing project or not.
Ongoing project: 30 days to the Unspent CSR Account, then three financial years. Otherwise: six months to a Schedule VII Fund.
Add one line each on the Board report reasons and the penalty if the company defaults.

Common mistakes in CSR Expenditure, Unspent Amount and Reporting

Using the current year's profit instead of the average of the three preceding years.
Students treat CSR like a tax on this year's profit.
Fix: Always write 'average of the three immediately preceding financial years' and list each year separately.
Using book profit or tax profit instead of section 198 net profit.
The question gives several profit figures and the student picks the largest.
Fix: Start from the section 198 rules: exclude capital profits and unrealised or revaluation gains, and deduct the section 198(4) items. Do not deduct income-tax under section 198(5)(a).
Applying the 30-day rule to all unspent amounts.
Students merge sub-sections (5) and (6).
Fix: The 30-day Unspent CSR Account is only for ongoing projects. Other unspent amounts go to a Schedule VII Fund within six months.
Saying the Unspent CSR Account money can be spent at any time.
The three-year limit is forgotten.
Fix: State it as 'within three financial years from the date of transfer', then the 30-day transfer to a Schedule VII Fund after the third financial year.
Mixing up the two penalty limits and quoting only one.
Both use 'whichever is less' and similar numbers.
Fix: Company: twice the amount or ₹1 crore. Officer: one-tenth of the amount or ₹2 lakh. Calculate both and take the lower in each case.
Treating impact assessment as compulsory for every company.
Students remember 'impact assessment' without its thresholds.
Fix: Say it applies under the CSR Rules to companies with an average CSR obligation of ₹10 crore or more, for eligible projects only.

Worked examples

Example 1

Sunrise Textiles Ltd, a covered company, has section 198 net profits of ₹40 crore, ₹52 crore and ₹58 crore in the three preceding financial years. In the current year it spent ₹70 lakh on CSR, of which ₹30 lakh remained unspent for an ongoing project. Compute the CSR obligation and state what the company must do.

Show the solution

Total of the three years = 40 + 52 + 58 = ₹150 crore.
Average net profit = 150 ÷ 3 = ₹50 crore.
Obligation = 2% × ₹50 crore = ₹1 crore (₹1,00,00,000).
The company spent ₹70 lakh, so the shortfall is ₹30 lakh. This relates to an ongoing project, so section 135(6) applies.
The company must transfer ₹30 lakh to the Unspent CSR Account in a scheduled bank within thirty days from the end of the financial year.
It must spend this money within three financial years from the date of transfer. If it does not, it must transfer the balance to a Schedule VII Fund within thirty days from completion of the third financial year.
The Board's report must disclose the reasons for the shortfall.

Answer: The obligation is ₹1 crore. The ₹30 lakh shortfall goes to the Unspent CSR Account within 30 days of year end, must be spent within three financial years, and otherwise goes to a Schedule VII Fund.

Example 2

Using the facts of the previous example, assume Sunrise Textiles Ltd defaults on the section 135(6) requirement and does not transfer the ₹30 lakh to the Unspent CSR Account. What penalty can be imposed on the company, and on each officer in default?

Show the solution

The default is in complying with section 135(6): the company did not transfer ₹30 lakh to the Unspent CSR Account. Section 135(7) applies to default under sub-section (5) or (6).
Amount required to be transferred = ₹30 lakh.
Company: twice the amount required to be transferred = 2 × ₹30 lakh = ₹60 lakh. The alternative limit is ₹1 crore. The lower is ₹60 lakh.
Officer in default: one-tenth of the amount = ₹3 lakh. The alternative limit is ₹2 lakh. The lower is ₹2 lakh.
Conclude with the penalty for each person.

Answer: The company is liable to a penalty of ₹60 lakh. Each officer in default is liable to a penalty of ₹2 lakh.

Exam tips

Show the average-net-profit calculation line by line, with the figures for each year. Marks are given for the method.
Write sub-section numbers when you are sure of them: 135(5) for spending and the six-month rule, 135(6) for ongoing projects, 135(7) for penalty, 135(9) for the committee exemption.
In case questions, ask first whether the unspent amount relates to an ongoing project. Use this to choose between the two routes.
Keep impact assessment and the set-off period as rule-based points and say they come from the CSR Rules, not section 135.
End each answer with a practical compliance point: Board report disclosure, policy on the website, or the Unspent CSR Account details.

Practice questions from Guidelines on CSR

CSR Expenditure, Unspent Amount and Reporting 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 Reporting: frequently asked questions

What is the difference between an ongoing project and other than ongoing project in CSR?

An ongoing project is a multi-year project as defined in the CSR Rules, and its unspent money goes to the Unspent CSR Account under section 135(6). Any other unspent amount goes to a Schedule VII Fund within six months of year end under section 135(5).

Within how many days must unspent CSR money be moved to the Unspent CSR Account?

Within thirty days from the end of the financial year, for an ongoing project. The company then has three financial years from the date of transfer to spend it.

Can excess CSR spending be carried forward?

Yes. The third proviso to section 135(5) allows the excess to be set off against the requirement of succeeding years in the prescribed manner. Under the CSR Rules, the set-off is allowed for up to three succeeding financial years, and the Board must approve it on the CSR Committee's recommendation.

Is impact assessment compulsory for every company?

No. Under the CSR Rules, it applies to companies with an average CSR obligation of ₹10 crore or more in the three preceding years, and only for eligible projects. The cost is limited to a prescribed portion of CSR spending.