CSR and Social Governance · Social Impact Assessment and CSR Audit

Impact Assessment under CSR Rules: ₹10 Crore Applicability

Updated 11 October 2026 · Fact-checked

Under the CSR Rules, a company whose average CSR obligation under Section 135(5) in the three preceding financial years is ₹10 crore or more must get impact assessment done by an independent agency for eligible projects (outlay ₹1 crore or more, completed at least one year earlier). The report goes to the Board. Its cost counts as CSR up to the lower of 5% of that year's CSR spend or ₹50 lakh.

Understand Impact Assessment under CSR Rules

Section 135 makes the Board responsible for ensuring that the CSR activities in the CSR Policy are actually undertaken. Spending money is only half the job. Impact assessment asks a second question: did the project change anything for the people it was meant to help?

The Companies Act does not spell out impact assessment in the text of Section 135. The detail sits in the CSR Rules made under it, namely Rule 8(3) of the Companies (CSR Policy) Rules, 2014. Those Rules make impact assessment mandatory only for larger companies and larger projects, so the exam question is usually about who is covered and which projects qualify.

The trigger is the company's average CSR obligation, not its profit and not what it actually spent. The obligation for each year is the amount the Board must spend under Section 135(5): at least two per cent of the average net profits of the three financial years immediately preceding that year. Under Rule 8(3), if the average of the obligations of the three immediately preceding financial years is ₹10 crore or more, the company must do impact assessment.

Two tests apply to each project. The project should have an outlay of ₹1 crore or more, and it should have been completed at least one year before the impact study. The study must be done through an independent agency, meaning one that has no stake in running the project.

The company may book the cost of the study as CSR expenditure, but only within the cap in Rule 8(3): the lower of 5% of the total CSR expenditure for that financial year or ₹50 lakh. The impact assessment report is placed before the Board, and its executive summary (the impact assessment report as per the Rules) is annexed to the annual report on CSR in the Board's report.

Remember that where the amount to be spent under Section 135(5) is up to ₹50 lakh, the CSR Committee need not be constituted and the Board discharges its functions under Section 135(9). Impact assessment is a separate duty and applies at the other end of the scale.

Key rules to remember

Company-level trigger: Average CSR obligation of the 3 immediately preceding financial years ≥ ₹10 crore; Use the obligation under Section 135(5), meaning 2% of average net profit, not the amount actually spent. The trigger comes from Rule 8(3) of the Companies (CSR Policy) Rules, 2014.
Project-level trigger: Project outlay ≥ ₹1 crore AND completed at least 1 year before the study; Both conditions must be met. Ongoing projects and recently completed projects are not covered.
Who conducts it: Independent agency; The study is not done by the CSR team or the implementing agency of that project.
Reporting: Report placed before the Board; its executive summary annexed to the annual report on CSR; The Board sees the full findings and the public disclosure is through the executive summary in the Board's report.
Expenditure cap: Bookable as CSR = lower of (5% × total CSR expenditure of the year) and ₹50 lakh; The cap is in Rule 8(3). Any cost above the cap is a business expense and is not counted as CSR.
Section 135(5) obligation: CSR obligation = 2% × average net profit of the 3 preceding financial years; Net profit is calculated as per Section 198 with the prescribed exclusions.

How to solve Impact Assessment under CSR Rules questions

Use this order for any case question on impact assessment. It keeps your answer in the provision, analysis, conclusion format.

1Compute the CSR obligation for each of the three preceding years under Section 135(5), if not given. For each year it is 2% of the average net profit of the three years before that year.
2Find the average of those three obligations and compare it with ₹10 crore, the trigger under Rule 8(3) of the CSR Rules. If it is below, state that impact assessment is not mandatory, though the company may do it voluntarily.
3List the projects. Test each for outlay of ₹1 crore or more and for completion at least one year before the study. Exclude those that fail either test.
4State that the study must be done by an independent agency and say why the implementing agency or internal team does not qualify.
5Place the report before the Board and annex its executive summary to the annual report on CSR in the Board's report.
6Work out the bookable cost: 5% of the year's total CSR expenditure, compare with ₹50 lakh, take the lower, then compare with the actual fee.
7Conclude clearly: who is covered, which projects, how much can be treated as CSR, and what must be done next.

Quickest way: Three gates and one cap

When to use it: Use it for short-answer questions and numerical cases with limited time.

Gate 1: average CSR obligation of 3 years ≥ ₹10 crore? If no, stop.
Gate 2: project outlay ≥ ₹1 crore? If no, drop the project.
Gate 3: project completed at least 1 year ago? If no, drop it for now.
Cap: calculate 5% of the year's CSR spend and compare with ₹50 lakh. The lower figure is the most that counts as CSR.
Write one line each on the independent agency and on the Board report.

Common mistakes in Impact Assessment under CSR Rules

Testing the ₹10 crore threshold against actual CSR spend or net profit.
Students link CSR to profit and spending, and forget that the trigger is the obligation.
Fix: Always compute each year's obligation as 2% of that year's three-year average net profit, then average the three obligations, as Rule 8(3) requires.
Applying impact assessment to every project of a covered company.
The company-level test is remembered but the project-level tests are skipped.
Fix: Apply the ₹1 crore outlay and one-year completion tests to every project separately.
Treating the 5% or ₹50 lakh cap as 'the higher of'.
Students recall the two numbers but not the word that joins them.
Fix: The cap is whichever is less. Calculate both and pick the smaller.
Calculating the 5% on the CSR obligation instead of total CSR expenditure for the year.
Obligation and expenditure are used loosely as the same thing.
Fix: The base for the 5% is the total CSR expenditure of that financial year, as the Rules say.
Allowing the project's own implementing agency or the CSR team to do the study.
It seems practical and cheaper.
Fix: The Rules require an independent agency. Say that independence is the reason the findings are credible.
Stating that the cost above the cap can be carried to CSR in later years.
Confusion with the set-off of excess CSR spending under Section 135(5).
Fix: The cap is an annual limit on booking the study cost. The excess is the company's own expense. The set-off proviso covers excess CSR spend on projects, not this cost.

Worked examples

Example 1

Meridian Steels Ltd has CSR obligations under Section 135(5) of ₹11 crore, ₹9 crore and ₹12 crore in its three preceding financial years. It has three CSR projects: A, outlay ₹1.5 crore, completed 14 months ago; B, outlay ₹80 lakh, completed 2 years ago; C, outlay ₹2 crore, completed 8 months ago. Is impact assessment required, and for which projects?

Show the solution

Average CSR obligation = (11 + 9 + 12) ÷ 3 = 32 ÷ 3 = ₹10.67 crore.
₹10.67 crore is at least ₹10 crore, so the company must undertake impact assessment under the CSR Rules.
Project A: outlay ₹1.5 crore is at least ₹1 crore, and 14 months is more than one year. It qualifies.
Project B: outlay ₹80 lakh is below ₹1 crore. It is not covered, even though it was completed long ago.
Project C: outlay ₹2 crore qualifies, but completion was only 8 months ago, so the one-year condition is not met. It can be assessed once a year has passed.
The study must be done by an independent agency and the report placed before the Board.

Answer: The company is covered because its average obligation is about ₹10.67 crore. Only Project A must be assessed now. Project B fails the outlay test. Project C fails the one-year test for now.

Example 2

In a year, Meridian Steels Ltd spends ₹30 crore on CSR in total. The independent agency charges ₹2 crore for the impact assessment. How much of the fee can be booked as CSR expenditure? Repeat the calculation if the total CSR spend of the year were ₹8 crore and the fee ₹60 lakh.

Show the solution

Case 1: 5% of ₹30 crore = ₹1.5 crore.
The other limit is ₹50 lakh. ₹50 lakh is less than ₹1.5 crore, so the cap is ₹50 lakh.
The fee is ₹2 crore. Bookable amount is ₹50 lakh. The remaining ₹1.5 crore is not CSR expenditure.
Case 2: 5% of ₹8 crore = ₹40 lakh.
The other limit is ₹50 lakh. ₹40 lakh is less, so the cap is ₹40 lakh.
The fee is ₹60 lakh. Bookable amount is ₹40 lakh. The remaining ₹20 lakh is not CSR expenditure.

Answer: Case 1: ₹50 lakh can be booked as CSR, and ₹1.5 crore cannot. Case 2: ₹40 lakh can be booked as CSR, and ₹20 lakh cannot.

Exam tips

Open any numerical answer by computing the average CSR obligation. Show the three years and the division. Marks are given for the trigger test.
Write the conditions as a short list: ₹10 crore average obligation, ₹1 crore outlay, one year since completion, independent agency. Examiners look for all four.
For the cap, show both 5% and ₹50 lakh and state that the lower applies. Never give the answer without the comparison.
In case-based questions, end with practical advice: appoint the agency, place the report before the Board, annex its executive summary to the annual report on CSR in the Board's report and keep the fee within the cap.
Link the answer to Section 135(4)(b), under which the Board must ensure the CSR Policy activities are undertaken. Impact assessment helps the Board check this.

Practice questions from Social Impact Assessment and CSR Audit

Impact Assessment under CSR Rules in other exams

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

Impact Assessment under CSR Rules: frequently asked questions

Which companies must do CSR impact assessment?

Companies whose average CSR obligation under Section 135(5) over the three immediately preceding financial years is ₹10 crore or more. Others may do it voluntarily, but it is not mandatory for them.

Which CSR projects need impact assessment?

Projects with an outlay of ₹1 crore or more that were completed at least one year before the study. A project that fails either test is not required to be assessed.

Who can carry out the impact assessment?

An independent agency. The company's own CSR team and the agency that implemented the project should not do it, because the study must be objective.

How much of the impact assessment cost can be counted as CSR?

The company can book it as CSR expenditure up to the lower of 5% of the total CSR expenditure for that financial year or ₹50 lakh. Any balance is not counted as CSR.

Where is the impact assessment report disclosed?

The report is placed before the Board. Its executive summary (the impact assessment report as per the Rules) is annexed to the annual report on CSR, which forms part of the Board's report.