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Environmental, Social and Governance (ESG) - Principles and Practice · Corporate Social Responsibility (CSR)

Applicability of Section 135 and CSR Committee

Updated 11 October 2026 · Fact-checked

Section 135 applies to a company that, in the immediately preceding financial year, had net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. Such a company must form a CSR Committee of three or more directors, including one independent director, unless the CSR amount is up to ₹50 lakh.

Understand Applicability of Section 135 and CSR Committee

Section 135 of the Companies Act, 2013 makes CSR a legal duty for larger companies. It does not apply to every company. You first test whether the company crosses a size threshold. Only then do the committee, policy and spending duties follow.

The test has three limbs, and meeting any one is enough: net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. The test looks at the immediately preceding financial year. So a company that crossed a limit in FY 2025-26 is covered in FY 2026-27. Net profit for this section is calculated under section 198, and the Explanation excludes sums as prescribed.

A covered company must constitute a CSR Committee of the Board with three or more directors, of whom at least one is an independent director. If the company is not required to appoint an independent director under section 149(4), the committee needs two or more directors. The Board's report under section 134(3) must disclose the committee's composition.

The committee has three functions. It formulates and recommends a CSR Policy to the Board, showing activities in the areas or subjects specified in Schedule VII. It recommends the amount of expenditure on those activities. It monitors the CSR Policy from time to time. The Board then approves the policy after considering the committee's recommendations, discloses its contents in the Board's report, and places it on the company's website, if any. The Board must also ensure the activities are undertaken.

There is a relief in sub-section (9). If the amount to be spent under sub-section (5) does not exceed ₹50 lakh, the committee need not be constituted. The Board of Directors discharges the committee's functions instead. The duty to spend still applies.

Key rules to remember

Applicability test
Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore (in the immediately preceding financial year)
Any one limb is enough. The limits are 'or more', so exactly equal to the limit is covered.
Committee size
At least 3 directors, including at least 1 independent director
Where the company need not appoint an independent director under section 149(4), at least 2 directors.
Committee functions
Formulate and recommend CSR Policy + recommend expenditure + monitor the policy
Section 135(3). The Board approves the policy under section 135(4).
Small-spend relief
CSR amount ≤ ₹50 lakh → no committee; the Board discharges its functions
Section 135(9). Applies where the amount to be spent under sub-section (5) does not exceed ₹50 lakh.
Minimum CSR spend
2% × average net profit of the 3 immediately preceding financial years
Section 135(5). Net profit is computed under section 198.
Disclosure
Board's report (section 134(3)) discloses committee composition; policy contents disclosed in report and on website, if any
Section 135(2) and 135(4)(a).

How to solve Applicability of Section 135 and CSR Committee questions

Use this order for any question on applicability or the CSR Committee. It keeps your answer in the provision, analysis, conclusion format.

  1. 1Identify the financial year being tested. Applicability depends on the immediately preceding financial year.
  2. 2Compare each figure with the three limits: net worth ₹500 crore, turnover ₹1,000 crore, net profit ₹5 crore. One limb is enough.
  3. 3If none is met, conclude that section 135 does not apply for the year, and stop.
  4. 4If applicable, compute the CSR amount: 2% of the average net profit of the three immediately preceding years (or the shorter period if the company is newer).
  5. 5Compare the amount with ₹50 lakh. If it does not exceed ₹50 lakh, the Board performs the committee's functions. Otherwise constitute the committee.
  6. 6For the committee, check size and independence: three or more directors with at least one independent director, or two or more if no independent director is required under section 149(4).
  7. 7State the functions and the Board's duties: policy, expenditure recommendation, monitoring; Board approval, disclosure and website placement.
  8. 8Conclude clearly and add practical points, such as the disclosure of composition in the Board's report.

Quickest way: Three-limit check, then the ₹50 lakh gate

When to use it: Use this when a question gives figures and asks whether a CSR Committee is required.

  1. Underline the year. Use the year immediately before the current one.
  2. Tick any one of ₹500 crore, ₹1,000 crore, ₹5 crore. No tick means not applicable.
  3. Work out 2% of the three-year average profit.
  4. Is it ₹50 lakh or less? If yes, no committee, and the Board acts. If no, form a committee of at least three directors with one independent director.
  5. Write the conclusion in one sentence, citing section 135.

Common mistakes in Applicability of Section 135 and CSR Committee

  • Requiring all three thresholds to be met.

    Students read the list as cumulative.

    Fix: The test is 'or'. Meeting any one limb makes the company covered.

  • Testing the current year's figures instead of the preceding year's.

    The words 'immediately preceding financial year' are skimmed.

    Fix: Always identify the year in question first, then go one year back.

  • Saying a company with a CSR amount up to ₹50 lakh need not spend on CSR.

    Confusing exemption from the committee with exemption from the duty.

    Fix: Sub-section (9) removes only the committee. The Board discharges its functions and the spending duty continues.

  • Applying the ₹50 lakh relief to the net profit of ₹50 lakh.

    Mixing up the profit figure with the amount to be spent.

    Fix: The ₹50 lakh test is on the amount to be spent under sub-section (5), which is generally 2% of the average net profit.

  • Demanding an independent director in every CSR Committee.

    Remembering the main rule but forgetting the proviso.

    Fix: If the company is not required to appoint an independent director under section 149(4), two or more directors suffice.

  • Using the single preceding year's profit to compute the spend.

    Mixing the applicability test with the spending formula.

    Fix: The spend uses the average net profit of the three immediately preceding years. Applicability uses the immediately preceding year.

Worked examples

Example 1

Sundaram Textiles Ltd, an unlisted public company, had in FY 2025-26 a net worth of ₹320 crore, turnover of ₹870 crore and net profit of ₹6.4 crore. Is it required to constitute a CSR Committee in FY 2026-27? Its average net profit of the three preceding years computed under section 198 is ₹5 crore.

Show the solution
  1. Provision: section 135(1) applies to a company with 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.
  2. Analysis: for FY 2026-27 the preceding year is FY 2025-26. Net worth ₹320 crore is below ₹500 crore. Turnover ₹870 crore is below ₹1,000 crore. Net profit ₹6.4 crore is above ₹5 crore, so one limb is met.
  3. So section 135 applies. The CSR amount is 2% × ₹5 crore = ₹10 lakh.
  4. Since ₹10 lakh does not exceed ₹50 lakh, section 135(9) applies. The committee need not be constituted.
  5. Conclusion: the company is covered by section 135 and must spend ₹10 lakh. No CSR Committee is required, and the Board of Directors discharges the committee's functions.

Answer: Section 135 applies because net profit exceeds ₹5 crore. The CSR amount is ₹10 lakh, so no committee is required and the Board performs its functions.

Example 2

Himalaya Cements Ltd is covered by section 135 and its CSR amount for the year is ₹3.2 crore. It has seven directors, including three independent directors. Advise on the constitution and functions of the CSR Committee.

Show the solution
  1. Provision: under section 135(1), a covered company must constitute a CSR Committee of three or more directors, at least one being independent.
  2. Analysis: the CSR amount of ₹3.2 crore exceeds ₹50 lakh, so section 135(9) does not help. The committee is mandatory. The company has independent directors, so the proviso for two directors does not arise.
  3. Constitution: appoint at least three directors, including at least one independent director. For instance, the Board may appoint four directors with two independent directors. The composition must be disclosed in the Board's report under section 134(3).
  4. Functions under section 135(3): formulate and recommend a CSR Policy indicating Schedule VII activities; recommend the amount of expenditure; monitor the policy from time to time.
  5. Board's role under section 135(4): approve the policy after considering the recommendations, disclose its contents in the Board's report, place it on the website if any, and ensure the activities are undertaken.
  6. Conclusion: the committee must be constituted with at least three directors including one independent director, and it performs the three functions.

Answer: A CSR Committee is mandatory. It needs at least three directors with one independent director, and it formulates the policy, recommends the expenditure and monitors the policy. The Board approves the policy and discloses it.

Exam tips

  • Write the provision first, then apply the figures. Examiners reward the order: provision, analysis, conclusion.
  • Always show the year being tested. Marks are often lost for using the wrong year.
  • Show the 2% computation even when the question only asks about the committee. It decides the ₹50 lakh point.
  • Cite section 135(1), (3), (4) and (9) by number where you are sure of them. State the independent director proviso in full.
  • Add a practical point: disclose the committee's composition in the Board's report and place the policy on the website if the company has one.

Practice questions from Corporate Social Responsibility (CSR)

Applicability of Section 135 and CSR Committee 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 and CSR Committee: frequently asked questions

Which companies must comply with Section 135?

A company with 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 limit is enough.

Is a CSR Committee required if the CSR amount is below ₹50 lakh?

No. Where the amount to be spent under section 135(5) does not exceed ₹50 lakh, the committee need not be constituted. The Board of Directors discharges its functions. The company must still spend the amount.

What is the minimum composition of the CSR Committee?

Three or more directors, with at least one independent director. If the company is not required to appoint an independent director under section 149(4), it must have two or more directors.

What are the functions of the CSR Committee?

It formulates and recommends the CSR Policy to the Board, recommends the amount of expenditure, and monitors the policy from time to time. The Board approves the policy and ensures the activities are carried out.