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

Unspent CSR Amount and Penalties under Section 135

Updated 11 October 2026 · Fact-checked

If a company does not spend its required CSR amount, the Board must explain why in its report. Unspent money for an ongoing project goes to the Unspent CSR Account within 30 days of year end and must be spent in three years. Other unspent money goes to a Schedule VII Fund within six months.

Understand Unspent CSR Amount and Penalties

Section 135(5) requires a company to spend at least two per cent of its average net profit of the three preceding financial years. Sometimes the full amount is not spent. The law then asks one question: does the unspent amount relate to an ongoing project?

If it does not, the money is not kept by the company. The Board must state the reasons for not spending in its report under section 134(3)(o). The company must also transfer the unspent amount to a Fund specified in Schedule VII within six months of the expiry of the financial year.

If it does relate to an ongoing project (one that meets the prescribed conditions), the route is different. Under section 135(6), the company opens a special account in a scheduled bank, called the Unspent Corporate Social Responsibility Account, one for each financial year. It moves the unspent amount there within 30 days from the end of the financial year.

The company then has three financial years from the date of transfer to spend that money on the project. If it still has money left, it must transfer the balance to a Schedule VII Fund within 30 days from the date of completion of the third financial year.

Default attracts penalty under section 135(7). The company pays a penalty of twice the amount that should have been transferred, or ₹1 crore, whichever is less. Each officer in default pays one-tenth of that amount, or ₹2 lakh, whichever is less. Section 446B may reduce penalties for small companies, start-up companies, One Person Companies and Producer Companies.

Key rules to remember

Minimum CSR spend
2% × average net profit of the three immediately preceding financial years
Net profit is calculated under section 198, excluding prescribed sums. A company not yet three years old uses the immediately preceding years it has completed.
Unspent amount, no ongoing project
Board report reasons (s.134(3)(o)) + transfer to Schedule VII Fund within 6 months of the expiry of the financial year
Section 135(5), second proviso.
Unspent amount, ongoing project
Transfer to Unspent CSR Account within 30 days from end of financial year; spend within 3 financial years from date of transfer
Section 135(6). A separate account is opened for each financial year.
Balance after three years
Transfer to Schedule VII Fund within 30 days from completion of the third financial year
Applies if the Unspent CSR Account money is still not spent.
Company penalty
Lower of (2 × amount required to be transferred) and ₹1 crore
Section 135(7).
Officer in default penalty
Lower of (1/10 × amount required to be transferred) and ₹2 lakh
Section 135(7). Applies to every officer in default.
Lesser penalty for certain companies
Not more than half the specified penalty, capped at ₹2 lakh (company) and ₹1 lakh (officer or other person)
Section 446B: One Person Company, small company, start-up company or Producer Company.
Excess spending set-off
Excess spend may be set off against requirement of succeeding financial years, as prescribed
Section 135(5), third proviso. Number of years and manner are as prescribed.

How to solve Unspent CSR Amount and Penalties questions

Use this order for any case question on unspent CSR. It keeps the provision, facts and conclusion separate, which is how marks are given.

  1. 1Compute the required spend: 2% of the average net profit of the three preceding years. Do this only if figures are given.
  2. 2Find the unspent amount: required spend minus actual CSR spend.
  3. 3Decide if the unspent amount relates to an ongoing project that meets the prescribed conditions.
  4. 4If not an ongoing project, state the Board report reasons and the transfer to a Schedule VII Fund within six months of the expiry of the financial year.
  5. 5If an ongoing project, state transfer to the Unspent CSR Account within 30 days from the year end, and spending within three financial years of transfer.
  6. 6Add the fallback: any balance after three years goes to a Schedule VII Fund within 30 days of completing the third year.
  7. 7If the company defaulted, compute the penalty for the company and for officers using the lower-of rule.
  8. 8Check if section 446B applies, then write a short conclusion.

Quickest way: Two-route test for unspent CSR

When to use it: Use when a question gives a company, an unspent amount and asks what the company must do or what penalty applies.

  1. Ask: ongoing project or not?
  2. Not ongoing: Fund under Schedule VII, six months, Board report reasons.
  3. Ongoing: Unspent CSR Account, 30 days, then three years to spend.
  4. For penalty, write company: 2 × amount or ₹1 crore (lower). Officer: 1/10 × amount or ₹2 lakh (lower).
  5. Check the company type for section 446B, then conclude.

Common mistakes in Unspent CSR Amount and Penalties

  • Saying all unspent CSR goes to the Unspent CSR Account.

    Students remember the account name and forget it applies only to ongoing projects.

    Fix: First test for an ongoing project. Non-ongoing unspent money goes straight to a Schedule VII Fund.

  • Mixing up the time limits: six months, 30 days and three years.

    Three different periods apply to three different transfers.

    Fix: Link each period to its event: six months for non-ongoing unspent money; 30 days from year end into the account; three financial years to spend; 30 days after the third year to the Fund.

  • Taking the penalty as twice the unspent amount without the ₹1 crore cap.

    Students stop at the first limb of the rule.

    Fix: Always compute both limbs and pick the lower. Do the same for the officer penalty with ₹2 lakh.

  • Computing the penalty on the CSR requirement instead of the amount to be transferred.

    The two figures are often confused in case facts.

    Fix: Use the amount required to be transferred to the Fund or the Unspent CSR Account.

  • Forgetting the Board report disclosure of reasons.

    Students focus on the money flow only.

    Fix: State that the Board specifies the reasons for not spending in its report under section 134(3)(o).

  • Ignoring section 446B for small and start-up companies.

    It sits outside section 135, so it is overlooked.

    Fix: Check the company type. If it is a One Person Company, small company, start-up company or Producer Company, the penalty is not more than half, with the stated caps.

Worked examples

Example 1

Kaveri Textiles Ltd must spend ₹80 lakh on CSR for FY 2026-27 but spends only ₹50 lakh. The ₹30 lakh shortfall does not relate to any ongoing project. What must the Board do?

Show the solution
  1. Unspent amount = ₹80 lakh − ₹50 lakh = ₹30 lakh.
  2. The shortfall is not for an ongoing project, so section 135(6) does not apply.
  3. Under section 135(5), the Board must specify the reasons for not spending in its report under section 134(3)(o).
  4. The company must transfer ₹30 lakh to a Fund specified in Schedule VII within six months of the expiry of the financial year.
  5. If it fails, section 135(7) applies: penalty on the company is the lower of 2 × ₹30 lakh = ₹60 lakh and ₹1 crore, so ₹60 lakh.
  6. Each officer in default pays the lower of ₹3 lakh (one-tenth of ₹30 lakh) and ₹2 lakh, so ₹2 lakh.

Answer: The Board must give reasons in its report and transfer ₹30 lakh to a Schedule VII Fund within six months. On default, the company's penalty is ₹60 lakh and each officer in default pays ₹2 lakh. Section 446B may reduce this if the company is of a type covered by it.

Example 2

Ganga Infra Ltd has ₹40 lakh unspent for FY 2026-27, all relating to an ongoing project meeting the prescribed conditions. Explain the compliance steps and what happens if ₹10 lakh remains unspent after the period allowed.

Show the solution
  1. The unspent amount relates to an ongoing project, so section 135(6) applies.
  2. Within 30 days from the end of the financial year, the company transfers ₹40 lakh to the Unspent Corporate Social Responsibility Account, opened in a scheduled bank for that financial year.
  3. The company must spend the amount on the project within three financial years from the date of transfer.
  4. If ₹10 lakh is still unspent, the company must transfer it to a Fund specified in Schedule VII within 30 days from the date of completion of the third financial year.
  5. Failure to do so attracts section 135(7): company penalty is the lower of 2 × ₹10 lakh = ₹20 lakh and ₹1 crore, so ₹20 lakh.
  6. Each officer in default pays the lower of ₹1 lakh (one-tenth of ₹10 lakh) and ₹2 lakh, so ₹1 lakh.

Answer: Transfer ₹40 lakh to the Unspent CSR Account within 30 days of year end and spend it within three financial years. Transfer the remaining ₹10 lakh to a Schedule VII Fund within 30 days of the third year's completion. On default, the penalty is ₹20 lakh on the company and ₹1 lakh on each officer in default.

Exam tips

  • Begin every answer with the ongoing project test. It decides which route and time limit apply.
  • Quote section 135(5) for the six-month Fund transfer and section 135(6) for the Unspent CSR Account. Use section 135(7) for penalty.
  • Show the lower-of working for penalties in numbers. Examiners give marks for the calculation.
  • Mention the Board report disclosure under section 134(3)(o). It is easy to miss.
  • Add one line on section 446B if the facts mention a small company, start-up or One Person Company.

Practice questions from Corporate Social Responsibility (CSR)

Unspent CSR Amount and Penalties in other exams

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

Unspent CSR Amount and Penalties: frequently asked questions

What happens to unspent CSR money that 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 unspent amount to a Fund specified in Schedule VII within six months of the expiry of the financial year.

What is the Unspent CSR Account under section 135(6)?

It is a special account in a scheduled bank, opened for each financial year. Unspent money for an ongoing project is moved there within 30 days from the end of the financial year. The company must spend it within three financial years from the date of transfer.

What is the penalty for not complying with section 135(5) or 135(6)?

The company pays twice the amount required to be transferred or ₹1 crore, whichever is less. Every officer in default pays one-tenth of that amount or ₹2 lakh, whichever is less.

Do smaller companies get a lower CSR penalty?

Section 446B says a One Person Company, small company, start-up company or Producer Company pays not more than half of the specified penalty. The maximum is ₹2 lakh for the company and ₹1 lakh for an officer in default or any other person.