Corporate Social Responsibility (CSR) is mandatory for qualifying companies under Section 135 of the Companies Act 2013. India was one of the first countries to make CSR legally mandatory, requiring eligible companies to spend at least 2% of average net profits of the preceding three financial years on CSR activities.
Which Companies Must Comply with CSR?
Any company (including foreign company branch/project) that meets any one of the following in the immediately preceding financial year:
- Net Worth ≥ Rs. 500 crore, OR
- Turnover ≥ Rs. 1,000 crore, OR
- Net Profit ≥ Rs. 5 crore
If a company qualifies in one year, it must comply in the next financial year, even if it falls below the threshold in the next year.
CSR Spend Requirement
- Minimum 2% of average net profit of the preceding 3 financial years
- Net profit = profit computed per Companies Act (not ITA) — before tax
- Dividends from domestic subsidiaries are excluded from net profit
- If prescribed CSR amount < Rs. 50 lakh, the company need not constitute a CSR Committee (board directly handles CSR)
CSR Committee
- Mandatory for companies with CSR obligation > Rs. 50 lakh
- At least 3 directors, including 1 independent director (listed/public companies)
- For unlisted private companies: 2 directors (independent director not mandatory)
Schedule VII — Eligible CSR Activities
- Eradicating hunger, poverty, malnutrition
- Promoting healthcare, sanitation, safe drinking water
- Education, vocational skills, livelihoods
- Gender equality, women empowerment
- Environmental sustainability, ecological conservation
- National Heritage protection, art and culture
- Armed forces veterans, war widows
- Rural development projects
- Swachh Bharat Kosh, Clean Ganga Fund
- PM CARES Fund
What is NOT Eligible as CSR?
- Activities that benefit only employees and their families
- Political contributions
- Sponsorships for marketing/brand promotion
- Contributions to set-up CSR infrastructure costs claimed as CSR expense
Unspent CSR Amount
If CSR spend is less than prescribed 2%:
- Ongoing projects: Unspent amount transferred to Unspent CSR Account within 30 days; must be spent within 3 years
- Other projects: Unspent amount transferred to PM Relief Fund / Schedule VII fund within 6 months of financial year end
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Frequently Asked Questions
Which companies must comply with CSR under Section 135?
Companies with net worth Rs. 500 crore+, turnover Rs. 1,000 crore+, or net profit Rs. 5 crore+ in the preceding financial year must comply.
How much must be spent on CSR?
Minimum 2% of average net profits of the preceding 3 financial years.
What happens to unspent CSR amounts?
Unspent amounts for ongoing projects go to the Unspent CSR Account (3 years to utilise). For other projects, unspent amounts must be transferred to PM Relief Fund within 6 months of year end.
Is employee welfare eligible as CSR?
No. Activities that benefit only employees and their families are specifically excluded from eligible CSR activities.
What is the penalty for CSR non-compliance?
The company faces a fine of twice the unspent amount or Rs. 1 crore, whichever is less. Officers face a fine of 1/10th of company fine or Rs. 2 lakh, whichever is less.
When is a CSR Committee not required?
When the CSR obligation (2% of average net profit) is less than Rs. 50 lakh. In such cases, the board itself can handle CSR decisions without a committee.
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