CSR under Section 135 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
There's a persistent belief that CSR is a large-company obligation.
It isn't. Section 135 applies to every company — private, public, listed, unlisted — that crosses any one of three thresholds. And one of those thresholds is a net profit of ₹5 crore, which a profitable mid-sized private company reaches comfortably.
Since the 2020 amendment, CSR also stopped being a "comply or explain" regime. Unspent amounts have to be transferred, and not transferring them is a penalty.
Triggered by ₹500 crore net worth, ₹1,000 crore turnover, or ₹5 crore net profit — any one. Spend 2% of the average net profit of the three preceding years. No CSR Committee needed if the spend is under ₹50 lakh — the Board does it. Unspent money goes to a special account in 30 days (ongoing project) or a Schedule VII Fund in six months (everything else).
Does it apply to you?
Every company having, during the immediately preceding financial year:
- net worth of ₹500 crore or more, or
- turnover of ₹1,000 crore or more, or
- net profit of ₹5 crore or more.
The thresholds are disjunctive. Crossing any one triggers the section — which is why a modestly sized but profitable private company can land inside CSR while a large loss-making one stays outside.
But which "net profit"? Not your profit before tax. Net profit here is computed under Section 198 — the same computation used for managerial remuneration — and specifically excludes:
- profit from any overseas branch, however operated; and
- dividends received from other Indian companies that are themselves covered by and complying with Section 135.
So the trigger isn't the number on the face of your P&L. It's the Section 198 computation, which adds back some items and disallows others. Get that computed before concluding you're outside.
Ceasing to be covered: where a company fails to meet the criteria for three consecutive financial years, the obligation falls away until it meets them again.
Do you need a CSR Committee?
The default: three or more directors, at least one of whom is independent.
Two relaxations mean most private companies need neither.
First — where a company isn't required to appoint an independent director (which is every private company), the Committee needs only two or more directors. No independent director required.
Second, and more useful — under Section 135(9), where the amount to be spent does not exceed ₹50 lakh, no Committee is required at all, and the Board discharges its functions.
For most private companies newly crossing the ₹5 crore net profit line, the 2% obligation will be comfortably under ₹50 lakh. So no Committee.
The functions — whoever performs them — are to formulate and recommend a CSR Policy covering Schedule VII activities, recommend the expenditure, and monitor the policy. The Board then approves the policy, discloses it in the Board's Report, puts it on the website if there is one, and ensures the activities are actually undertaken.
How much do you spend?
At least 2% of the average net profits of the three immediately preceding financial years — or of however many years since incorporation, if fewer than three.
Worked example. Section 198 net profits: ₹6 crore (FY 2024-25), ₹8 crore (FY 2025-26), ₹10 crore (FY 2026-27). The ₹5 crore threshold was crossed in FY 2026-27, so Section 135 applies in FY 2027-28.
- Average of the three preceding years = (6 + 8 + 10) / 3 = ₹8 crore
- CSR obligation for FY 2027-28 = 2% = ₹16 lakh
- Under ₹50 lakh → no Committee; the Board performs the function.
Give preference to the local area where the company operates.
What happens to money you don't spend
This is where CSR stopped being advisory.
If it relates to an ongoing project — transfer the unspent amount within thirty days of the year end to a special scheduled-bank account called the Unspent Corporate Social Responsibility Account. Spend it within three financial years of the transfer. If you don't, transfer it to a Schedule VII Fund within thirty days of the third year closing.
If it doesn't relate to an ongoing project — transfer to a Schedule VII Fund within six months of the year end.
"Ongoing project" means a multi-year project with timelines not exceeding three years excluding the year it started — including a project initially approved as single-year whose duration the Board has extended beyond a year on reasonable justification.
Schedule VII Funds include the PM National Relief Fund, PM CARES, the Clean Ganga Fund, the Swachh Bharat Kosh, and specified Central Government funds.
The penalty for not transferring:
| Who | Penalty |
|---|---|
| The company | Twice the amount required to be transferred, or ₹1 crore, whichever is less |
| Every officer in default | One-tenth of that amount, or ₹2 lakh, whichever is less |
And the good news: where you overspend, the excess may be set off against your obligation for the next three financial years — provided the excess excludes any surplus arising out of the CSR activities themselves, and the Board passes a resolution to that effect.
What actually counts as CSR
Activities must fall within Schedule VII — hunger and poverty eradication, education, gender equality, environmental sustainability, national heritage, armed forces veterans, sport, specified funds, incubators and research funds, rural development, slum area development, and more.
What does not count:
- activities in the normal course of business (narrow exception for R&D on new vaccines, drugs and medical devices);
- activities outside India, except training Indian sports personnel representing a State or India;
- political contributions, directly or indirectly;
- activities benefitting your own employees;
- sponsorships for marketing benefit for your products or services;
- anything done to fulfil another statutory obligation.
That third-from-last one is the common trap: a sponsorship that puts your logo on a school wall is marketing, not CSR.
Implementing agencies must be registered by filing Form CSR-1 and holding a CSR Registration Number before undertaking any activity — a Section 8 company, or a registered public trust or society registered under Sections 12A and 80G, either established by you or with a track record of at least three years in similar work.
What you have to report
Board's Report — an annual CSR report in the prescribed Annexure format, with the policy, Committee composition (where applicable), average net profit, prescribed expenditure, amounts spent and unspent, transfers made, and impact assessment where required.
CSR-2 — a report to the Registrar as an addendum to AOC-4. AOC-4 →
Impact assessment — where your average CSR obligation over the three preceding years is ₹10 crore or more, an independent agency must assess projects with outlays of ₹1 crore or more completed at least a year before the study.
Website — the Committee composition, the CSR Policy and the Board-approved projects, if you have a website.
Key takeaways
- Any one of three thresholds triggers it — and ₹5 crore net profit catches ordinary private companies.
- Net profit means the Section 198 computation, not your accounting PBT.
- No independent director needed, and no Committee at all below a ₹50 lakh spend.
- 2% of the three-year average, not of the current year.
- Unspent money must move — 30 days for ongoing projects, six months otherwise.
- Overspending carries forward three years, with a Board resolution.
- Sponsorship for marketing benefit isn't CSR.
- CSR-2 goes with AOC-4.
Read next
- Compliance Checklist for a Private Limited Company
- Form AOC-4: Filing Financial Statements
- Internal Audit and Secretarial Audit Thresholds
- Penalties for Non-Compliance: Section-wise Chart
Disclaimer: The CSR Rules have been amended repeatedly since 2021. Positions stated as on 4 September 2026. The Section 198 computation needs care — take professional advice before concluding on applicability.