CSR Overview — Corporate Social Responsibility Compliance

Q: Which companies are required to comply with CSR under Section 135?

Companies with net worth ≥ ₹500 crore, turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore in the immediately preceding financial year must constitute a CSR Committee and spend 2% of average net profits on Schedule VII activities.

Q: What activities qualify as CSR under Schedule VII?

Schedule VII includes: hunger/poverty eradication, education, gender equality, environmental sustainability, national heritage, armed forces veterans, sports, PM National Relief Fund, rural development, slum development, and disaster management.

Q: What happens to unspent CSR funds at year-end?

Transfer to Unspent CSR Account within 30 days of year-end. For ongoing projects: utilise within 3 years or transfer to Schedule VII fund. For non-ongoing: transfer to Schedule VII fund within 6 months.

Q: Can a company implement CSR through an external implementing agency?

Yes, through registered NGOs or entities registered under Form CSR-1 with the ROC. Implementing agencies must file CSR-1 before receiving CSR funds. Funds cannot go to entities without CSR-1 registration.

Q: What is the penalty for non-compliance with CSR spending obligations?

Company: penalty of twice unspent amount or ₹1 crore, whichever is less. Every officer in default: ₹2 lakh to ₹25 lakh penalty. Applies in addition to the obligation to transfer unspent amounts.

Complete CSR Compliance Under Section 135 of the Companies Act, 2013 — Policy, Spending, Reporting, and Filing

Section 135 of the Companies Act, 2013 mandates that every company meeting specified financial thresholds must spend a minimum of 2% of its average net profit of the preceding three financial years on Corporate Social Responsibility activities. This obligation extends to CSR policy formulation, committee constitution, project selection and implementation, annual reporting, and mandatory ROC filings.

Our CSR compliance services cover the complete lifecycle — from eligibility assessment and CSR policy drafting through implementation support, annual reporting in the Board's Report, and mandatory filing of CSR-1 (implementing agency registration) and CSR-2 (annual CSR report). Non-compliance with CSR spending obligations now attracts mandatory penalties under the Companies Act — making proactive CSR management essential.

Our CSR Compliance Services

CSR Eligibility Assessment

Determining whether a company meets the Section 135 thresholds — net worth ₹500 crore+, turnover ₹1,000 crore+, or net profit ₹5 crore+ — and calculating the mandatory CSR spend for the year.

CSR Policy Drafting

Drafting of a comprehensive CSR Policy covering the company's CSR vision, preferred activities from Schedule VII, implementation approach, and monitoring framework — for board approval.

CSR Committee Constitution

Advising on constitution of the CSR Committee (minimum 3 directors including at least 1 independent director for listed companies) and preparation of committee terms of reference.

CSR Project Selection & Implementation Support

Identifying eligible CSR activities under Schedule VII, selecting implementing agencies, and structuring CSR projects to ensure compliance with the CSR Rules and income tax provisions.

Annual CSR Report (Board's Report)

Preparation of the Annual CSR Report as required to be included in the Board's Report — covering composition, spending details, project-wise breakup, and explanation for any unspent amount.

CSR-2 Filing

Filing of Form CSR-2 (Annual Report on CSR Activities) with the ROC — mandatory for companies meeting the Section 135 threshold, filed as an addendum to the MGT-7 annual return.

Key CSR Compliance Facts

CSR is mandatory for companies with net worth ≥ ₹500 crore, or turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore in the immediately preceding financial year
Mandatory spend is 2% of average net profits of the preceding three financial years
Unspent CSR amounts must be transferred to an Unspent CSR Account within 30 days of financial year end and utilised within 3 years
Unspent amounts for ongoing projects must be transferred to a Schedule VII fund (like PM CARES) within 6 months if not utilised within 3 years
Non-compliance penalty: company faces penalty of twice the unspent amount or ₹1 crore, whichever is less; officer faces ₹2 lakh to ₹25 lakh penalty
CSR-2 must be filed with the ROC as an addendum to MGT-7 for companies meeting the threshold
Activities in Schedule VII include education, healthcare, environment, rural development, gender equality, and 16 other categories

Frequently Asked Questions

Which companies are required to comply with CSR under Section 135?

Every company — including private companies, foreign companies, and holding or subsidiary companies — that meets any one of the following criteria in the immediately preceding financial year: (a) net worth of ₹500 crore or more; (b) turnover of ₹1,000 crore or more; or (c) net profit of ₹5 crore or more. The company must constitute a CSR Committee and spend 2% of average net profits of the preceding three financial years on Schedule VII activities.

What activities qualify as CSR under Schedule VII?

Schedule VII covers: eradicating hunger, poverty, and malnutrition; promoting education, including special education; promoting gender equality and women empowerment; ensuring environmental sustainability; protection of national heritage; measures for the benefit of armed forces veterans; promoting sports; contribution to PM's National Relief Fund or Schedule VII funds; technology incubators at academic institutions; rural development; slum area development; and disaster management. Activities must benefit the general public and cannot be exclusively for employees or their families.

What happens to unspent CSR funds at year-end?

Unspent CSR amounts must be transferred to an Unspent CSR Account in a scheduled bank within 30 days of the end of the financial year. For ongoing multi-year projects, the unspent amount must be utilised within 3 financial years — failing which it must be transferred to a fund specified in Schedule VII (such as PM CARES). For non-ongoing projects, unspent amounts must be transferred to a Schedule VII fund within 6 months of the financial year end.

Can a company implement CSR through an external implementing agency?

Yes. Companies may implement CSR activities through: registered trusts, registered societies, or Section 8 companies (NGOs) established by the company, its holding, subsidiary, or associate company; or entities registered under Form CSR-1 with the ROC. The implementing agency must be registered in the CSR-1 portal before receiving CSR funds. Funds cannot be given to an entity that has not filed CSR-1 with MCA.

What is the penalty for non-compliance with CSR spending obligations?

Under Section 135(7), if a company fails to spend the requisite CSR amount, the company is liable to a penalty of twice the unspent amount or ₹1 crore, whichever is less. Every officer in default is liable to a penalty between ₹2 lakh and ₹25 lakh. These penalties apply in addition to the obligation to transfer unspent amounts to an Unspent CSR Account or Schedule VII fund. The penalty regime replaced the earlier explain-and-disclose approach from FY 2020-21 onwards.