CA Divyang Gupta

Article discusses Corporate Social Responsibility Applicability/ CSR Applicability, Mandatory Expenditure on CSR, Medium of Expenditure on CSR Activity , Activities for CSR Expenditure, Responsibility of Board of Directors related CSR Applicability, Clarification/Other provision w.r.t to expenditure on CSR and Income Tax Deductibility for CSR Expenses.

Corporate Social Responsibility

With the enactment of the Companies Act, 2013, India has become the forerunner to mandate spend on Corporate Social Responsibility (CSR) activities through a statutory provision.

While many corporate houses have been traditionally engaged in doing CSR activities voluntarily, the new CSR provisions put formal and greater responsibility on companies in India to set out clear framework and processes to ensure strict compliance. However, what the Companies Act does is bring more companies into the fold and increase the total CSR spend. In this Articles we discusses CSR Provisions and CSR Applicability for Corporates.

Corporate Social Responsibility Applicability/ CSR Applicability:

CSR is Applicable from 1st April 2014

Section 135(1) of Company Act 2013 mandates the CSR expenditure / CSR Applicability for the following companies– Every company having

a) net worth of Rs.500 crore,

b) turnover of Rs.1000 crore

c) or net profit of Rs.5.00 crore

Where net profit excludes income from overseas branch & divided distributed by company on which this section apply.

–  If any company on which CSR provisions were applicable cease to come in above criteria for consecutive three years , they are not required to follow the provision of CSR

Mandatory Expenditure :

Section 135(5) mandates 2 percent of the Average net profit during the three immediately preceding financial years.

For Financial Year 2014-15 Calculation: Average net profit of FY 2011-12,2012-13 & 2013-14 needed to be considered.

Average Net Profit is calculated as per section 198 i.e. Calculation done for managerial calculation.

General query- Is admin expenditure & salary of dedicated CSR staff is to be included in CSR expenditure-

Clarification: Expenditure of the Company personnel/Agencies (Good track Record in 3 FY) & Administration overhead should not exceed 5 % of the Total CSR expenditure of the whole Financial Year

Medium of Expenditure on CSR Activity

1) Through Trust or Society may not be not established by company ,Holding or subsidiary company having good track record in last three years in undertaking the similar activities

2) Themselves

Activities for CSR Expenditure:

Schedule VII mandates expenditure for the following activity-

1) Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water,

2) Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects,

3) Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward ,

4) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources and maintaining quality of soil, air and water;

5) Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts,

6) Measures for the benefit of armed forces veterans, war widows and their dependents;

7) training to promote rural sports, nationally recognised sports, paraolympic sports and Olympic sports;

8) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;

9) contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government,

10) Rural development projects,

11) Slum Area Development

Responsibility of Board of Directors 

1) Board should take in account the recommendation of CSR committee & approve the CSR policy & also place it on company’s website. Ensure that the activities are carried out as per the policy

2) The Board report of the company must include the particulars specified in page 9 of the following link- 2014.pdf

Clarification/Other provision w.r.t to expenditure

1) Company must form CSR committee which will formulate and recommend to board the activities to be carried out & amount of expenditure to be incurred from time to time & monitor the CSR Policy.

Composition of CSR Committee

Type of Company Composition
Listed Three or More Director including at least one Independent Director
Unlisted & Private Three or more director , Independent director is mandatory required to be appointed.
Private having two Director Two Director
Foreign At least two person, one which must be company’s representative in india

2) Expenditure only on the employees of the company & their families will not form part of CSR activity .It means CSR can be incurred on the employee but not fully only part of the whole

3) It must be expended in India. Preference must be given to the local area in which the company

4) Any surplus arise of the CSR project will not form part of the Business income.

Income Tax Deductibility

As per the notified rules, it has been clarified CSR spends excludes “activities undertaken in pursuance of the normal course of business of the company”. If expenditure on CSR is not one contemplated under Section 37 of the I-T Act—which provides for allowance of any expenditure not being in the nature of capital expenditure or personal expenses of the assessee laid out exclusively for the purposes of the business or profession—we have tax issues emerging. The dilemma is if any expenditure on CSR is considered by the taxman as not expended wholly or exclusively for the purposes of the business, on the backdrop that the CSR rules excludes “activities undertaken in pursuance of the normal course of business of the company”, will this contribution be considered as permissible CSR spending. From a technical perspective, there is good ground to suggest that the required-to-spend amount is perceived by the legislature to be mandatory in nature..

Therefore if we go through the recent finance act 2014 along with the above said explanation , some changes in the regime is required as it will lead to disallowance of the CSR expenditure.

 (Author may be contacted at

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Download our App


More Under Company Law


  1. Arpan Dey says:

    Barasat Institute of Social Activity (BISA) has been working since nine years on Child Development for slum children in Hatkhola under Barasat Municipality of North 24 parganas, West Bengal. We are strongly believe on “A dynamic civil society by implementing the fundamental rights at all levels, through the change of behavior of our society. ”BISA” also works on WASH, RCH, Digital Literacy, Financial Literacy, Environmental, Domestic Violations & Legal Aid services among the deprive people.
    Now we are in need Corporate Support to develop a partnership as a NGO with the Corporate to serve our larger community development mission……We want support from Corporate.!!

  2. Vrushali says:

    Dear Sir,
    Please clarify , how many percent should be the applied administration charges/ Expenses for CSR project with Explanation for private and government !

  3. Vrushali says:

    Greeting for the day…
    Dear Sir,
    Referance to the above CSR article. We are stuck up with the MOU mentioning that the administrative charges i.e . ‘it should not exceed 5%’. Therefore, we request you to reply with suggestions on it..!


  4. Anil Verma says:

    w.r.t. the net profit based applicability – it is net profit “during any financial year” and CSR exps says 2% spends is on average net profit. definition given is for average net profit for previous 3 year which is before tax. but applicability is silent on net profit after or before tax.. pl clarify

  5. Aurelia says:

    Our company has appointed a external agency to verify the credential of the Trust which has been selected to perform the CSR activites. Can this expense be treated as an overhead expense under CSR i.e. the 5% bracket

  6. BUNTY VALECHA says:

    if company exceed NP of 5 Cr. in previous year than CSR is applicable in Current year. what if profit of current year is 4 Cr. still the CSR will be applicable for next Year.
    please reply..
    in short does this mean that “once CSR is applied it will continue to Apply for future years of company till its existance.

  7. Rajendra Inamdar says:

    dear Sir,
    Is It compulsory to NGO to spend the given money in same given year how will audit the NGO. . If NGO will take the money and not start the activity is there any limit to start the work. How is responsible for the activity. Is it compulsory to company to do multipal activity OR they can spend all money in one activity.
    If the NGO from abroad will start their activity in India by registering NGO or company in India is there any rule regulation for it.
    How much % of money NGO can use for administration cost and establishment. Please suggest rule book for it.

  8. Question asker says:

    If a company is required to contribute to CSR, but its finalized accounts are only made available in September, then for which year must they contribute? Say the company made profits in 2013, (Section 135 applicable from 2013 Feb), and the accounts are finalized in Sep 2013, then must the company contribute to CSR in 2014-15, or contribute in a backdated attempt toward 2013-14?

  9. Divyang says:

    Dear Puneet & Hrishikesh as i mentioned in reply to Sejal.

    ”If” is ommitted in sentence, you are right private company is not required to appoint the independent director.

    As in rules sentence is for unlisted company & private company. Thats why both are in same row of table.

  10. Divyang says:

    Dear Ankit,

    It is specifically written in Rule 3(1) that branches of foreign company is required to comply with the provsions of sec 135 of the Act , if criteria of applicability i.e limits fulfilled.

  11. Divyang says:

    Dear Sejal ,

    Your are right , if is required to be put in sentence
    Revised sentence Will be
    Unlisted & PrivateThree or more director , Independent director is mandatory if required to be appointed.

  12. Sejal Thakkar says:

    Unlisted public Companies and private Companies are not required to appoint an Independent Director, Kindly refer the rule 5 (1) (i) of the Companies (Corporate Social Responsibility Policy) Rules, 2014

  13. Puneet maheshwari says:

    Dear Sir

    Please clarify the requirement of Independent Director in Private Company. As per the notification from MCA the same is waived off.


  14. Hrishikesh says:

    In composition of CSR committee, for “unlisted and Private company it has been mentioned that an Independent Director is mandatory required to be appointed”

    However, Private Companies are not required to appoint Independent Director (s) under the Act itself. Then how an independent director be appointed on CSR committee of a private and unlisted company?

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2023