A mandatory community social service as per Section 135 of The Companies Act, 2013 with penal implications for non compliance

Eligibility Criteria

Every Company having:

a) A net worth of Rs. 500 crore or more


b) Annual turnover of Rs. 1000 crore or more


c) A net profit of Rs 5 crore or more during the preceding financial year, needs to comply.

Provided that this criteria shall not be applicable on Specified IFSC companies during the first five years of its commencement of business.

CSR (Corporate Social Responsibility)

Qualifying Amounts

Eligible firms had to set aside 2% of their average net profits of the past three years for what are called CSR activities, and which were indicated in Schedule VII of the Act.

Such qualifying amount needs to be spent in a financial year.

Composition, Functions, Execution and Reporting of CSR activities

At the Board level :

¬  Approve CSR Policy as recommended by the CSR committee

¬  Ensure eligible fund is spent on CSR projects

¬  Regular reviewing / monitoring of CSR spending

At the CSR Committee level:

¬ Formulate and suggest/ recommend  the Board CSR policy

¬ Recommend CSR expenditure and monitor implementation of projects/ programs.

¬  Regular monitoring of CSR expenditures as per the policy approved.

¬ Updating about the CSR expenditures at periodic intervals to the Board.

At the CSR Working Committee level:

¬ Take note of the qualified amount and policy approved.

¬ Implementation of the practical concepts and steps to attain the desired outcome

¬ Constantly update the CSR committee with the outcomes.

¬ Preference shall be given to local areas where the Company operates.

¬ CSR Policy and expenditures to be disclosed in Board Report with reasons for non expenditures, if any

¬ CSR projects can be undertaken itself by the Company or through any registered Trust, Section 8 Company or Society having a three years track record.

¬ Expenditures incurred for the benefit of own employees do not construe as CSR.

¬ Any contributions to political parties / funds do not qualify as CSR.

¬ Any action / activity undertaken by a Company in its normal course do not constitute as CSR.

¬ Any activity undertaken which is not in conformity to Schedule VII will not be a part of CSR expense

¬ A maximum of 5% of the eligible/ qualifying amount can only be charged as administrative expenses.

¬ Eligible companies have to display on their websites about the CSR policy and projects undertaken with expenditures incurred.

¬ An eligible Company if for continously three years do not fulfill the criteria of eligibility, then such Company need not comply with Section 135 provisions.

Transfer of unspent funds

If there are any unspent CSR funds during a financial year (in respect of an ongoing CSR Project), in accordance with its CSR policy, the company must transfer such unspent CSR funds into a special account within a period of 30 (thirty) days from the end of the financial year. Such account, to be opened with a scheduled bank by the company, will be called an Unspent Corporate Social Responsibility Account (Unspent CSR Account) and the proceeds of the Unspent CSR Account will have to be spent by the company towards the CSR projects (under its CSR policy) within 3  financial years from the date of such transfer. If the company is unable to spend the sum in the Unspent CSR Account within the prescribed period of 3  financial years, then, such unspent amount should be transferred to a fund specified under Schedule VII of the Companies Act (Schedule VII Fund) within 6 (six) months from the end of the relevant financial year.

Also, read section 135 of companies act 2019.

However, if there are any unspent CSR funds at the end of a financial year and there are no ongoing CSR projects, the funds should be directly transferred to the Schedule VII Fund, within 6 (six) months from the end of the relevant financial year.

In effect, the Schedule VII Fund means, 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 / tribes, other backward classes, minorities and women.

Penal Provisions

Comply or explain” provision omitted.

From now on, non-spending of the required amounts on corporate social responsibility (CSR), within the time period proposed, will attract penal action –


Rs. 50000   upto Rs. 25,00,000


Fine of Rs. 50000  up to Rs. 500,000

and/ or

imprisonment of concerned officers for upto three years.

The Act empowers the Registrar of Companies (RoC) to initiate action for removal of the name of the company from the RoC if it is not carrying on any business or operation in accordance with the company law.

(For a deeper insight into the matter as to how it can effect your business, please consult the writer Tanu Agarwal on  9839778060)

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May 2021