Section 135 of the Companies Act, 2013 mandates Corporate Social Responsibility (CSR) for companies meeting specific financial thresholds—net worth ≥ ₹500 crore, turnover ≥ ₹1000 crore, or net profit ≥ ₹5 crore in the preceding financial year. Companies must spend 2% of the average net profit of the preceding three years on CSR activities and constitute a CSR Committee to formulate policy, recommend expenditure, monitor projects, and prepare an Annual Action Plan. CSR activities exclude routine business operations, political contributions, employee benefits, or marketing promotions, focusing instead on social, environmental, educational, healthcare, and rural development projects, as listed in Schedule VII. Companies undertaking large projects must conduct independent impact assessments. Boards are responsible for policy approval, implementation, monitoring, and reporting, including disclosure in annual reports and online. Unspent amounts from ongoing or other projects must be transferred per timelines, with penalties for non-compliance. The law emphasizes transparency, accountability, and measurable social impact through structured CSR governance.
Page Contents
- SECTION 135 – CORPORATE SOCIAL RESPONSIBILITY
- 1. Applicability, CSR Contribution, and Constitution Requirements under Section 135
- 2. Functions of the CSR Committee, CSR Policy, and Permissible CSR Activities
- 3. Impact Assessment, Annual Action Plan and CSR Registration Requirements
- 4. CSR Expenditure, Role of the Board and Set-Off Provisions
- 5. Compliance Rules for Ongoing Projects, Other Projects and Applicable Penalties
- 6. Schedule VII – Approved CSR Activities under the Companies Act, 2013
SECTION 135 – CORPORATE SOCIAL RESPONSIBILITY
1. Applicability, CSR Contribution, and Constitution Requirements under Section 135
| APPLICABILITY | CSR CONTRIBUTION | CONSTITUTION |
| Every Company having :-
> Net worth of Rs. 500 Crore or more > Turnover of Rs. 1000 Crore or more > Net profit of Rs. 5 Crore or more the immediately preceding financial year.
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2% of the average net profit of the 3 immediately preceding financial years
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CSR Committee shall constitute:-For Public Company – 3 or more directors out of which at least one shall be an Independent director.
For Private Company – 2 or more directors [on non-applicability of 149(4)] *If the CSR mandate is less than 50 lacs, constitution of CSR committee is not mandatory *Board Report (134) shall disclose the composition of CSR Committee. |
2. Functions of the CSR Committee, CSR Policy, and Permissible CSR Activities
| FUNCTIONS OF CSR COMMITEE
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CSR POLICY CSR ACTIVITY
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CSR ACTIVITY
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| > Formulate a CSR policy
> Recommend the amount of expenditure > Monitor the CSR policy and recommend to the Board Annual Action Plan*.
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A statement containing
> The approach and direction given by the Board of a company, taking into account the recommendations of the CSR committee. > Includes guiding principles for selection, implementation and monitoring of activities > Formulation of the Annual Action Plan.
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Any activity done under obligations of section 135 except for the below mentioned negative list –
> Any activity done in the normal course of business. > Expenditure done outside India isn’t part of CSR Activity except Indian Sport Personnel > Political contribution > Activity benefitting > Sponsorship for deriving marketing benefits > Fulfillment of any statutory obligations (legal) |
3. Impact Assessment, Annual Action Plan and CSR Registration Requirements
| IMPACT ASSESSMENT | *ANNUAL ACTION PLAN | CSR REGISRATION |
| > Every company having average obligation of Rs. 10 Crore or more in immediately preceding 3 FYs shall undertake impact assessment through an independent agency, of their CSR projects having outlays of Rs. 1 Crore and which have been completed not less than one year before undertaking the impact study.
> The impact assessment report shall be placed before the board and shall be annexed to the annual report. > A co. taking impact assessment may book the expenditure towards CSR for that FY, which shall not exceed 2% of the total CSR expenditure for the FY or Rs. 50 lacs, whichever is higher.
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> List of CSR Projects or Programmes.
> Areas where CSR projects to be implemented. > Manner of execution. > Modalities of utilization of funds and implementation schedule for the projects. > Monitoring and reporting mechanism for the projects. > Details of need and impact Assessment.
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Ø CSR-1 for CSR registration w.e.f. 01.04.2021 (not applicable for projects approved prior to 01.04.2021).
> Verified by |
4. CSR Expenditure, Role of the Board and Set-Off Provisions
| CSR EXPENDITURE | ROLE OF BOARD | SET-OFF |
| > 2% of average Net Profit of immediately preceding 3 FYs
> Net Profit shall be calculated as per Section 198 of the Companies Act, 2013. > Net Profit shall exclude overseas branch profit and dividend from any company in India which falls under section 135. > Company shall give preference to local areas for making CSR expenditure. > If company fails to spend such amount, the reason shall be specified in Board Report for such failure. > Limit for administrative overhead is 5%.
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> The Board shall approve the CSR Policy for the Company and disclose contents of such policy in its Report and also place it on Company’s website.
> Ensure the activities included in policy are undertaken by the Company. > Ensure that the Board report cover disclosure. > Monitor implementation of CSR projects or modify such projects, if required. > Ensure that the funds have been utilized for the purpose and manner approved by the board.
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Set-off shall be done of the additional expenditure/ carry forward expenditure in the succeeding 3 FYs. |
5. Compliance Rules for Ongoing Projects, Other Projects and Applicable Penalties
| ONGOING PROJECTS | OTHER THAN ONGOING PROJECTS | PENALTY |
| > Ongoing Project is defined as a multi- year project undertaken by a company for fulfillment of its CSR obligations having timeline not exceeding 3 years excluding the year in which it was commenced.
> In case of ongoing projects unspent amount is transferred to unspent CSR account within a period of 30 days from the end of FY. > Provided further that a company having any amount in its Unspent Corporate Social Responsibility Account as per sub-section (6) of section 135 shall constitute a CSR Committee and comply with the provisions contained in sub-sections (2) to (6) of the said section.
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> In case of other than ongoing projects, unspent amount is transferred to funds as per schedule VII within a period of 6 months of the expiry of the FY.
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> On contravention of provision of (5) and (6) , the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one Crore rupees, whichever is less> And on every officer, liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two Lakh rupees, whichever is less. |
6. Schedule VII – Approved CSR Activities under the Companies Act, 2013
SCHEDULE VII
> Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swatch Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water.
> promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
> promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
> 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 including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
> 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;
> measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows];
> training to promote rural sports, nationally recognized sports, paralympic sports and olympic sports
> contribution to the prime minister’s national relief fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)] or any other fund set up by the central govt. for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
> (a)Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and
(b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
> Rural development projects.
> Slum area development.
> Disaster management, including relief, rehabilitation and reconstruction activities.
> Funds may be spent for various activities related to Covid 19 under items relating to promotion of health care, including preventive health care and sanitation, and, disaster management.
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