Introduction
Corporate Social Responsibility (CSR) refers to a company’s commitment to operate ethically, contribute to sustainable development, and give back to the society in which it operates. Since businesses utilize societal infrastructure and resources, CSR recognizes their responsibility to contribute positively to the community and environment.
However, questions often arise regarding how new or loss-making companies should approach CSR obligations. This article explores Section 135 of the Companies Act, 2013 and The Companies (CSR Policy) Rules, 2014, which provide the legal framework for CSR in India.
Applicability [Section 135(1)]
Under Section 135(1) of the Companies Act, 2013, CSR provisions apply to every company (including public, private, Section 8 companies, and NBFCs) that, during the immediately preceding financial year, meets any of the following criteria:
- Net Worth of Rupees 500 Crore or more, or
- Turnover of Rupees 1000 Crore or more, or
- Net Profit of Rs. 5 Crore or more.
Such companies are required to constitute a Corporate Social Responsibility Committee consisting of three or more directors, including at least one independent director.
CSR Contribution Calculation [Section 135(5)]:
- Companies falling under Section 135(1) must spend at least 2% of the average net profits of the three immediately preceding financial years on CSR activities.
- If the company has not completed three financial years since incorporation, the average of the available years is used.
- Preference should be given to local areas where the company operates.
Note: Calculation of Net Profit for this section have to done in accordance with the Section 198 of the Companies Act, 2013.
Unspent CSR Amount [Section 135(6)]
If any CSR amount remains unspent and relates to an ongoing project:
- It must be transferred within 30 days from the end of the financial year to the Unspent CSR Account in a scheduled bank.
- The company must spend the amount within three financial years from the date of transfer.
- Failing which, the balance shall be transferred to a fund specified in Schedule VII within 30 days after the third year.
When constitution of CSR Committee not required [Section 135(9)]
If the required CSR expenditure is ₹50 lakh or less, constitution of a CSR committee is not mandatory. In such cases, the Board of Directors will fulfil the functions of the CSR Committee.
Reporting of CSR Contribution in Board’s Report [Section 135(2)]
As per the provisions of the Section 135(2) of the Act, the Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
Website Disclosure
Rule 9 of The Companies (Corporate Social Responsibility Policy) Rules, 2014 says about the Display of CSR activities on its website.
It states that the Board of Directors of the Company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access.
In which area CSR Contribution has to be done?
Schedule VII of the Companies Act, 2013, provides Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:
- Eradicating hunger, poverty and malnutrition, [“promoting health care including preventive health care”] and sanitation [including contribution to the Swach 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, agroforestry, conservation of natural resources and maintaining quality of soil, air and water 4[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, 9[ Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows];
- training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports
- contribution to the prime minister’s national relief fund 8[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.
Explanation.- For the purposes of this item, the term ‘slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.
- disaster management, including relief, rehabilitation and reconstruction activities.
Benefits of CSR (Corporate Social Responsibility)
- Companies that practice CSR often enjoy stronger public trust and brand loyalty.
- Consumers are more likely to support brands that align with their values.
- People want to work for companies with purpose—CSR improves morale and retention.
- CSR helps mitigate reputational and regulatory risks.
- Though CSR initiatives may cost money upfront, they often lead to cost savings and long-term value creation.
Future of CSR (Corporate Social Responsibility)
- Trends: ESG investing, sustainable supply chains, stakeholder capitalism
Look at where CSR is headed, including its integration with financial investing and responsible business models.
- Role of technology and innovation
Innovations like blockchain, AI, and big data can help track CSR impact and ensure transparency.
- Regulatory developments
Governments are increasingly requiring companies to meet certain CSR standards (e.g., carbon disclosures, labor practices).
Consequences of Non-Compliance [Section 135(7)]
In pursuant to the provisions of Section 135(7) of the Act, If a company fails to comply with the provisions of Section 135(5) or 135(6) of the Act, then below mentioned penalties will be levied.
- Company Penalty: Twice the unspent amount or ₹1 crore, whichever is less.
- Officer in default Penalty: 10% of the unspent amount or ₹2 lakh, whichever is less.
Conclusion
Corporate Social Responsibility is more than a statutory obligation—it is a moral and strategic imperative. It encourages companies to act responsibly, be transparent, and align their business goals with societal well-being and sustainable development. By embracing CSR, businesses not only comply with legal requirements but also build a resilient, trusted, and future-ready brand.
Author Bio
Very informative and well structured info.