CSR applicability: when section 135 applies and what it requires

CSR applies to a company, including a foreign company’s Indian branch or project office, if in the immediately preceding financial year it had any one of:

The net profit test catches far more companies than the others. A private company with modest turnover but ₹5 crore of profit is covered. Net profit here is computed under section 198 of the Companies Act, broadly profit before tax with specified adjustments, not the figure in the profit and loss statement.

A company that stops meeting all three tests for three consecutive years is no longer required to comply.

At least 2% of the average net profit of the three immediately preceding financial years. A company in existence for less than three years uses the years it has.

Example. Net profits under section 198 of ₹4 crore, ₹6 crore and ₹8 crore in the last three years. Average ₹6 crore; CSR obligation ₹12 lakh for the current year.

Administrative overheads are capped at 5% of total CSR spend. Surplus from CSR projects cannot become business profit. Excess spend can be set off against the next three years’ obligations, if the board resolves so.

• CSR Committee of three or more directors, including an independent director where one is required. If the obligation is ₹50 lakh or less, the board itself performs the committee’s functions.
• CSR policy approved by the board and disclosed on the website.
• Annual action plan listing projects, modalities, and implementation schedules.
• Implementation directly or through an implementing agency registered with the MCA in Form CSR-1. Agencies need 12A and 80G; see our 12A and 80G guide.
• Impact assessment by an independent agency for companies with an average obligation of ₹10 crore or more, for projects of ₹1 crore or more.

• Board’s report: an annual report on CSR in the prescribed format.
• Form CSR-2: filed separately with the MCA with details of spending.
• Penalty for not transferring unspent amounts: the company pays twice the amount required to be transferred, or ₹1 crore, whichever is less; each officer in default pays one-tenth of that amount, or ₹2 lakh, whichever is less.
• Tax: CSR spending is not deductible as a business expense.

CSR sits alongside the rest of a company’s annual filings; see our annual compliance checklist.

Only activities listed in Schedule VII count, including:

• eradicating hunger and poverty, healthcare and sanitation;
• education, vocational skills and livelihood projects;
• gender equality, women’s empowerment, senior citizens and orphans;
• environmental sustainability, animal welfare and conservation;
• heritage, art and culture; benefits for armed forces veterans;
• training for rural, national and Paralympic sports;
• contributions to specified government funds and technology incubators;
• rural development and slum area development;
• disaster management.

Not counted: activities in the normal course of business, projects benefiting only employees and their families, political contributions, one-off events for marketing, and activities outside India (except training of Indian sports personnel representing India).