Corporate Social Responsibility (CSR)
Section 135 makes India one of the few jurisdictions with statutorily mandated CSR: qualifying companies must constitute a CSR committee and spend at least 2% of average net profits of the preceding three years on CSR activities.
The provision, in plain terms
Applies to every company with net worth ≥ ₹500 crore, or turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore in the immediately preceding financial year. Such companies must form a CSR Committee of the Board, frame a CSR policy, and spend at least 2% of average net profits (computed under section 198) of the three preceding years on activities in Schedule VII. Unspent amounts relating to ongoing projects move to a special account; other unspent amounts go to a Schedule VII fund.
Points worth memorising
- Trigger thresholds: net worth ₹500 cr / turnover ₹1,000 cr / net profit ₹5 cr — any one suffices.
- Spend obligation: 2% of average net profits (section 198 basis) of the preceding three FYs.
- CSR Committee: three or more directors including at least one independent director (relaxations exist for companies not requiring independent directors).
- Unspent ongoing-project funds: transfer to 'Unspent CSR Account' within 30 days of FY end, to be used within three years.
- Non-compliance attracts monetary penalties on the company and officers — it is now a civil penalty regime.
How the exam tests it
A standing favourite in CA Intermediate Corporate Laws and Final Paper 6 case studies: threshold computation, unspent-amount treatment and committee composition all appear as MCQs and descriptive questions.
Tested at: intermediate · final
Related sections
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Talk to usIs CSR spending mandatory or 'comply or explain'?
Since the Companies (Amendment) Acts of 2019/2020, the regime is effectively mandatory: unspent amounts must be transferred as prescribed, and failure attracts civil penalties — the original 'explain in the Board report' flexibility now has teeth.
Which activities count as CSR?
Activities within Schedule VII — eradicating hunger, promoting education, gender equality, environmental sustainability, contributions to specified funds, etc. Activities in the normal course of business, political contributions and employee-only benefits do not count.