As we embark on the financial year 2025-26, we have compiled a list of compliances to guide you in meeting CSR compliance requirements as outlined in Section 135 of the Companies Act 2013.
The Companies Act, 2013 has introduced the concept of CSR in India to the forefront. It’s a legal responsibility that casts upon a corporate body to address the socio-economic-environmental issues being faced by the nation.
Here are the Important Definitions:
As per Rule 2 of The Companies (Corporate Social Responsibility Policy) Rules, 2014:
“Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these rules, but shall not include the following, namely:-
(i) activities undertaken in pursuance of normal course of business of the company: Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that-
(a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item (ix) of Schedule VII to the Act
(b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report
(ii) any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level
(iii) contribution of any amount directly or indirectly to any political party under section 182 of the Act
(iv) activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);
(v) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services
(vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India.
“CSR Policy” means a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formulation of the annual action plan.
“CSR Committee” means the Corporate Social Responsibility Committee of the Board referred to in section 135 of the Act.
“Net Profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following, namely: –
(i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and
(ii) any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act: Provided that in case of a foreign company covered under these rules, net profit means the net profit of such company as per profit and loss account prepared in terms of clause (a) of sub-section (1) of section 381, read with section 198 of the Act.
“Administrative overheads” means the expenses incurred by the company for ‘general management and administration’ of Corporate Social Responsibility functions in the company but shall not include the expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project or programmer.
“Ongoing Project” means a multi-year project undertaken by a Company in fulfilment of its CSR obligation having timelines not exceeding three years excluding the financial year in which it was commenced, and shall include such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the board based on reasonable justification.
Compliances as per Section 135 & The Companies (Corporate Social Responsibility Policy) Rules, 2014
| CSR Applicability | Every company including its holding or subsidiary, and a foreign company having its branch office or project office in India having: (i) a net worth of Rupees 500 crore or more; or (ii) a turnover of Rupees 1000 crore or more; or (iii) a net profit of Rupees 5 crore or more, in the immediately preceding financial year is required to comply with the CSR provisions. |
| What is CSR Responsibility? | The obligated companies are obligated to spend at least 2% of their average net profit of the immediately preceding three financial years on CSR activities given under Schedule VII of the Companies Act, 2013. |
| CSR Committee | If CSR is applicable to company, it requires to constitute a Corporate Social Responsibility Committee of the Board consisting of three or more Directors, out of which at least one director shall be an independent director. Where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more Directors. With respect to a foreign company covered, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under clause (d) of sub-section (1) of section 380 of the Act and another person shall be nominated by the foreign company. Where the amount spent by the Company on CSR does not exceed Rs. 50 lakhs, CSR Committee need not be constituted. Company having any amount in its Unspent Corporate Social Responsibility Account shall constitute a CSR Committee and comply with the provisions of section 135. |
| Duties of the CSR Committee | The Corporate Social Responsibility Committee shall, (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company [in areas or subject, specified in Schedule VII] (b) recommend the amount of expenditure to be incurred on the activities (c) monitor the Corporate Social Responsibility Policy of the company from time to time. |
| Formulation of CSR Policy | CSR Committee shall formulate and recommend to the Board an annual action plan in pursuance of its CSR policy which shall include the following, namely:- (a) the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act (b) the manner of execution of such projects or programmes as specified in sub-rule (1) of rule 4 (c) the modalities of utilisation of funds and implementation schedules for the projects or programmes (d) monitoring and reporting mechanism for the projects or programmes (e) details of need and impact assessment, if any, for the projects undertaken by the company. Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee with reasonable justification. |
| Role of Board of Directors | The role of the Board of Directors in implementing CSR is as follows: After considering the recommendations made by the CSR Committee, approve the CSR policy for the Company and disclose the contents of the Policy on its website. The Board must ensure only those activities must be undertaken which are mentioned in the policy. The Board of Directors shall make sure that the company spends every financial year, a minimum of 2% of the average net profits made during the three immediately preceding financial years as per CSR policy. In case a company has not completed three financial years since its incorporation, the average net profits shall be calculated for the financial years since its incorporation. The Board’s Report shall disclose: CSR Committee’s composition The contents of CSR Policy In case company fails to spend its obligation of 2% as per CSR Policy, specify the reasons for not spending the amount Transfer of the unspent amount for ongoing and other than ongoing project within timeline with details |
| Certification from CFO | The Chief Financial Officer or the person responsible for financial management shall certify about the funds so disbursed have been utilized for the purposes approved by the Board. |
| CSR Expenditure | The board should ensure that the administrative overheads shall not exceed five percent of total CSR expenditure of the company for the financial year. Any surplus arising out of the CSR activities shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account. It should be spent in pursuance of CSR policy and annual action plan of the company or transfer such surplus amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year. Any surplus arising out of the CSR activities shall not form part of the business profit of a company. Where a company spends an amount in excess of requirement provided in section 135, such excess amount may be set off against the requirement to spend under section 135 up to immediate succeeding three financial years subject to the conditions that – (i) the excess amount available for set off shall not include the surplus arising out of the CSR activities, if any (ii) the Board of the company shall pass a resolution The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by- (a) a company established under section 8 of the Act, or a Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number or (b) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities or (c) a public authority |
| Display of CSR activities on its website | The Board of Directors of the Company shall mandatorily disclose the on their Website, if any, for public access- a) CSR Policy b) Composition of the CSR Committee c) Projects approved by the Board |
| Impact Assessment | Impact Assessment is applicable to company having average CSR obligation of ten crore rupees or more in the three immediately preceding financial years. Itshall undertake impact assessment through an independent agency of their CSR projects having outlays of one crore rupees or more. The company must undertake impact study after atleast one year of the completion of the project. Impact Assessment Report shall be placed before the Board and shall be annexed to the Annual Report on CSR. A Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed 2% of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is higher. |
| Implementing Agency | If a company wants to appoint implementing agency for executing or implementing its CSR activity, in that casethe Board shall ensure that the CSR activities are undertaken by the company itself or through, – a company established under section 8 of the Act, or a registered public trust or a registered society, exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 or registered under section 12A and approved under 80 G of the Income Tax Act, 1961 (43 of 1961), established by the company, either singly or along with any other company or b) a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or c) any entity established under an Act of Parliament or a State legislature or d) a company established under section 8 of the Act, or a registered public trust or a registered society, exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 or registered under section 12A and approved under 80 G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities. A company may engage international organizations for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR. A company may also collaborate with other companies to undertake projects or programmes or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programmes in accordance with these rules. |
| Unspent CSR Amount | Transfer of unspent amount of CSR to specified funds In case of any CSR money which was obligated to spend in a financial year could not be spent such funds are to be transferred as provided under section 135. For ongoing projects- within 30 days from the financial year end, open a special account in any scheduled Bank named as “Unspent CSR account” and transfer such amount. The Company shall spend such transferred funds within a period of three financial years from the date of such transfer in the Scheduled Bank account. After three financial years, if anything remains unspent the same need to be transferred to a Fund specified in Schedule VII, within a period of 30 days from the date of completion of the third financial year. For activities / programs other than ongoing projects – within 6 months from financial year end, Transfer the unspent amount to a fund specified under Schedule VII-Prime Minister’s National Relief Fund, PM CARES Fund, Clean Ganga Fund set up by Central Government for rejuvenation of river Ganga, Swachh Bharat Kosh set up by Central Government for promotion of sanitation are such specified funds. |
| CSR reporting & forms | Form CSR-2 Report on CSR Companies will have to provide the following: The details of the CSR amount spent in the three preceding financial years and details of all ongoing projects. Details of CSR Committee Details of CSR disclosed on the website Net Profit & other details of the company for the preceding financial years If any capital assets have been created or acquired through CSR spending Amount transferred to unspent account, etc. Form CSR-1 Every entity who intends to undertake any CSR activity shall register with the Central Government by filing the form CSR-1 electronically with necessary documents w.e.f. 1st April 2021. Form CSR-1 shall be signed and shall be verified digitally by a Chartered Accountant in practice or a Company Secretary in practice or a Cost Accountant in practice. On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically. |
| Schedule VII | Activities which may be included by companies in their Corporate Social Responsibility Policies Activities- Link |
| What is the Penalty for Non-Compliance of CSR provision? | For non-compliance with the provisions relating to undertaking of CSR expenditure and transfer to Unspent CSR Account/Schedule VII fund (as applicable). A defaulting company is now liable for the lesser of ₹ 1,00,00,000 (Rupees One Crore only) or twice the amount that should have been transferred to the Unspent CSR Account or the Schedule VII specified fund (as applicable). Additionally, a defaulting officer is now liable for the lesser of ₹ 2,00,000 (Rupees Two Lakhs only) or one-tenth of the amount that should have been transferred to the Unspent CSR Account or the Schedule VII specified fund (as applicable). In case of non-compliance with any other provisions of the section or rules, the provisions of section 134(8) or general penalty under section 450 of the Act will be applicable. Further, in case of non-payment of penalty within the stipulated period, the provisions of section 454(8) would be applicable. |
