Corporate Social Responsibility under Section 135

Corporate Social Responsibility, or CSR, is a statutory framework requiring qualifying companies to undertake socially beneficial activities listed in Schedule VII of the Companies Act, 2013. Section 135 combines a minimum spending obligation with Board oversight and prescribed treatment of unspent amounts.

Companies covered

Section 135 applies when a company, during the immediately preceding financial year, meets any one of the prescribed thresholds.

• Its net worth is Rs 500 crore or more.
• Its turnover is Rs 1,000 crore or more.
• Its net profit is Rs 5 crore or more.

Minimum spending requirement

The Board must ensure that the company spends in every financial year at least 2 per cent of the average net profits of the three immediately preceding financial years. Net profit is calculated according to Section 198; a company operating for less than three years uses the available preceding financial years.

Governance and permissible use

CSR expenditure must support activities covered by Schedule VII, such as health, education, environmental sustainability and eligible contributions to specified incubators, research projects and public research institutions in science, technology, engineering and medicine.

• The CSR Committee recommends the policy and expenditure, while the Board approves, oversees and discloses them.
• Where the required CSR expenditure does not exceed Rs 50 lakh, the Board may discharge the CSR Committee's functions.

Treatment of unspent amounts

• An amount relating to an ongoing project must be transferred within 30 days after the financial year's end to an Unspent CSR Account and spent within the next three financial years.
• Other unspent CSR amounts must be transferred to a fund specified in Schedule VII within six months after the financial year's end.