Companies Act §135 — CSR applicability & spend

CSR applies to a company that, in the IMMEDIATELY PRECEDING financial year, had NET WORTH ≥ ₹500 CRORE, OR TURNOVER ≥ ₹1,000 CRORE, OR NET PROFIT ≥ ₹5 CRORE (any ONE). Such a company must spend at least 2% of the AVERAGE NET PROFIT (computed under §198) of the THREE immediately preceding FYs on CSR activities listed in Schedule VII.

Key points

• §135(1) — every company meeting ANY of the thresholds in the immediately preceding FY — net worth ≥ ₹500 Cr OR turnover ≥ ₹1,000 Cr OR net profit ≥ ₹5 Cr — must constitute a CSR COMMITTEE of the Board (3+ directors, at least one independent where applicable;
• a company not required to appoint an independent director may have 2 directors).
• §135(5) — the Board must ensure the company SPENDS, in every FY, at least 2% of the AVERAGE NET PROFIT made during the THREE immediately preceding FYs (net profit computed per §198, which excludes capital profits and certain items).
• If the company has not completed 3 FYs, the average of the years available is used.
• UNSPENT amounts: (a) relating to an ONGOING PROJECT must be transferred within 30 DAYS of FY-end to a separate 'Unspent CSR Account' and spent within 3 FYs (else moved to a Schedule VII fund);
• (b) OTHER unspent amounts must be transferred within 6 MONTHS of FY-end to a fund specified in Schedule VII (e.g. PM CARES, PMNRF).
• §135(7) penalty for default: company liable to 2× the unspent amount or ₹1 crore (whichever less);
• every officer in default 1/10th of unspent or ₹2 lakh (whichever less).
• If CSR obligation is below ₹50 lakh, the CSR Committee requirement is relaxed (Board discharges the functions).

Reference: §135 Companies Act 2013 read with CSR Rules 2014 & Schedule VII