Every March, corporate compliance and finance teams across India race to close their CSR obligations before the financial year ends on 31 March. Corporate Social Responsibility under Section 135 of the Companies Act, 2013 is a legal requirement, not a voluntary gesture — and the rules on unspent money and penalties have real teeth. This guide sets out who must comply, how much they must spend, where the money can go, and a checklist to close the year cleanly. It is written to be read any time, but it is most useful in the run-up to year-end.
Which companies must do CSR
Section 135 applies to a company that, in the immediately preceding financial year, met any one of these thresholds:
- Net worth of 500 crore or more, or
- Turnover of 1,000 crore or more, or
- Net profit of 5 crore or more.
Cross any single threshold and the obligation applies for that year. It covers private and public companies alike, and even the Indian operations of foreign companies. If a company later falls below all three thresholds for three straight years, it steps out of the requirement until it crosses them again.
How much you must spend
A covered company must spend at least 2% of the average net profits of the three immediately preceding financial years on CSR. Net profit here is computed under Section 198 of the Act, which is not the same as the profit in your headline accounts, so calculate it carefully. Newly incorporated companies that have not completed three years take the average over the years available since incorporation. If you spend more than required in a year, the excess can be set off against the obligation of the next three financial years, subject to conditions.
The CSR Committee — and the 50 lakh relief
Companies with a CSR obligation must form a CSR Committee of the Board with at least three directors, one of whom is independent. The committee frames the CSR policy, recommends projects and the budget, and monitors delivery. There is one important relief: if the amount you are required to spend in a year is 50 lakh or less, you do not need a separate CSR Committee — the Board itself discharges the function. This spares smaller-obligation companies an extra layer of governance.
Where the money can go: Schedule VII
CSR spending must fall within the activities listed in Schedule VII of the Companies Act — among them eradicating hunger and poverty, promoting education and skilling, gender equality and women's empowerment, environmental sustainability, healthcare and sanitation, rural development, and contributions to specified national funds. Money spent on activities outside Schedule VII, or on the company's normal course of business, does not count as CSR. Our guide on how CSR funding works in India maps these cause areas to the kinds of NGO projects that qualify.
The unspent-CSR rules
The 2021 amendments made unspent CSR a compliance minefield. What you do with money you did not spend depends on whether it is tied to an ongoing project.
| Situation | Where the unspent money goes | By when |
|---|---|---|
| Unspent, tied to an ongoing project | Unspent CSR Account in a scheduled bank | Within 30 days of year end; spend within 3 financial years |
| Still unspent after 3 years | A fund listed in Schedule VII | Within 30 days of the end of the third year |
| Unspent, not an ongoing project | A fund listed in Schedule VII (e.g. PM CARES) | Within 6 months of year end |
Reporting, CSR-1 and impact assessment
Compliance does not end with spending. The Board's report must carry a detailed CSR annual report, and companies file Form CSR-2 with the MCA. Any NGO or agency implementing your CSR must be registered by filing Form CSR-1 and hold valid 12A and 80G — so verify this before you release funds. Larger programmes carry an extra duty: a company with an average CSR obligation of 10 crore or more in the three preceding years must commission an impact assessment for projects with an outlay of 1 crore or more that have been completed at least a year earlier. Good impact data is also simply good practice — it shows the Board and the public that the money worked.
Penalties for getting it wrong
Failure to transfer unspent CSR as required attracts a penalty on the company of twice the unspent amount or 1 crore, whichever is less, and on every officer in default of one-tenth of the unspent amount or 2 lakh, whichever is less. Beyond the rupee cost, CSR lapses are disclosed and draw regulatory and reputational attention. The cheapest compliance is to plan the spend early in the year, not scramble in March.
Your financial-year-closing checklist
- Confirm applicability against the three thresholds for the preceding year.
- Recompute the 2% obligation on Section 198 net profits for the last three years.
- Check every implementing NGO holds a valid CSR-1, 12A and 80G.
- Reconcile spent vs committed; identify any unspent balance.
- Move unspent funds to the Unspent CSR Account (ongoing) or a Schedule VII fund (non-ongoing) within the deadlines.
- Prepare the CSR annual report, commission any required impact assessment, and file CSR-2.
Section 135 rewards companies that treat CSR as a planned programme rather than a year-end obligation. Choose Schedule VII causes that fit your business, partner with properly verified NGOs, and keep clean records. To find NGOs whose CSR-1 and compliance have already been checked, explore NGOLists or tell us what you want to fund.