In today’s business environment, companies are expected to do more than generate profits. Stakeholders, investors, regulators, and society increasingly expect businesses to contribute towards sustainable development, social welfare, environmental protection, and community growth. This concept is commonly known as Corporate Social Responsibility (CSR).

In India, CSR is not merely a voluntary initiative for certain companies. Under Section 135 of the Companies Act, 2013, eligible companies are legally required to spend a portion of their profits on approved social development activities. India became one of the first countries to mandate CSR spending through corporate law, making compliance a critical responsibility for qualifying businesses.

For businesses operating in India, understanding CSR provisions, eligibility criteria, reporting requirements, and compliance obligations is essential to avoid penalties and maintain good corporate governance.

At MC Maheshwari & Co., a leading CA Firm in Delhi, we assist businesses in CSR compliance, corporate governance, statutory audits, taxation, financial reporting, and regulatory advisory services.

What is Corporate Social Responsibility (CSR)?

Corporate Social Responsibility refers to a company’s commitment to contribute towards economic, social, and environmental development while conducting its business operations responsibly.

CSR activities typically focus on:

Education
Healthcare
Environmental Sustainability
Rural Development
Skill Development
Women Empowerment
Poverty Alleviation
Disaster Relief
Community Welfare

Under Section 135 of the Companies Act, eligible companies must allocate a prescribed amount toward such activities listed under Schedule VII of the Act.

Understanding Section 135 of the Companies Act, 2013

Section 135 introduced mandatory CSR obligations for qualifying companies operating in India.

The provision requires eligible companies to:

Constitute a CSR Committee (where applicable)
Formulate a CSR Policy
Approve CSR Activities
Monitor CSR Projects
Spend the prescribed CSR amount
Report CSR disclosures in Board Reports and statutory filings

The objective is to ensure that businesses actively participate in nation-building and sustainable development initiatives.

Applicability of CSR Under Section 135

CSR provisions apply to every company that satisfies any one of the following criteria during the immediately preceding financial year:

Criteria	Threshold
Net Worth	₹500 Crore or More
Turnover	₹1,000 Crore or More
Net Profit	₹5 Crore or More

If a company crosses even one of these thresholds, CSR provisions become applicable.

Which Companies Are Covered Under CSR Provisions?

CSR obligations may apply to:

Private Limited Companies

Eligible private companies must comply with CSR provisions.

Public Limited Companies

Listed and unlisted public companies meeting prescribed limits are covered.

Foreign Companies

Foreign companies having branch offices or project offices in India may also be required to comply if they satisfy eligibility criteria.

Holding and Subsidiary Companies

CSR applicability is determined individually for each entity based on its own financial thresholds.

CSR Spending Requirement: The 2% Rule

One of the most important aspects of CSR compliance is the mandatory spending requirement.

Eligible companies must spend:

At least 2% of the average net profits

earned during the immediately preceding three financial years on CSR activities.

Formula

CSR Expenditure = 2% × Average Net Profit of Last 3 Financial Years

The calculation of net profit for CSR purposes follows Section 198 of the Companies Act and may differ from accounting profits reported in financial statements.

CSR Committee Under Section 135

Companies covered under CSR provisions are generally required to establish a CSR Committee of the Board.

Functions of CSR Committee

The CSR Committee is responsible for:

Formulating CSR Policy
Recommending CSR Projects
Recommending CSR Budget
Monitoring CSR Activities
Reviewing Implementation Progress
Ensuring Compliance

The Committee acts as the governing body for CSR planning and execution.

Responsibilities of the Board of Directors

The Board plays a crucial role in CSR governance.

Key Responsibilities

Approval of CSR Policy

The Board must approve the CSR policy based on recommendations from the CSR Committee.

Ensuring Implementation

The Board ensures CSR projects are executed effectively.

Disclosure Requirements

The CSR policy and implementation details must be disclosed appropriately.

Monitoring CSR Spending

The Board is responsible for ensuring required CSR expenditure is incurred.

Eligible CSR Activities Under Schedule VII

CSR funds can only be spent on activities specified under Schedule VII of the Companies Act.

Common Eligible Activities

Education Promotion

Schools
Scholarships
Educational Infrastructure
Digital Learning

Healthcare Initiatives

Hospitals
Medical Camps
Healthcare Facilities
Public Health Programs

Environmental Sustainability

Tree Plantation
Renewable Energy Projects
Water Conservation
Climate Initiatives

Women Empowerment

Skill Development
Entrepreneurship Programs
Social Welfare Projects

Rural Development

Village Infrastructure
Sanitation Projects
Community Development

Disaster Relief

Emergency Assistance
Rehabilitation Programs
Relief Funds

CSR activities should align with the objectives outlined in Schedule VII.

CSR Policy: Why It Matters

A CSR Policy serves as the foundation of a company’s social responsibility strategy.

A well-drafted CSR Policy defines:

CSR Objectives
Approved Activities
Governance Framework
Budget Allocation
Monitoring Mechanism
Reporting Structure

Proper documentation strengthens compliance and transparency.

CSR Implementation Methods

Companies can implement CSR projects through various modes.

Direct Implementation

The company executes CSR projects itself.

Through Registered Implementing Agencies

CSR activities may be carried out through eligible trusts, societies, or Section 8 companies subject to prescribed conditions.

Collaborative Projects

Multiple companies may collaborate for larger social initiatives.

Treatment of Unspent CSR Amount

If a company fails to spend the required CSR amount, it cannot simply ignore the obligation.

The Companies Act contains specific provisions regarding:

Ongoing Projects
Transfer to Unspent CSR Account
Transfer to Specified Funds
Disclosure Requirements

Companies must comply with prescribed timelines and reporting obligations for unspent amounts.

Penalties for Non-Compliance

Failure to comply with CSR provisions may result in penalties under the Companies Act.

Non-compliance can arise due to:

Failure to transfer unspent amounts
Improper reporting
Non-compliance with statutory requirements

Proper professional guidance can help organizations avoid regulatory risks.

CSR Reporting & Disclosure Requirements

Transparency is a key component of CSR governance.

Required Disclosures Include

CSR Committee Composition
CSR Policy
Amount Required to be Spent
Amount Actually Spent
Project Details
Impact Assessment (where applicable)
Unspent CSR Amount

These disclosures are generally included in the Board’s Report and other statutory filings.

Benefits of CSR for Businesses

Although CSR is mandatory for qualifying companies, it also creates significant long-term value.

Enhanced Brand Reputation

Responsible companies often enjoy stronger public trust.

Better Stakeholder Relationships

CSR strengthens relationships with customers, employees, investors, and communities.

Improved Corporate Governance

CSR encourages transparency and accountability.

Sustainable Business Growth

Long-term social investments contribute to economic stability.

Positive Social Impact

CSR enables businesses to contribute meaningfully to society.

Common CSR Compliance Challenges

Many companies face challenges such as:

Identifying Eligible Projects
Calculating CSR Liability
Managing Documentation
Monitoring Implementation
Reporting Compliance
Managing Unspent Amounts

Professional guidance helps businesses navigate these complexities efficiently.

How MC Maheshwari & Co. Helps with CSR Compliance

As a trusted CA Firm in India, (Headquatered in Delhi) MC Maheshwari & Co. assists businesses with comprehensive CSR advisory and compliance services.

Our Services Include

CSR Applicability Assessment
CSR Spend Calculation
CSR Policy Drafting
Compliance Review
Regulatory Advisory
Corporate Governance Support
Board Reporting Assistance
Financial & Tax Advisory

Our team helps organizations ensure compliance while aligning CSR initiatives with broader business objectives.

Frequently Asked Questions (FAQs)

What is Section 135 of the Companies Act, 2013?

Section 135 governs Corporate Social Responsibility (CSR) obligations for eligible companies operating in India.

Which companies are required to comply with CSR provisions?

Companies with a net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more are required to comply.

How much must a company spend on CSR?

Eligible companies must spend at least 2% of their average net profits of the preceding three financial years on CSR activities.

What activities qualify as CSR?

Activities listed under Schedule VII, including education, healthcare, environmental sustainability, women empowerment, and rural development, may qualify.

Is CSR expenditure tax deductible?

CSR expenditure generally cannot be claimed as business expenditure under Section 37(1) of the Income Tax Act, subject to specific provisions.

Can CSR activities be implemented through NGOs?

Yes, eligible implementing agencies such as registered trusts, societies, and Section 8 companies may be used, subject to applicable rules.

Why should companies seek professional CSR compliance assistance?

Professional advisors help ensure accurate calculations, proper documentation, statutory compliance, and effective CSR governance.

References & Sources

The information provided in this article has been compiled and interpreted based on provisions of the Companies Act, 2013, CSR Rules, MCA notifications, and professional guidance resources.

Official Government Sources

Ministry of Corporate Affairs (MCA) – Corporate Social Responsibility Ministry of Corporate Affairs CSR Resources
Section 135 of the Companies Act, 2013 Companies Act, 2013 – Section 135 CSR Provisions
MCA Frequently Asked Questions on CSR MCA CSR FAQs

Professional & Industry References

Corporate Social Responsibility Under Section 135 of Companies Act, 2013 DPNC India CSR Guide
Comprehensive CSR Compliance Guide TaxGuru CSR Compliance Resource
Corporate Social Responsibility Overview CSRXChange Knowledge Portal
Corporate Social Responsibility Concept Arthapedia – CSR Explained

Professional Disclaimer

This article is intended for educational and informational purposes only and should not be considered legal, tax, or compliance advice. CSR provisions, thresholds, reporting requirements, and regulatory interpretations may change from time to time. Businesses should consult qualified Chartered Accountants or legal professionals before making compliance decisions.

Corporate Social Responsibility Under Section 135 of the Companies Act, 2013