Chapter IX - Accounts of Companies
Section 135
Section 135: Corporate Social Responsibility
A company with net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the immediately preceding financial year must have a CSR policy and spend at least two per cent of its average net profits on it.
On this page
Need advice on Section 135?
This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall 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: Provided that 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.
(2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
(3) 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 referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the company from time to time.
(4) The Board of every company referred to in sub-section (1) shall,— (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year: Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed. Explanation.—For the purposes of this section “net profit” shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of section 198.
(6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in persuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year.
(7) If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.
(8) The Central Government may give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section and such company or class of companies shall comply with such directions.
(9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company.
Introduction
Section 135 makes Corporate Social Responsibility a statutory obligation for companies crossing any one of three thresholds. It sets out the CSR Committee, the Board’s duties, the minimum spend, the treatment of unspent amounts and the penalty for default.
Section 135 and Schedule VII came into force on 1 April 2014. The Companies (Amendment) Act, 2017 changed the applicability test to the immediately preceding financial year and revised the net-profit Explanation (from 19 September 2018). The unspent-amount regime (2019 Amendment Act) and the set-off, civil penalty and fifty-lakh committee exemption (2020 Amendment Act) took effect on 22 January 2021.
Key takeaways
Any one threshold
Net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more during the immediately preceding financial year.
Two per cent spend
The Board must ensure spending of at least two per cent of average net profits of the three immediately preceding financial years (or the years completed, for a company that has not completed three financial years since incorporation) under its CSR Policy.
Unspent amounts must move
Unspent amounts go to a Schedule VII Fund within six months of the year end, unless they relate to an ongoing project, in which case they go to an Unspent CSR Account within thirty days.
Applicability and the CSR Committee
Section 135 applies to every company that, during the immediately preceding financial year, had net worth of rupees five hundred crore or more, turnover of rupees one thousand crore or more, or net profit of rupees five crore or more. Such a company constitutes a CSR Committee of the Board of three or more directors, at least one of whom is an independent director.
If the company is not required to appoint an independent director under section 149(4), the Committee must have two or more directors. If the amount to be spent under sub-section (5) does not exceed fifty lakh rupees, no Committee is required and the Board discharges its functions. The Board’s report must disclose the Committee’s composition.
- India Code — consolidated Companies Act, 2013, section 135
- Gazette of India — Companies Act, 2013 as enacted (No. 18 of 2013), section 135
- eGazette — MCA notification S.O. 582(E), 27 February 2014 - section 135 and Schedule VII in force from 1 April 2014
- eGazette — Companies (Amendment) Act, 2017 (No. 1 of 2018)
- eGazette — MCA notification S.O. 4907(E) - section 37 of Act 1 of 2018 in force from 19 September 2018
- eGazette — Companies (Amendment) Act, 2019 (No. 22 of 2019)
- eGazette — MCA notification S.O. 324(E) - section 21 of Act 22 of 2019 in force from 22 January 2021
- eGazette — Companies (Amendment) Act, 2020 (No. 29 of 2020)
- eGazette — MCA notification S.O. 325(E) - listed sections of Act 29 of 2020 in force from 22 January 2021
CSR Policy and Board duties
The CSR Committee formulates and recommends to the Board a CSR Policy indicating the activities to be undertaken in areas or subjects specified in Schedule VII, recommends the amount of expenditure, and monitors the Policy from time to time.
After considering the Committee’s recommendations, the Board approves the Policy, discloses its contents in the Board’s report, places it on the company’s website, if any, in the prescribed manner, and ensures that the activities in the Policy are undertaken.
The two per cent spend
The Board must ensure the company spends, in every financial year, at least two per cent of the average net profits made during the three immediately preceding financial years. A company that has not completed three financial years since incorporation uses the immediately preceding financial years it has completed. Preference is to be given to the local area and areas around where the company operates.
For this section, “net profit” excludes such sums as may be prescribed and is calculated under section 198. If the company spends more than the requirement, it may set off the excess against the requirement for such succeeding financial years and in such manner as may be prescribed.
Unspent amounts and ongoing projects
If the company fails to spend the amount, the Board must give the reasons in its report and, unless the unspent amount relates to an ongoing project, transfer it to a Fund specified in Schedule VII within six months of the expiry of the financial year.
An amount unspent on an ongoing project meeting the prescribed conditions must be transferred within thirty days from the end of the financial year to an Unspent Corporate Social Responsibility Account opened for that year in a scheduled bank. It must be spent within three financial years from the transfer; any balance then goes to a Schedule VII Fund within thirty days of the end of the third financial year. Sub-section (6), as enacted by the Companies (Amendment) Act, 2019, reads “in persuance of”; India Code prints “in pursuance of”. The bare text below keeps the Gazette wording.
Penalty and Central Government directions
If a company defaults on sub-section (5) or (6), it is liable to a penalty of twice the amount required to be transferred to the Schedule VII Fund or Unspent CSR Account, or one crore rupees, whichever is less. Every officer in default is liable to one-tenth of that amount or two lakh rupees, whichever is less.
The Central Government may give general or special directions to a company or class of companies to ensure compliance, and they must comply.
Practical preparation
Test the three thresholds on the immediately preceding year’s figures; constitute the Committee (or rely on the fifty-lakh exemption); approve and publish the CSR Policy; compute average net profit under section 198 and the prescribed exclusions; track spend against two per cent; classify any shortfall as ongoing-project or other; make the thirty-day or six-month transfer; record any excess for set-off as prescribed; report reasons for any shortfall in the Board’s report.
Practical checklist
Do
- Re-test applicability every year on the immediately preceding year’s audited figures.
- Identify ongoing projects before the year end so the thirty-day transfer can be made on time.
- Keep the CSR Policy on the website, if any, and disclose its contents in the Board’s report.
Avoid
- Do not leave unspent amounts in general funds past the statutory transfer dates.
- Do not treat activities outside the Schedule VII areas or subjects as CSR Policy activities.
- Do not claim set-off of an excess spend except in the manner and for the period prescribed.
Illustrative example
Hypothetical: shortfall split between a project and other activities
A CSR company’s required spend is ₹80 lakh. It spends ₹50 lakh; ₹20 lakh of the shortfall relates to a qualifying ongoing project and ₹10 lakh does not.
Ongoing project
Transfer ₹20 lakh to the Unspent CSR Account within thirty days of the year end and spend it within three financial years.
Other shortfall
Transfer ₹10 lakh to a Schedule VII Fund within six months of the year end.
Report
State the reasons for not spending the amount in the Board’s report.
Outcome
- Making both transfers within their time limits, and reporting the reasons, keeps the shortfall within sub-sections (5) and (6), so the section 135(7) penalty for default is not attracted on that account.
Glossary
- CSR Committee
- The Board committee under section 135(1), not required where the amount to be spent does not exceed fifty lakh rupees.
- Unspent Corporate Social Responsibility Account
- The special scheduled-bank account for amounts unspent on ongoing projects under section 135(6).
- Schedule VII
- The Schedule specifying the areas or subjects of CSR activities, including the Funds to which unspent amounts may be transferred.
- Net profit
- For section 135, profit calculated under section 198, excluding such sums as may be prescribed.
Frequently asked questions
Which year’s figures decide whether CSR applies?
Since 19 September 2018, the immediately preceding financial year. Crossing any one of the three thresholds in that year is enough.
Does every CSR company need a CSR Committee?
No. Since 22 January 2021, a company whose amount to be spent does not exceed fifty lakh rupees need not constitute one; its Board performs the Committee’s functions.
What happens to an amount unspent on an ongoing project?
It goes to the Unspent CSR Account within thirty days of the year end and must be spent within three financial years; any balance then goes to a Schedule VII Fund within thirty days.
Is CSR default still a criminal offence?
No. Since 22 January 2021, section 135(7) provides civil penalties: for the company, twice the amount required to be transferred or one crore rupees, whichever is less; for each officer in default, one-tenth of that amount or two lakh rupees, whichever is less.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026