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Companies Act 2013 — Section 135

CSR Advisory & Form CSR-2 Filing

Corporate Social Responsibility advisory for companies crossing the Section 135 threshold under the Companies Act, 2013 — CSR policy drafting, committee constitution, Schedule VII activity identification, implementing agency structuring, expenditure accounting, unspent CSR amount compliance, and Form CSR-2 filing with MCA.

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Section 135 Applicability — Which Companies Must Comply?

Section 135(1) of the Companies Act, 2013 requires every company that satisfies any one of the following thresholds in the immediately preceding financial year to constitute a CSR Committee and spend on CSR:

Net worth

₹500 crore or more

Turnover

₹1,000 crore or more

Net profit

₹5 crore or more (average of last 3 years)

CSR spend obligation: 2% of average net profit of the immediately preceding 3 financial years (Section 135(5)). "Net profit" means profit before tax computed per Section 198 of the Companies Act — not income tax profit.

Schedule VII — Permitted CSR Activities

  • Eradicating hunger, poverty, and malnutrition; promoting preventive healthcare and sanitation
  • Promoting education including special education and employment-enhancing vocation skills
  • Promoting gender equality and empowering women; setting up homes and hostels for women and orphans
  • Ensuring environmental sustainability, ecological balance, and animal welfare
  • Protection of national heritage, art, and culture; conservation of historical monuments and sites
  • Measures for the benefit of armed forces veterans, war widows, and their dependants
  • Training to promote rural sports, nationally recognised sports, Paralympic sports, and Olympic sports
  • Contribution to the Prime Minister's National Relief Fund and other central government funds
  • Contribution to incubators and R&D projects in science, technology, engineering, and medicine
  • Rural development projects; slum area development and affordable housing
  • Disaster management, relief, rehabilitation, and reconstruction activities
  • PM CARES Fund contributions

What We Do

  • Section 135 applicability check — net worth, turnover, and net profit threshold analysis using Section 198 computation
  • CSR Committee constitution advisory — minimum 3 directors including at least 1 independent director (Section 135(1))
  • CSR Policy drafting — in accordance with Schedule VII and Rule 5 of the Companies (CSR Policy) Rules, 2014
  • Activity identification — Schedule VII category mapping for the company's chosen CSR focus areas
  • Implementing agency identification and due diligence — Section 8 company, registered trust, or society; FCRA registration check, Form 10AC (80G) status verification
  • CSR expenditure budgeting — 2% of 3-year average net profit; carryforward of unspent amounts
  • Unspent CSR amount compliance — transfer to Unspent CSR Account within 30 days of financial year-end; further transfer to Schedule VII fund within 3 years (Section 135(6))
  • Ongoing activity and implementation status tracking throughout the year
  • Form CSR-2 preparation and MCA filing — mandatory annual disclosure filed along with Form AOC-4
  • Board Report CSR disclosures under Rule 8 of Companies (CSR Policy) Rules, 2014
  • Income tax advisory — CSR spend is not deductible under Section 37(1); 80G deduction structuring for donations to eligible implementing agencies

Unspent CSR — What Happens If You Don't Spend?

Ongoing projects (multi-year)

Transfer unspent amount to a separate Unspent CSR Account within 30 days of FY-end. Amount must be spent within 3 years or transferred to Schedule VII fund.

Other than ongoing projects

Transfer unspent amount to any fund specified in Schedule VII within 6 months from end of FY (e.g., PM National Relief Fund, Swachh Bharat Kosh).

Penalty for non-compliance

Company: twice the unspent CSR amount or ₹1 Cr (whichever is less). Every officer in default: 1/10th of unspent amount or ₹2 L (whichever is less). Section 135(7).

Frequently Asked Questions

Is CSR expenditure tax deductible?

Generally no. The Income Tax Act was amended to clarify that CSR expenditure mandated by Section 135 of the Companies Act, 2013 is not deductible as a business expense under Section 37(1). However, companies can structure some CSR spend through implementing agencies that hold Form 10AC (80G certificate) — in those cases, the donation may qualify for an 80G deduction subject to the prescribed limits.

Can a company pay CSR to its own foundation?

Yes, subject to conditions. A company can set up or use its own Section 8 company, trust, or society as an implementing agency for CSR activities. The implementing agency must be registered under Section 12A and hold Form 10AC (80G approval) and, where applicable, FCRA registration. Related-party CSR implementing agencies are subject to enhanced Board-level disclosures.

When must Form CSR-2 be filed with MCA?

Form CSR-2 is an annual return filed with the Registrar of Companies under Rule 12(1B) of the Companies (Accounts) Rules, 2014. It is filed separately from Form AOC-4 (Annual Report) but must be submitted along with it or shortly thereafter. The form captures CSR spend details, implementing agency information, and unspent amount disclosures.

What is the "net profit" basis for calculating CSR obligation?

"Net profit" for CSR calculation means profit computed under Section 198 of the Companies Act, 2013 — not the profit before tax in the income tax return. Section 198 computation excludes capital gains/losses, dividends from other companies, and certain other items. The average of net profit of the immediately preceding 3 financial years is used to compute the 2% obligation.

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