Corporate Social Responsibility — Applicability & CSR Committee (Section 135)
# Section 135 — Corporate Social Responsibility (CSR)
## 1. Applicability Criteria
Every company (including foreign companies' branches/projects in India) is covered if, during the immediately preceding financial year, it meets any one of the following:
Trigger
Threshold
Net Worth (NW)
≥ ₹500 crore
Turnover (TO)
≥ ₹1,000 crore
Net Profit (NP)
≥ ₹5 crore
> The thresholds are alternative (OR), not cumulative. Meeting any one triggers CSR applicability.
## 2. Cessation Rule
If a company ceases to meet all three criteria for 3 consecutive financial years, CSR provisions no longer apply until it again meets the criteria.
## 3. CSR Committee — Constitution
Minimum 3 directors, of which at least 1 must be an Independent Director (ID).
Exception 1: If a company is not required to appoint an ID, the CSR committee shall have 2 or more directors (no ID needed).
Exception 2: A Private Company with only 2 directors — CSR Committee can consist of those 2 directors only.
A Foreign Company's CSR Committee shall have at least 2 persons — one being a person resident in India authorised under Sec 380(1)(d), and the other nominated by the foreign company.
## 4. Computation of Net Worth (NW)
```
Net Worth = PUSC + Reserves arising out of Securities Premium
+ Other Reserves created out of Profits (incl. Securities Premium A/c)
– Accumulated Losses
– Deferred Expenditure (not written off)
– Miscellaneous Expenditure (not written off)
Ignore (do NOT add):
• Revaluation Reserve
• Write-back of depreciation reserve
```
### Items table
Add (+)
Less (–)
Ignore
Paid-up Share Capital
Accumulated losses
Revaluation reserve
Securities Premium A/c
Deferred expenditure not w/o
Write-back of depreciation
Reserves from profits
Misc. expenditure not w/o
## Memory Hook
"5-100-5" — NW ≥ ₹500 cr OR TO ≥ ₹1000 cr OR NP ≥ ₹5 cr in immediately preceding FY.
Worked example
### Example 1
Example 1 (Applicability): PQR Ltd's FY 2024-25 figures — NW ₹200 cr, TO ₹800 cr, NP ₹6 cr. Is CSR applicable in FY 2025-26?
Answer: Yes. Although NW and TO are below thresholds, NP ≥ ₹5 cr. As criteria are alternative, CSR applies.
### Example 2
Example 2 (Private Co. with 2 directors): A private company has only 2 directors and triggers CSR applicability. How is the CSR Committee constituted?
Answer: Both directors form the CSR Committee. No ID needed (since pvt cos. don't need IDs) and minimum 3 director rule is relaxed for pvt cos. with only 2 directors.
### Example 3
Example 3 (Net Worth Calculation): A company has — PUSC ₹100 cr, Securities Premium ₹50 cr, General Reserve ₹400 cr, Revaluation Reserve ₹150 cr, Accumulated Losses ₹30 cr, Misc Exp. not w/o ₹20 cr. Compute NW.
Example 4 (3 consecutive years): ABC Ltd was covered under CSR up to FY 2021-22. From FY 2022-23 to 2024-25 (3 consecutive years), none of NW/TO/NP thresholds were met. What is the position for FY 2025-26?
Answer: ABC Ltd is no longer required to comply with CSR provisions in FY 2025-26.
⚠️ Common exam mistakes
Treating the three thresholds (NW, TO, NP) as cumulative — they are alternative; meeting any one triggers CSR.
Including Revaluation Reserve in Net Worth — it is excluded by Sec 2(57).
Forgetting the 3 consecutive years cessation rule — companies don't fall out of CSR after just 1 year of non-compliance with thresholds.
Saying CSR Committee always needs an Independent Director — not required if company itself is not required to appoint an ID (e.g., most private cos.).
Confusing 'immediately preceding FY' criteria with average of last 3 years — the trigger is the immediately preceding FY; the 2% spend is based on average net profit of preceding 3 FYs.
Forgetting Section 135(9): if amount to be spent ≤ ₹50 lakh, no CSR Committee is required — Board itself discharges the functions.
Deducting Securities Premium from NW — it is added (part of reserves) per Sec 2(57).
Bare-Act text Section 135 r/w Companies (CSR Policy) Rules, 2014; Section 2(57) · Companies Act, 2013 · click to expand
Section 135(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.
Proviso — 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.
Section 135(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 shall, in such cases, be discharged by the Board of Directors of such company.
Definition (Net worth) — Section 2(57) — 'net worth' means the aggregate value of the paid-up share capital and all reserves created out of the profits, securities premium account and debit or credit balance of profit and loss account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, but does not include reserves created out of revaluation of assets, write back of depreciation and amalgamation.