# Corporate Social Responsibility (CSR) — Section 135
## Concept of CSR
CSR implies that companies voluntarily integrate social and environmental concerns into their business operations for the betterment of stakeholders and society. Section 135 makes mandatory spending on CSR a statutory obligation for certain companies.
## Applicability — Who Must Constitute a CSR Committee?
Every company — including its holding or subsidiary, and a foreign company [Section 2(42)] having its branch office or project office in India — falls within CSR scope if, during the immediately preceding financial year, it meets ANY ONE of the following:
| Criterion | Threshold |
|---|---|
| Net Worth | ≥ ₹500 Crores |
| Turnover | ≥ ₹1,000 Crores |
| Net Profit | ≥ ₹5 Crores |
> The triggers are alternative (any one suffices), not cumulative.
Any company meeting the criteria must constitute a CSR Committee of the Board.
## Definitions
### Net Worth — Section 2(57)
Net Worth = (Paid-up Share Capital + All Reserves created out of Profits + Securities Premium A/c) − (Accumulated Losses + Deferred Expenditure + Misc. Expenditure not written off)
As per the audited Balance Sheet, but does NOT include:
- Reserves created out of revaluation of assets
- Write-back of depreciation
- Reserves arising on amalgamation
### Net Profit (for CSR Purposes)
- Average net profit is calculated per Section 198.
- Net profit shall NOT include:
- (a) Profit from any overseas branch(es) of the company, whether operated as a separate company or not.
- (b) Any dividend received from other Indian companies that are themselves covered under and complying with Section 135.
- Net profits for any FY for which FS were prepared under the Companies Act, 1956, need NOT be re-calculated under the 2013 Act.
- For a foreign company: Net profit = Net profit as per P&L prepared under Section 381 read with Section 198.
## Amount of CSR Contribution
The Board of Directors of every company falling within Section 135 shall ensure that the company spends, in every FY:
> At least 2% of Average Net Profits of the immediately preceding 3 Financial Years.
While spending, the company shall give preference to local areas around where it operates.
## Failure to Spend — Two Scenarios
### Scenario A — Company has NO ongoing CSR Project
- Board shall disclose the reason for not spending in its Board's Report; AND
- The unspent amount shall be transferred to a Fund specified in Schedule VII (e.g., PM National Relief Fund) within 6 months from the end of the FY.
### Scenario B — Company HAS Ongoing CSR Projects
- Unspent amount shall be transferred to a special account named "Unspent CSR Account" maintained with a scheduled bank.
- Transfer must happen within 30 days from the end of the FY.
- Such amount must be spent within 3 FYs from the date of transfer, in pursuance of the CSR obligation.
- If the company fails to spend within those 3 FYs, the amount shall be transferred to a Fund specified in Schedule VII within 30 days from the end of the 3rd FY.
## Memory Snapshot — Timelines
| Situation | Action | Timeline |
|---|---|---|
| No ongoing project — unspent | Transfer to Schedule VII Fund | 6 months from end of FY |
| Ongoing project — unspent | Transfer to Unspent CSR A/c (scheduled bank) | 30 days from end of FY |
| Ongoing project — still unspent after 3 FYs | Transfer to Schedule VII Fund | 30 days from end of 3rd FY |