# Section 135 – Corporate Social Responsibility (CSR)
## 1. Applicability
Every company (including foreign company, holding, subsidiary) having in the immediately preceding financial year:
- Net Worth ≥ ₹500 crore, OR
- Turnover ≥ ₹1,000 crore, OR
- Net Profit ≥ ₹5 crore
## 2. CSR Committee
The Board shall constitute a CSR Committee consisting of 3 or more directors, of which at least one shall be an Independent Director.
Exceptions:
| Situation | Composition |
|---|---|
| Company not required to have Independent Director | Committee with only directors (no ID needed) |
| Private Company with only 2 directors | Committee can be of those 2 directors |
| Foreign Company | At least 2 persons – one is the authorised resident person under Sec 380(1)(d), other nominated by foreign company |
| CSR amount required ≤ ₹50 lakh | CSR Committee not required; functions to be discharged by the Board |
## 3. Functions of CSR Committee
1. Formulate and recommend a CSR Policy to the Board indicating activities (as per Schedule VII).
2. Recommend the CSR amount to be spent.
3. Monitor the CSR Policy from time to time.
## 4. CSR Expenditure
The Board shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the 3 immediately preceding financial years (or such immediately preceding FYs if company is in existence for less than 3 years).
Preference: Local area and areas around which the company operates.
## 5. Treatment of Unspent CSR Amount
### Case A – Amount relates to an ongoing project
- Transfer the unspent amount to a Special Account ('Unspent CSR Account') opened in a scheduled bank within 30 days from end of FY.
- This unspent amount must be spent within 3 financial years from the date of transfer.
- If still unspent after 3 FYs → transfer to a fund specified in Schedule VII within 30 days from end of 3rd FY.
### Case B – Amount NOT relating to ongoing project
- Transfer the unspent amount to a fund specified in Schedule VII (e.g., PM National Relief Fund) within 6 months from end of FY.
### Reasons for Unspent Amount
The Board, in its report, shall specify the reasons for not spending the CSR amount.
## 6. Excess Spending – Set off
If the company spends an amount in excess of the required 2%, such excess can be set off against the CSR requirement of the next 3 financial years. (Such excess amount shall not include surplus arising from CSR activities.)
## 7. Penalty for Default in CSR Expenditure [Sec 135(7)]
| Person | Penalty |
|---|---|
| Company | Twice the unspent amount required to be transferred OR ₹1 crore, whichever is lower |
| Every Officer in Default | One-tenth of unspent amount OR ₹2 lakh, whichever is lower |
## 8. CSR Rules – Activities
### Included
- Activities undertaken by the company in pursuance of its CSR policy as per Schedule VII (education, healthcare, gender equality, rural development, etc.).
### Excluded (NOT counted as CSR)
1. Sponsorship expenses for marketing/derivation of marketing benefits.
2. Political contributions (direct or indirect).
3. Activities benefiting employees of the company.
4. Expense for fulfilling any statutory obligation under any other law.
5. Activities undertaken outside India.
- Exception: Training of Indian sportspersons representing India at State / National / International level.
6. Activities undertaken in the ordinary course of business.
- Exception: R&D activity in new vaccine / drugs / medical devices related to COVID-19 (FY 2020-21, 2021-22, 2022-23) by a company engaged in R&D, subject to conditions.