Treatment of Unspent CSR Amount, Excess Spend, and Penalty for Default
# Treatment of CSR Spends - Unspent, Excess and Default
## A. Unspent CSR Amount
When a company fails to spend the required CSR amount, the treatment depends on whether the unspent amount relates to an ongoing project or not.
### Case 1: Amount Pertains to an ONGOING Project (Sec 135(6))
Transfer unspent amount to a separate bank account called "Unspent CSR Account" within 30 days from the end of the financial year.
This amount must be utilised within 3 financial years from the date of such transfer towards the policy.
If not utilised within 3 FYs, transfer to a Fund specified in Schedule VII (e.g., PM National Relief Fund, PM CARES Fund) within 30 days from the end of the third financial year.
### Case 2: Amount Does NOT Pertain to an Ongoing Project (Sec 135(5) proviso)
Transfer unspent amount to a Fund specified in Schedule VII within 6 months from the end of the financial year.
The Board's report shall specify the reasons for not spending the amount.
## B. Excess CSR Spend - Set Off
If the company spends an amount in excess of 2% requirement:
The excess may be set off against the CSR requirement of the succeeding 3 financial years.
Conditions for set-off:
The excess does NOT include surplus arising from CSR activities.
The Board passes a resolution to that effect.
## C. Treatment of Surplus from CSR Activity
Surplus arising from CSR activities:
Shall NOT form part of business profits of the company.
Must be ploughed back into the same project, OR
Transferred to the Unspent CSR Account and spent in pursuance of CSR policy and Annual Action Plan, OR
Transferred to a Fund specified in Schedule VII within 6 months from the end of the FY.
## D. Penalty for Default in CSR Spend (Sec 135(7))
Defaulter
Penalty
Company
Twice the amount required to be transferred to the Unspent CSR A/c or Schedule VII Fund, ORRs. 1 crore, whichever is less
Every Officer in Default
One-tenth (1/10th) of the amount required to be transferred, ORRs. 2 lakh, whichever is less
Worked example
### Example 1
Example 1 (Ongoing project): RST Ltd was required to spend Rs. 50 lakh on CSR in FY 2024-25 but spent only Rs. 35 lakh; balance Rs. 15 lakh relates to an ongoing project.
Answer: Transfer Rs. 15 lakh to 'Unspent CSR Account' within 30 days from 31.03.2025 (i.e., by 30.04.2025). Spend within next 3 FYs (by 31.03.2028); else transfer to Schedule VII Fund within 30 days thereafter.
### Example 2
Example 2 (Not ongoing): Same facts but the balance is NOT for an ongoing project.
Answer: Transfer Rs. 15 lakh to a Schedule VII Fund within 6 months from 31.03.2025 (by 30.09.2025). Board report to specify reasons for not spending.
### Example 3
Example 3 (Penalty): UVW Ltd. failed to transfer Rs. 80 lakh to Schedule VII Fund. Compute penalty.
Answer: Company penalty = lower of (2 x 80 lakh = 1.6 cr) OR Rs. 1 cr = Rs. 1 crore. Officer in default = lower of (1/10 x 80 lakh = 8 lakh) OR Rs. 2 lakh = Rs. 2 lakh.
### Example 4
Example 4 (Excess Set off): GHI Ltd. was required to spend Rs. 25 lakh but spent Rs. 40 lakh in FY 2024-25.
Answer: Excess Rs. 15 lakh (subject to no surplus inclusion and Board Resolution) can be set off against CSR requirements of FY 2025-26, 2026-27 and 2027-28 (3 succeeding FYs).
⚠️ Common exam mistakes
Confusing the timeline - 30 days (Unspent CSR A/c, ongoing project) vs 6 months (Sch VII Fund, non-ongoing).
Forgetting that excess set-off requires a Board Resolution.
Including surplus from CSR activity in the excess available for set off.
Computing officer penalty as 1/10th of CSR amount instead of 1/10th of the amount required to be transferred.
Treating surplus from CSR as normal business profit - it must be ploughed back to CSR.
Forgetting that the set-off period is only 3 succeeding FYs, not indefinite.
Bare-Act text Section 135(5), 135(6), and 135(7) · Companies Act, 2013 · click to expand
Section 135(5) Proviso: 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.
Section 135(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 pursuance 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.
Section 135(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.