CSR under Section 135: A Complete Guide to Applicability and Reporting#
Corporate Social Responsibility (CSR) in India transitioned from a voluntary philanthropic gesture to a strict statutory obligation with the enactment of Section 135 of the Companies Act, 2013. Today, CSR compliance is closely monitored by the Ministry of Corporate Affairs, and deviations invite harsh penalties.
Here is a complete guide to understanding your CSR obligations.
1. Applicability: Are you in the net?#
CSR provisions apply to every company (private or public) that meets any one of the following thresholds during the immediately preceding financial year:
- Net Worth: ₹500 Crore or more
- Turnover: ₹1000 Crore or more
- Net Profit: ₹5 Crore or more (Note: The 2026 Amendment Bill proposes hiking this to ₹10 Crore).
If your company hits any of these marks, you must constitute a CSR Committee (unless the CSR obligation is less than ₹50 Lakhs, in which case the Board can handle it directly) and spend at least 2% of the average net profits made during the three immediately preceding financial years.
2. Where Can You Spend the Money?#
You cannot spend CSR funds on anything that benefits only your employees or normal business operations. The spending must align with the activities listed in Schedule VII of the Companies Act.
Popular avenues include:
- Eradicating hunger, poverty, and malnutrition.
- Promoting education and vocational skills.
- Promoting gender equality and empowering women.
- Ensuring environmental sustainability.
- Contributions to the PM CARES Fund or specified incubators/research institutions.
3. The Implementation Dilemma: Form CSR-1#
Companies can execute CSR projects themselves or through implementing agencies (like registered trusts, societies, or Section 8 companies).
The CSR-1 Mandate: From April 2021, any NGO or implementing agency seeking CSR funding must register with the Central Government by filing Form CSR-1. The MCA generates a unique CSR Registration Number. A company cannot give its CSR funds to an NGO that does not hold this registration number.
4. Reporting: Form CSR-2 and the Board Report#
- The Board Report Annexure: Your annual Board Report must include a detailed annexure on CSR, outlining the policy, committee members, project-wise spending, and reasons for any unspent amounts.
- Form CSR-2: To enhance data mining and regulatory oversight, the MCA introduced Form CSR-2 (a comprehensive web-based report). Companies must file this detailed CSR report to the Registrar of Companies as an addendum to their AOC-4 financial filings.
Conclusion#
CSR is a board-level responsibility. Treat your CSR budget with the same rigorous financial oversight and reporting discipline as any major capital expenditure project. Non-compliance is no longer an option.