FAQ - Series - 4 - Corporate Social Responsibility (CSR)

S. No.
To Whom provision of CSR will applicable?

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 Immediately preceding financial year
If the company has made profits in the years earlier to 2016-17, then is there need to comply with the provisions of Section 135?

If the company has made profits in the earlier years, it need not comply with section 135. It’s applicable only if limit reached in Immediately preceding Financial Year.
From which date amended provision of Section 135(1) notified?

Its notified w.e.f 19th September, 2018.

If section 135 applicable on any company for f.y. 2018-19, then what is the time period for investment on CSR activity?

Companies have to spend the amount on CSR activities as required by section 135 during the F.Y. 2018-19 and Reporting of the same would be in 2019 Board‘s Report or otherwise state the justification for the same in Board Report.
Whether expenditure by Company for fulfillment of any Act/Statute of Regulations will be count as CSR expenditure?

No, Would not count as CSR expenditure.

In case the company has appointed personnel exclusively for implementing the CSR activities of the company, can the expenditure incurred towards such personnel in terms of staff cost etc. be included in the expenditure earmarked for CSR activities?

Salary paid by the companies to regular CSR staff as well as to volunteers of the
Companies (in proportion to company’s time/hours spent specifically on CSR) can be factored into CSR project cost as part of the CSR expenditure.
Whether CSR applicable on private limited company also?

Yes ,
If private Company fulfill the criteria given under section 135(1) then CSR will be applicable on that private limited company also.
As per Section Constitution of CSR committee required on Independent Director, whether this condition applicable on Private Company also.

In case of Private Limited Company, CSR Committee may consist only two Board of Directors.
Whether CSR expenditure of a company can be claimed as a business expenditure?

The Finance Act, 2014 provides that any expenditure incurred by an assessed on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessed for the purposes of the business or profession. Accordingly, the amount spent by a company towards CSR cannot be claimed as business expenditure.
Whether the average net profit criteria in section 135(5) is Net profit before tax or Net profit after tax?


The explanation to section 135(5) states that “average net profit” shall be calculated in accordance with section 198 of the Companies Act, 2013. In terms of section 198(5) (a) in making computation of net profits, income-tax and super-tax payable by the company under the Income-tax Act, 1961 shall not be deducted. Therefore, the net profit criterion in section 135(5) is net profit before tax.
Can the CSR expenditure be spent on the activities beyond Schedule VII?

MCA vide General Circular No. 21/2014 dated June18, 2014 has clarified that the
statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013. However, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities.
Whether the net profit criteria in section 135(1) is Net profit before tax or Net profit after tax?

For checking criteria of applicability of provision of CSR i.e. 135(1) Net profit after tax shall be considered.
Whether following activities would be qualified CSR Expenditure?

Event of Marathon                                             NO
Event of Award                                                 NO
Event of Charitable Contribution                            NO
Event of Advertisement                                       NO
Event of TV sponsorship programme                     NO
Merely being a holding or subsidiary company of a company which fulfils the criteria under section 135(1) make the company liable to comply with section 135, unless the company itself fulfils the criteria

No, It doesn’t make the company liable to comply with section 135, unless the company itself fulfils the criteria.
If section 8 company fulfils the criteria of section 135(1) then, whether provisions of CSR are applicable on Section 8 Company?

There is no specific exemption given to section 8 companies with regard to  applicability of section 135, hence section 8 companies are required to follow CSR
Can donation of money to a trust by a company be treated as CSR expenditure of the company?

The Ministry of Corporate Affairs has vide General Circular No. 21/2014 dated
June 18, 2014 has clarified that Contribution to Corpus of a Trust/ Society/ Section 8 companies etc. will qualify as CSR expenditure as long as

(a)  the Trust/ Society/ Section 8 company etc. is created exclusively for  undertaking CSR activities or
(b)  where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act
In case of companies having multi-locational operations, which local area of operations should the company choose for spending the amount earmarked for CSR operations?

Proviso to Section 135(5) of the Companies Act 2013 provides that a company shall give preference to the local area and the areas around it where it operates for
Spending the amount earmarked for CSR activities. In case of multi-locational
operations, the company could exercise discretion in choosing the area for which it wants to give preference.
If a company having turnover of more than Rs. 1000 crores or more has incurred loss in any of the Immediate preceding financial years, then whether such company is required to comply with the provisions of the section 135 of the Companies Act, 2013?

As per the provisions of section 135 of the Act, one of the three criteria has to be satisfied to attract Section 135. Therefore, if a company satisfies the criterion of turnover, although it does not satisfy the criterion of net profit, it is required to comply with the provisions of Section 135 and the Companies (CSR Policy) Rules, 2014. But, since there are no profits, the company may not spend any amount but explain the reasons for not spending the amount in its Boards Report.
What is the treatment of expenses incurred beyond that of mandated CSR spend? or
There are instances of CSR activities that are in the project mode which require funds beyond that of the mandated 2%. Will such expense, where incurred, be counted in subsequent Financial years as part of CSR expenditure?

In terms of section 135(5), the board of every company, to which section 135 is applicable, shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three preceding year.

There is no provision of spreading over the expenditure incurred in a particular year over the next few years. The words used here is at least. Therefore any Expenditure over 2% could be considered as voluntary higher spend. However, in
case, a company does not want to spend the 2% in the subsequent year on account of it having spent a higher amount in the previous year, the Board’s report may state so.
Whether it is mandatory to display CSR activity on website?

The Board of Directors of the company shall, after taking into account the   recommendations of CSR Committee, approve the CSR Policy for the company and disclose contents of such policy in its report and the same shall be displayed on the company's website, if any
Whether reporting of CSR is mandatory in Board report?

The Board's Report of a company covered under these rules pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR containing particulars specified in Annexure.
There is no need to prepare director report for Foreign company so whether it is mandatory for foreign Company also to give reporting of CSR activity?

In case of a foreign company, the balance sheet filed under sub-clause (b) of sub-section (1) of section 381 shall contain an Annexure regarding report on CSR.
Whether profit arise from surplus of CSR activity form part of profit of the company

The surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of a company
Whether contribution to political party consider as CSR activity?

Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.
Whether CSR projects or programmes for employee of the Company and their family will form part of CSR activity?

The CSR projects or programs or activities that benefit only the employees of the company and their Families shall not be considered as CSR activities in accordance with section 135 of the Act'
Whether CSR projects and programme undertake outside India consider as CSR activity?

CSR projects and programme undertake in India only consider as CSR activity.
Whether company can collaborate with another company for CSR activity and project?

A company may also collaborate with other companies for undertaking projects or
programs or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programs
How to calculate net profit for the purpose of Section 135?

For the purposes of section 135 “average net profit” shall be calculated in accordance with the provisions of Section 198
What should be the compliance if company fails to spend such amount on corporate social responsibility?

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
Is CSR spending required to be done by the Company directly or such amounts can be contributed to charity/ NGO/ section 25 company. Will such contribution qualify as CSR spend?

Yes. Contribution by the Company to such trusts, NGOs etc also qualify for CSR spend if it meets the track record and other criteria as per Rule 4(2) of Companies (CSR Policy) Rules, 2014.
Treatment of shortage in CSR spend and disclosure and possibility of carry forward
of excess spending of CSR. Is there any need for creation of a provision in the event of a shortage in spending?

Any shortfall in spending in CSR shall be explained in the financial statements and the Board of Directors shall state the amount unspent and reasons for not spending that amount. Any such shortfall is not required to be provided for in the books of accounts. However, if a company has already undertaken certain CSR activity for which a contractual liability has been incurred then, a provision for the requisite amount payable to record that liability needs to be recognized as per the applicable Accounting Standards.
Any amount excess spent (i.e., more than 2% as specified in Section 135) cannot be carried forward to the subsequent years. However, the company is entitled to disclose in their Annual Reports of subsequent years any such excess spending of
Previous years while giving reasons for not spending in those later years.
Whether any dividend received from other companies in India will be include in Net Profit?

Any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act as well as any dividend received from a company incorporated outside India shall also be excluded from the Net Profit
Whether resolution can be pass by Circulation resolution by CSR Committee?

Yes there is no restriction to pass resolution by circulation resolution by the committee. It can pass such resolution.


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