This Editorial is updated till 30th August, 2019.

Initially, the CSR provisions were codified and introduced by the Companies Act, 2013. CSR provisions as introduced imposed only a statutory obligation on the corporate to take social, environmental and economic initiatives for the society. The reporting of CSR in Directors Report being the only obligation.

I.      Applicability to which CSR provisions applicable:

Following below mention companies are required to constitute CSR Committee, If Company having following during the immediately preceding financial year.

Net worth meaning

As per Section 2(57), ‘NW’ = (Paid Up Share Capital + All Reserves Created Out of Profits + Securities Premium Account) – (Accumulated Losses + Deferred Expenditure and Miscellaneous Expenditure not Written Off).


Constitutions of CSR Committee: Company to which CSR is mandatory should constitute a CSR Committee to undertake and monitor CSR activities:
The CSR Committee shall consist of 3 (Three) or more Director, out of which at least one director shall be an Independent Director.

§  An Unlisted Public Company: This is covered under CSR provisions, but need not to have Independent Director on the CSR Committee.

§  Private Limited Company: which is covered under CSR provisions
ü  Need not have Independent director on the CSR Committee
ü  Can have CSR committee with only Two Directors.

§  In case of Foreign Company: The CSR committee should have at least Two person, out of which
·        One person shall be specified under section [1]380(1)(d) of the 2013 Act and
·        Another person nominated by the Foreign Company.

III.      Net Profit Require spending on CSR Activity:

To ensure that at least 2% of average net profit of 3 immediately preceding financial years to be spent on CSR activities every year. Exp. For Financial Year 2019-20 Calculation: Average net profit of FY 2016-17, 2017-18 & 2018-19 needed to be considered.

Quick Bite:
a.  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.

b.  If 3 years of incorporation not completed, whether provision of CSR can be applicable on Company?

Till now, there has been confusion about the amount of CSR expenditure to be incurred in cases where the company meets the CSR Criteria within 3 years of its incorporation. Now as per the amendments, if a company has not completed three financial years since incorporation, then also the company is obligated to spend 2% of the average net profit made during such immediately preceding financial years.


  §  Activities undertaken in normal course of business.
  §  Activity undertaken outside India.
  §  CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities.
  §  Contribution of any amount directly or indirectly to any political party under section 182 of the Act, shall not be considered as CSR activity.
  §  Activity not covered within schedule VII of the 2013 Act.
  §  One-off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure.
  §  Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act

V.      Impact of amendment act, 2019:

§  Addition of sub Section 6 in Section 135:

Till now, the company was not required to reserve the percentage of the CSR Expenditure in a separate account.

Unspent amount relates to ongoing project: However, with the introduction of Sub-Section 6, the company is required to transfer the “unspent CSR expenditure pursuant to an ongoing CSR Policy project, to a special account within 30 days from the end of the financial year.”

ü  Company shall open a special account called “Unspent Corporate Social Responsibility Account” in a scheduled bank.
ü  Company need to spend such unspent amount within 3 financial years from the date of transfer. 
ü  Upon failure, to spend the amount the company will have to transfer such amount to a Fund specified in Schedule VII within 30 days from the date of completion of the third financial year.

Unspent amount doesn’t relate to any project: Then such amount is required to be directly transferred to a Fund specified in Schedule VII. The transfer is required to be done within 6 months of the expiry of that financial year.

VI.      Penalty:

Fine on Company: the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and

Fine on Officer in Default: every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION. This is only a knowledge sharing initiative and author does not intend to solicit any business or profession.

[1] Persons resident in India authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the Company.


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