India was the first major economy to make corporate social responsibility a statutory spend, not a sentiment. Cross any one of three thresholds and 2% of profits must go to Schedule VII causes — and since 2021, under-spending is a penalty, not an explanation.
Three triggers (any one): net worth ≥ ₹500 crore, turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore in the preceding year.
A company crosses ₹5 crore in net profit for the first time after a strong year. The team celebrates the milestone — and entirely misses that it has just walked into the CSR net. From the next financial year, the company must spend 2% of its average profits on eligible activities, set up the governance for it, and report it. Treating CSR as optional goodwill is the classic error: since the 2021 amendment, it's a "comply or pay" regime, and the penalty for not transferring an unspent amount is twice the shortfall.
BOTTOM LINE
- Applies if: net worth ≥ ₹500 crore, OR turnover ≥ ₹1,000 crore, OR net profit ≥ ₹5 crore in the immediately preceding financial year.
- Spend: at least 2% of the average net profit of the three preceding financial years, on Schedule VII activities.
- Unspent: transfer to an Unspent CSR Account (ongoing projects, 30 days) or a Schedule VII fund (non-ongoing, 6 months); failure = penalty up to twice the unspent amount or ₹1 crore, whichever is less.
What triggers CSR?
Governs this section: Section 135(1), Companies Act, 2013
CSR applies to any company — private, public, OPC, Section 8, or a foreign company with a branch/project office in India — that meets any one of three thresholds in the immediately preceding financial year: net worth ≥ ₹500 crore, turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore. Applicability is assessed annually, so a company can move in and out of the net as its numbers cross the line.
PRACTITIONER'S NOTE — a change to watch
The Corporate Laws (Amendment) Bill, 2026 proposes to raise the net profit threshold from ₹5 crore to ₹10 crore (net worth and turnover unchanged), which would lift tens of thousands of mid-sized companies out of mandatory CSR. Until it receives assent and is notified, the ₹5 crore threshold still applies — don't act on the proposal early.
How much must you spend?
Governs this section: Section 135(5) & Section 198
The obligation is 2% of the average net profits of the three immediately preceding financial years, computed under Section 198 (which, notably, excludes profits from overseas branches). If the company hasn't completed three years, the average is taken over the years since incorporation. The money must go to activities listed in Schedule VII — education, health, gender equality, environment, and so on — and the activity must not be part of the company's normal course of business.
The CSR committee — and the ₹50 lakh exemption
Governs this section: Section 135(1) & 135(9)
A CSR Committee is three or more directors, including at least one independent director (with relaxations where an ID isn't required — a private company with two directors forms a committee of two). The committee frames the CSR policy and annual action plan and monitors spending.
THE EXEMPTION MOST COMPANIES QUALIFY FOR
Where the amount to be spent in a year does not exceed ₹50 lakh, no separate CSR Committee is required — the Board itself discharges the committee's functions (Section 135(9)). Most newly-in-scope companies fall here, so they get the obligation without the committee overhead.
What if you don't spend it all?
Governs this section: Section 135(5) & 135(6)
Under-spending is no longer a "comply or explain" matter. Any unspent amount must be moved:
- Ongoing project: transfer the unspent amount to a dedicated Unspent CSR Account within 30 days of the financial year-end, and spend it within the next three years.
- Non-ongoing: transfer to a Schedule VII fund (e.g., PM CARES, PM National Relief Fund) within 6 months of year-end.
CSR-1, CSR-2 and reporting
Governs this section: Companies (CSR Policy) Rules, 2014 (amended 2021)
Two forms anchor the compliance: CSR-1 registers the implementing agency (the NGO/trust executing the project) on the MCA portal — you can't route funds through an unregistered agency. CSR-2 is the annual CSR report, filed as an addendum to AOC-4. The Board's Report also carries a CSR annual report. Companies with an average CSR obligation of ₹10 crore or more must additionally commission an independent impact assessment of larger projects.
What does non-compliance cost?
Governs this section: Section 135(7)
PENALTY — Section 135(7)
Fail to transfer the unspent amount and the company is liable to twice the unspent amount or ₹1 crore, whichever is less; every officer in default to one-tenth of the unspent amount or ₹2 lakh, whichever is less. It's a civil penalty now — quick to adjudicate, and tied directly to the money you didn't deploy.
Worked example
Mini-case — first year in the net
A company posts net profits of ₹3 cr, ₹7 cr and ₹11 cr over three years; the latest (₹11 cr) crosses the ₹5 cr line, so CSR applies the following year. Its obligation: 2% of the average (₹7 cr) = ₹14 lakh. Because ₹14 lakh is under ₹50 lakh, no separate committee is needed — the Board runs it. The company funds a Schedule VII digital-literacy project through a CSR-1-registered NGO, spends the full ₹14 lakh, and reports it in CSR-2 and the Board's Report. Had it spent only ₹8 lakh on a non-ongoing project, the unspent ₹6 lakh would go to a Schedule VII fund within 6 months — miss that, and the penalty is up to ₹12 lakh (twice the shortfall).
Common mistakes
- Treating CSR as voluntary. Since 2021 it's "comply or pay," with penalties tied to the unspent amount.
- Acting on the ₹10 crore proposal early. It isn't law yet — the ₹5 crore threshold still applies.
- Routing funds through an unregistered agency. The implementing NGO must have a CSR-1 registration.
- Missing the unspent-transfer deadlines. 30 days (ongoing) or 6 months (non-ongoing).
- Counting normal-course activities as CSR. The activity must be a Schedule VII project, not your regular business.
Checklist
- Test applicability each year against the three thresholds (preceding FY).
- Compute 2% of the three-year average net profit (Section 198 basis).
- Form a CSR Committee — or, if the spend is ≤ ₹50 lakh, let the Board discharge the function.
- Approve a CSR policy and annual action plan; use CSR-1-registered implementing agencies.
- Spend within the year; transfer any unspent amount on time (30 days / 6 months).
- File CSR-2 with AOC-4, report in the Board's Report, and run impact assessment if obligation ≥ ₹10 crore.
FAQ
Who has to comply with CSR? Any company meeting net worth ≥ ₹500 crore, turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore in the preceding financial year.
How much must be spent? At least 2% of the average net profit of the three preceding financial years, on Schedule VII activities.
Is a CSR Committee always required? No. If the annual CSR amount is ≤ ₹50 lakh, the Board discharges the committee's functions.
What happens to unspent CSR money? Ongoing projects: to an Unspent CSR Account within 30 days; non-ongoing: to a Schedule VII fund within 6 months.
What's the penalty for not transferring unspent CSR? For the company, twice the unspent amount or ₹1 crore (whichever is less); for officers, one-tenth or ₹2 lakh (whichever is less).
Primary sources
- Section 135 (incl. 135(1),(5),(6),(7),(9)) & Section 198, Companies Act, 2013
- Companies (CSR Policy) Rules, 2014 (as amended 2021); Schedule VII
- Forms CSR-1 and CSR-2; Corporate Laws (Amendment) Bill, 2026 (proposal — not yet law)
Disclaimer: This article is general information on a fast-changing area of company law, current at the time of writing. It is not legal or professional advice for any specific company. Verify the position against the live MCA rules and consult your company secretary.