Corporate Social Responsibility (CSR) is a concept that integrates social, environmental, and community development concerns into a company’s business operations.
Section 135 of the Companies Act, 2013 introduced CSR as a statutory obligation for certain companies, making India the first country to mandate CSR spending through legislation.

The objective is to encourage companies to contribute towards sustainable development goals (SDGs), inclusive growth, and nation-building.

Applicability of CSR (Threshold Criteria)

CSR provisions apply to every company (including holding, subsidiary, and foreign companies having branch/project office in India) which meets any of the following criteria during the immediately preceding financial year:

• Net worth ≥ ₹500 crore, OR
• Turnover ≥ ₹1,000 crore, OR
• Net profit ≥ ₹5 crore.

👉 If any of the above criteria are met, CSR provisions become applicable from the next financial year.

CSR Committee of the Board

If CSR is applicable, the company must constitute a CSR Committee of the Board with:

• For Public Companies: At least 3 directors, including at least 1 Independent Director.
• For Private Companies: 2 directors (Independent Director not mandatory).
• For Foreign Companies: At least 2 persons – one shall be a resident authorized under section 380(1)(d), and another nominated by the foreign company.

Functions of CSR Committee:

1. Formulate and recommend a CSR Policy to the Board.
2. Recommend CSR activities and amount of expenditure.
3. Monitor implementation of CSR projects from time to time.

CSR Expenditure

• Companies must spend at least 2% of average net profits made during the 3 immediately preceding financial years.
• Net profit is calculated as per Section 198 (before tax profits, excluding certain incomes like dividends from other CSR-compliant companies, etc.).
• The amount must be spent on CSR activities/projects approved by the Board and included in the CSR Policy.

Activities Eligible for CSR (Schedule VII)

CSR spending must align with Schedule VII of the Companies Act. Key eligible activities include:

1. Eradicating hunger, poverty, and malnutrition, promoting health care, sanitation, and safe drinking water.
2. Education – promoting education, special education, and vocational skills.
3. Gender equality, women empowerment, and senior citizens’ welfare.
4. Environmental sustainability – ecological balance, biodiversity, renewable energy.
5. Protection of national heritage, art, and culture.
6. Rural development projects.
7. Slum area development.
8. Disaster management and relief.
9. Contributions to Central Government Funds such as PM CARES Fund, Swachh Bharat Kosh, Clean Ganga Fund, etc.

🔹 CSR activities must be in India (except for training Indian sportspersons abroad).
🔹 Activities benefiting employees or undertaken in the normal course of business are not CSR

Implementation of CSR

CSR activities may be undertaken:

• Directly by the company.
• Through implementing agencies such as:
  • Section 8 companies,
  • Registered trusts, or
  • Registered societies,
    which must be registered with MCA and have a valid CSR Registration Number (Form CSR-1).

Companies may collaborate with other companies for joint CSR projects, provided reporting is separate.

Treatment of Unspent CSR Amount

• Unspent but related to Ongoing Projects:
  Transfer to a Special Account – “Unspent CSR Account” within 30 days from the end of the financial year and spend within the next 3 financial years.
• Unspent and not related to Ongoing Projects:
  Transfer to a Fund specified in Schedule VII (e.g., PM CARES) within 6 months of the end of financial year.

Penalties for Non-Compliance (as per 2020 Amendment)

• Company: Penalty twice the unspent CSR amount or ₹1 crore (whichever is less).
• Officers in default: Penalty of 1/10th of unspent CSR amount or ₹2 lakh (whichever is less).

Practical Example

Suppose ABC Ltd. has average net profits of ₹100 crore (past 3 years).

• CSR obligation = 2% × ₹100 crore = ₹2 crore.
• ABC Ltd. may spend this amount on education, healthcare, or rural development projects via an approved NGO.
• If ₹50 lakhs remain unspent on an ongoing project, it must be transferred to the “Unspent CSR Account” within 30 days and utilized within 3 years.

Conclusion

Section 135 mandates companies to give back to society, ensuring corporate accountability beyond profits. CSR is not just a legal compliance but a strategic investment in sustainable development.

By channelizing corporate resources into social, environmental, and community causes, India aims to achieve inclusive growth, strengthen trust between business and society, and build a responsible corporate ecosystem.