Section 135 of Companies Act 2013 Corporate Social Responsibility (CSR)

Section 135 of Companies Act 2013 Corporate Social Responsibility (CSR). Section 135 of the Companies Act, 2013, introduces a legal framework for Corporate Social Responsibility (CSR) in India, making it mandatory for certain companies to actively contribute to social and environmental causes. This section applies to companies meeting specific financial thresholds net worth of Rs.500 crore or more, turnover of Rs.1,000 crore or more, or net profit of Rs.5 crore or more. It requires these companies to form a CSR committee, formulate a CSR policy, and spend at least 2% of their average net profits from the last three financial years on approved CSR activities. This provision aims to ensure that businesses play a proactive role in nation-building and promote inclusive and sustainable development.
What is Corporate Social Responsibility?
Corporate Social Responsibility (CSR) refers to a company's commitment to operate in an ethical and sustainable manner while contributing to economic development, improving the quality of life of its workforce, their families, the local community, and society at large. It goes beyond mere compliance with laws and focuses on voluntary initiatives that reflect a company’s values and sense of responsibility towards people and the environment. CSR activities may include promoting education, healthcare, environmental sustainability, skill development, and rural development. In India, CSR has become a statutory obligation for certain companies under Section 135 of the Companies Act, 2013. Overall, CSR strengthens a company’s brand reputation, builds stakeholder trust, and supports long-term business success while creating a positive social impact.
How CSR Evolved in India
Corporate Social Responsibility (CSR) in India has gradually changed from simple charity to a more structured and strategic approach. In the early days, companies supported social causes voluntarily, often through donations and community help led by business founders. Over time, as businesses grew and society’s needs changed, companies started realizing the importance of long-term social and environmental commitments. The big turning point came with the Companies Act, 2013, which made CSR spending mandatory for certain companies. This law pushed businesses to plan and report their social activities more seriously. Today, CSR in India focuses on sustainable development, improving lives, and protecting the environment, making it an important part of how companies operate and build trust with society.
Applicability of Section 135
Section 135 applies to every company registered under the Companies Act, 2013, including its holding or subsidiary companies and even foreign companies having a branch or project office in India. The section mandates Corporate Social Responsibility (CSR) compliance if, during any financial year, the company meets at least one of the following criteria:

A net worth of Rs.500 crore or more, or

A turnover of Rs.1,000 crore or more, or

A net profit of Rs.5 crore or more.

Once a company fulfills any of these conditions, it is required to constitute a CSR Committee of the Board. The committee’s responsibility is to formulate and recommend a CSR policy, decide on CSR activities, and monitor their implementation. The company must spend at least 2% of its average net profits from the three immediately preceding financial years on CSR activities listed under Schedule VII of the Act.
Even if a company no longer meets the above norms in subsequent years, it must continue complying until it formally exits CSR obligations by fulfilling certain conditions and disclosures. This legal framework ensures that financially strong companies contribute meaningfully to social welfare, environmental sustainability, and community development in India.
Benefits of Section 135 of the Companies Act, 2013 (CSR)
Here are the key benefits of Section 135 of the Companies Act, 2013 (CSR), explained in points to highlight how it strengthens social responsibility and promotes inclusive, sustainable growth:
Legalizes social responsibility
Section 135 transforms CSR from voluntary philanthropy into a legal duty, ensuring that large, profitable companies systematically contribute to social welfare. This shift establishes a clear framework for businesses to address societal challenges, making community development and environmental care an integral part of corporate governance.
Promotes inclusive and sustainable growth
By mandating contributions to healthcare, education, poverty alleviation, and environmental projects, Section 135 helps bridge social inequalities. It promotes inclusive growth by encouraging companies to uplift disadvantaged communities, improve living standards, and support initiatives that protect natural resources, creating long-term positive impacts on society and the environment.
Strengthens brand image and reputation
Companies actively engaging in CSR under Section 135 build stronger brand value and earn public trust. Consumers and investors today prefer responsible brands. A positive social image differentiates businesses from competitors, improves customer loyalty, and enhances credibility, leading to better market positioning and long-term success.
Improves stakeholder relationships
Active CSR involvement strengthens relationships with local communities, government bodies, and other stakeholders. By addressing community needs and contributing to development, companies foster goodwill and gain social acceptance, which helps in smoother business operations, reduces conflicts, and builds a supportive ecosystem around their activities.
Boosts employee engagement
CSR initiatives make employees feel proud and more connected to their company’s values. Participating in meaningful projects boosts morale, job satisfaction, and loyalty. It also helps attract socially conscious talent, reduces attrition, and builds a culture where employees see themselves as part of a purpose-driven organization.
Supports national and global development goals
Section 135 aligns corporate contributions with India’s development goals and the United Nations Sustainable Development Goals (SDGs). This coordinated effort helps address large-scale social and environmental issues, supports nation-building, and positions Indian companies as responsible global citizens contributing to worldwide positive change.
Ensures accountability and transparency
Mandatory disclosures and Board-level oversight improve accountability. Companies must report CSR spending, activities, and impact, making their efforts visible to the public and stakeholders. This transparency builds trust, encourages responsible use of funds, and ensures that CSR commitments translate into real, measurable community benefits.
Contributes to long-term business sustainability
CSR activities help companies gain a social license to operate, reduce risks from community opposition, and strengthen operational stability. By investing in society and the environment, companies build goodwill that supports business continuity, enhances resilience, and ensures a more sustainable, mutually beneficial future for all stakeholders.
Role of the Board of Directors under Section 135 of the Companies Act, 2013 (CSR)
Under Section 135, the Board of Directors holds the primary responsibility for a company’s CSR compliance. It must form a CSR Committee to formulate and recommend a detailed CSR policy outlining activities in line with Schedule VII. The Board approves this policy and ensures its effective implementation, allocating at least 2% of the average net profits from the last three years towards CSR. It must also disclose the CSR policy and spending details in the annual Board report and on the company’s website, ensuring transparency. If the company fails to spend the required amount, the Board must explain the reasons. Additionally, it monitors the progress and impact of CSR initiatives to ensure they align with the company's goals and social responsibilities.
List of Permitted CSR Activities Under Schedule VII

Eradicating hunger, poverty, and malnutrition; promoting health care (including preventive health care) and sanitation; and making safe drinking water available.

Promoting education, including special education and employment-enhancing vocational skills, especially among children, women, elderly, and the differently abled.

Promoting gender equality, empowering women, setting up homes and hostels for women and orphans, and setting up old age homes, day care centers, and similar facilities.

Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources, and maintaining soil, air, and water quality.

Protection of national heritage, art, and culture, including restoration of buildings and sites of historical importance, and promoting traditional arts and handicrafts.

Measures for the benefit of armed forces veterans, war widows, and their dependents.

Training to promote rural sports, nationally recognized sports, Paralympic sports, and Olympic sports.

Contribution to the Prime Minister’s National Relief Fund or any other central government fund for socio-economic development and relief.

Rural development projects.

Slum area development.

Disaster management, including relief, rehabilitation, and reconstruction activities.

Examples of CSR under Section 135 of the Companies Act, 2013

In 2023-24, Mahindra & Mahindra Limited invested Rs.175 crore in CSR initiatives. The company’s flagship program, Nanhi Kali, supported the education of 200,000 underprivileged girls. In addition, its environment initiatives led to the plantation of over 1 million trees under Project Hariyali, promoting ecological balance and community engagement.

In 2023-24, Infosys Limited spent Rs.424 crore on CSR, as reported in its sustainability disclosures. The company prioritized education, benefiting over 1.3 million students through digital and infrastructure support. Infosys also invested in environmental sustainability, planting over 3 million saplings and restoring lakes to improve water quality and local biodiversity.

According to its annual report, Tata Steel Limited spent around Rs.406 crore on CSR activities in 2023-24. The company focused on health and sanitation, benefiting over 1.6 million people through mobile health units and hospital services. It also implemented large-scale drinking water projects, reaching over 600 villages. In education, Tata Steel supported nearly 50,000 students through scholarships and school infrastructure improvements.

Hindustan Unilever Limited (HUL) allocated Rs.165 crore for CSR in 2023-24, focusing on health, hygiene, and rural livelihood. Its Swachh Aadat, Swachh Bharat program educated 10 million people on handwashing and sanitation. Additionally, through Project Shakti, over 1.6 lakh rural women entrepreneurs were empowered to promote financial independence and community development.

Transfer and Use of Unspent Amount
Under Section 135, if a company fails to spend the required CSR amount during a financial year, it must take specific actions depending on the nature of the projects:
For ongoing projects:

The unspent amount must be transferred to a special account called the "Unspent CSR Account" within 30 days from the end of the financial year.

The company is then required to utilize this amount within the next three financial years for the specified ongoing project.

If the amount is not spent within this period, it must be transferred to a fund specified in Schedule VII (like the Prime Minister’s National Relief Fund) within 30 days after the third financial year.

For other cases (non-ongoing projects):

The unspent amount must be transferred directly to a fund specified in Schedule VII within six months from the end of the financial year.

Failure to comply with these provisions attracts penalties for the company and its responsible officers. These rules ensure that CSR funds are not merely allocated but actually used for intended social and environmental welfare purposes.
Net Profit for CSR Applicability
For determining whether a company falls under the CSR provisions of Section 135, net profit is calculated as per Section 198 of the Companies Act, 2013.
This net profit is not the same as the profit shown in the Profit & Loss statement under standard accounting; it is specifically calculated after excluding:

Profits from overseas branches (whether operated as a separate company or otherwise).

Any dividend income received from other companies in India that are already complying with CSR obligations.

The net profit is computed before tax, and without considering any adjustments for exceptional or extraordinary items. A company becomes liable to comply with CSR if it has a net profit of Rs.5 crore or more during any financial year. Once applicable, the company must spend at least 2% of the average net profits of the three immediately preceding financial years on CSR activities.
This approach ensures that only consistently profitable companies are required to undertake CSR, promoting sustained social responsibility without burdening businesses that may be experiencing financial stress.
CSR Committee under Section 135 of the Companies Act, 2013
Under Section 135 of the Companies Act, 2013, certain companies must set up a Corporate Social Responsibility (CSR) Committee. This committee ensures that the company’s CSR activities are well-planned, properly implemented, and monitored effectively.
The CSR Committee usually includes at least three directors, with one being an independent director. In private companies with only two directors, both can form the committee. For foreign companies, it should include at least two people, one of whom must live in India.
The main job of the CSR Committee is to create and recommend a CSR policy that outlines which activities the company will support, following the list given in the law (Schedule VII). It also decides how much money should be spent and oversees the actual work being done.
The committee helps make sure that the company’s CSR efforts are not just about ticking boxes but truly helping society and the environment. It also ensures that all activities are reported clearly in the company’s annual report and on its website.
Overall, the CSR Committee plays an important role in guiding the company to act responsibly and make a positive impact on communities.
Duties of the CSR Committee
Below are the key duties of the CSR Committee under Section 135 of the Companies Act, 2013, outlining their role in planning, recommending, monitoring, and ensuring proper reporting of CSR activities:
Formulate and recommend the CSR policy
The committee prepares and suggests a detailed CSR policy to the Board, listing the social and environmental activities the company will support, ensuring they align with legal requirements and the company’s values.
Recommend the CSR expenditure
It decides how much money should be allocated for CSR each year (minimum 2% of average net profits from the last three years), ensuring sufficient funds are dedicated to meaningful and impactful social projects.
Monitor implementation of CSR projects
The committee oversees CSR projects to ensure they are carried out as planned, funds are properly used, timelines are met, and the intended social or environmental benefits are actually delivered to the targeted communities.
Ensure alignment with legal requirements
The committee ensures that all CSR activities strictly follow Section 135 and related rules, and that projects genuinely address social and environmental issues rather than being superficial or purely for publicity.
Oversee impact assessment (if applicable)
For large projects, the committee ensures detailed impact assessments are done to measure effectiveness, learn from outcomes, and improve future CSR strategies, making programs more transparent and result-driven.
Assist in disclosures and reporting
The committee helps prepare complete reports for inclusion in the Board’s annual report and on the website, ensuring stakeholders are informed and promoting transparency, accountability, and public trust in CSR efforts.
Fines and Penalties for Non-Compliance
If a company fails to comply with the CSR provisions under Section 135 such as not spending the required amount, not transferring unspent funds to specified accounts, or not disclosing CSR activities properly it faces strict penalties.
For the company:

A fine ranging from Rs.50,000 to Rs.25 lakh.

For every officer in default:

Punishable with imprisonment for up to three years, or

A fine ranging from Rs.50,000 to Rs.5 lakh, or both.

Additionally, failure to transfer unspent CSR funds (as per the rules for ongoing and other projects) to specified accounts or government funds within the given timelines is a serious offense.
These penalties emphasize that CSR is not merely a voluntary or symbolic gesture but a legal responsibility. The stringent provisions are designed to ensure that companies take their social obligations seriously, contribute actively to community development, and maintain transparency and accountability.
Conclusion
Section 135 of the Companies Act, 2013, has transformed the role of businesses in India by making Corporate Social Responsibility (CSR) a legal mandate rather than a voluntary choice. This provision ensures that profitable companies actively contribute to addressing social, environmental, and community challenges, promoting inclusive and sustainable growth. By mandating CSR committees, setting spending requirements, and enforcing transparent reporting, the law encourages companies to operate ethically and build stronger relationships with society. While compliance can present challenges, it also offers opportunities to strengthen brand reputation, engage employees, and support nation-building. Ultimately, Section 135 represents a visionary step that aligns corporate success with social welfare, creating a framework for more responsible and impactful business practices in India.
If you have any queries regarding Corporate Social Responsibility (CSR) , then you can connect with Compliance Calendar LLP experts through email info@ccoffice.in or Call/Whatsapp at +91 9988424211.
FAQs
Q1. What is Section 135 of the Companies Act, 2013
Ans. Section 135 mandates certain companies to spend a portion of their profits on Corporate Social Responsibility (CSR) activities and to disclose these efforts publicly.
Q2. Which companies are required to comply with CSR provisions?
Ans. Companies with a net worth of Rs.500 crore or more, turnover of Rs.1,000 crore or more, or net profit of Rs.5 crore or more in any financial year.
Q3. How much must a company spend on CSR activities?
Ans. At least 2% of its average net profits from the three immediately preceding financial years.
Q4. What is the role of the CSR Committee?
Ans. The committee formulates and recommends the CSR policy, decides the budget, and monitors implementation of CSR activities.
Q5. What are permissible CSR activities?
Ans. Activities include promoting education, healthcare, gender equality, environmental sustainability, rural development, and contributions to specified government funds.
Q6. What happens if a company fails to spend the required CSR amount?
Ans. The unspent amount must be transferred to a specified fund within set timelines. Non-compliance attracts penalties for the company and officers.
Q7. Can CSR activities be done through a trust or NGO?
Ans. Yes, companies can implement CSR through registered trusts, societies, or Section 8 companies, subject to compliance with certain conditions.
Q8. How is net profit calculated for CSR applicability?
Ans. Net profit is calculated as per Section 198, excluding profits from overseas branches and dividends from compliant Indian companies.
Q9. Is CSR mandatory for private and foreign companies?
Ans. Yes, if they meet the financial thresholds, both private and foreign companies with operations in India must comply with CSR provisions.
Q10. Is impact assessment mandatory?
Ans. Yes, companies with average CSR obligation of Rs.10 crore or more must conduct impact assessments for projects with outlays of Rs.1 crore or above.

Section 135 of the Companies Act, 2013, introduces a legal framework for Corporate Social Responsibility (CSR) in India, making it mandatory for certain companies to actively contribute to social and environmental causes. This section applies to companies meeting specific financial thresholds net worth of Rs.500 crore or more, turnover of Rs.1,000 crore or more, or net profit of Rs.5 crore or more. It requires these companies to form a CSR committee, formulate a CSR policy, and spend at least 2% of their average net profits from the last three financial years on approved CSR activities. This provision aims to ensure that businesses play a proactive role in nation-building and promote inclusive and sustainable development.

What is Corporate Social Responsibility?

Corporate Social Responsibility (CSR) refers to a company's commitment to operate in an ethical and sustainable manner while contributing to economic development, improving the quality of life of its workforce, their families, the local community, and society at large. It goes beyond mere compliance with laws and focuses on voluntary initiatives that reflect a company’s values and sense of responsibility towards people and the environment. CSR activities may include promoting education, healthcare, environmental sustainability, skill development, and rural development. In India, CSR has become a statutory obligation for certain companies under Section 135 of the Companies Act, 2013. Overall, CSR strengthens a company’s brand reputation, builds stakeholder trust, and supports long-term business success while creating a positive social impact.

How CSR Evolved in India

Corporate Social Responsibility (CSR) in India has gradually changed from simple charity to a more structured and strategic approach. In the early days, companies supported social causes voluntarily, often through donations and community help led by business founders. Over time, as businesses grew and society’s needs changed, companies started realizing the importance of long-term social and environmental commitments. The big turning point came with the Companies Act, 2013, which made CSR spending mandatory for certain companies. This law pushed businesses to plan and report their social activities more seriously. Today, CSR in India focuses on sustainable development, improving lives, and protecting the environment, making it an important part of how companies operate and build trust with society.

Applicability of Section 135

Section 135 applies to every company registered under the Companies Act, 2013, including its holding or subsidiary companies and even foreign companies having a branch or project office in India. The section mandates Corporate Social Responsibility (CSR) compliance if, during any financial year, the company meets at least one of the following criteria:

A net worth of Rs.500 crore or more, or
A turnover of Rs.1,000 crore or more, or
A net profit of Rs.5 crore or more.

Even if a company no longer meets the above norms in subsequent years, it must continue complying until it formally exits CSR obligations by fulfilling certain conditions and disclosures. This legal framework ensures that financially strong companies contribute meaningfully to social welfare, environmental sustainability, and community development in India.

Benefits of Section 135 of the Companies Act, 2013 (CSR)

Here are the key benefits of Section 135 of the Companies Act, 2013 (CSR), explained in points to highlight how it strengthens social responsibility and promotes inclusive, sustainable growth:

Legalizes social responsibility

Section 135 transforms CSR from voluntary philanthropy into a legal duty, ensuring that large, profitable companies systematically contribute to social welfare. This shift establishes a clear framework for businesses to address societal challenges, making community development and environmental care an integral part of corporate governance.

Promotes inclusive and sustainable growth

By mandating contributions to healthcare, education, poverty alleviation, and environmental projects, Section 135 helps bridge social inequalities. It promotes inclusive growth by encouraging companies to uplift disadvantaged communities, improve living standards, and support initiatives that protect natural resources, creating long-term positive impacts on society and the environment.

Strengthens brand image and reputation

Companies actively engaging in CSR under Section 135 build stronger brand value and earn public trust. Consumers and investors today prefer responsible brands. A positive social image differentiates businesses from competitors, improves customer loyalty, and enhances credibility, leading to better market positioning and long-term success.

Improves stakeholder relationships

Active CSR involvement strengthens relationships with local communities, government bodies, and other stakeholders. By addressing community needs and contributing to development, companies foster goodwill and gain social acceptance, which helps in smoother business operations, reduces conflicts, and builds a supportive ecosystem around their activities.

Boosts employee engagement

CSR initiatives make employees feel proud and more connected to their company’s values. Participating in meaningful projects boosts morale, job satisfaction, and loyalty. It also helps attract socially conscious talent, reduces attrition, and builds a culture where employees see themselves as part of a purpose-driven organization.

Supports national and global development goals

Section 135 aligns corporate contributions with India’s development goals and the United Nations Sustainable Development Goals (SDGs). This coordinated effort helps address large-scale social and environmental issues, supports nation-building, and positions Indian companies as responsible global citizens contributing to worldwide positive change.

Ensures accountability and transparency

Mandatory disclosures and Board-level oversight improve accountability. Companies must report CSR spending, activities, and impact, making their efforts visible to the public and stakeholders. This transparency builds trust, encourages responsible use of funds, and ensures that CSR commitments translate into real, measurable community benefits.

Contributes to long-term business sustainability

CSR activities help companies gain a social license to operate, reduce risks from community opposition, and strengthen operational stability. By investing in society and the environment, companies build goodwill that supports business continuity, enhances resilience, and ensures a more sustainable, mutually beneficial future for all stakeholders.

Role of the Board of Directors under Section 135 of the Companies Act, 2013 (CSR)

Under Section 135, the Board of Directors holds the primary responsibility for a company’s CSR compliance. It must form a CSR Committee to formulate and recommend a detailed CSR policy outlining activities in line with Schedule VII. The Board approves this policy and ensures its effective implementation, allocating at least 2% of the average net profits from the last three years towards CSR. It must also disclose the CSR policy and spending details in the annual Board report and on the company’s website, ensuring transparency. If the company fails to spend the required amount, the Board must explain the reasons. Additionally, it monitors the progress and impact of CSR initiatives to ensure they align with the company's goals and social responsibilities.

List of Permitted CSR Activities Under Schedule VII

Eradicating hunger, poverty, and malnutrition; promoting health care (including preventive health care) and sanitation; and making safe drinking water available.
Promoting education, including special education and employment-enhancing vocational skills, especially among children, women, elderly, and the differently abled.
Promoting gender equality, empowering women, setting up homes and hostels for women and orphans, and setting up old age homes, day care centers, and similar facilities.
Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources, and maintaining soil, air, and water quality.
Protection of national heritage, art, and culture, including restoration of buildings and sites of historical importance, and promoting traditional arts and handicrafts.
Measures for the benefit of armed forces veterans, war widows, and their dependents.
Training to promote rural sports, nationally recognized sports, Paralympic sports, and Olympic sports.
Contribution to the Prime Minister’s National Relief Fund or any other central government fund for socio-economic development and relief.
Rural development projects.
Slum area development.
Disaster management, including relief, rehabilitation, and reconstruction activities.

Examples of CSR under Section 135 of the Companies Act, 2013

In 2023-24, Mahindra & Mahindra Limited invested Rs.175 crore in CSR initiatives. The company’s flagship program, Nanhi Kali, supported the education of 200,000 underprivileged girls. In addition, its environment initiatives led to the plantation of over 1 million trees under Project Hariyali, promoting ecological balance and community engagement.
In 2023-24, Infosys Limited spent Rs.424 crore on CSR, as reported in its sustainability disclosures. The company prioritized education, benefiting over 1.3 million students through digital and infrastructure support. Infosys also invested in environmental sustainability, planting over 3 million saplings and restoring lakes to improve water quality and local biodiversity.
According to its annual report, Tata Steel Limited spent around Rs.406 crore on CSR activities in 2023-24. The company focused on health and sanitation, benefiting over 1.6 million people through mobile health units and hospital services. It also implemented large-scale drinking water projects, reaching over 600 villages. In education, Tata Steel supported nearly 50,000 students through scholarships and school infrastructure improvements.
Hindustan Unilever Limited (HUL) allocated Rs.165 crore for CSR in 2023-24, focusing on health, hygiene, and rural livelihood. Its Swachh Aadat, Swachh Bharat program educated 10 million people on handwashing and sanitation. Additionally, through Project Shakti, over 1.6 lakh rural women entrepreneurs were empowered to promote financial independence and community development.

Transfer and Use of Unspent Amount

Under Section 135, if a company fails to spend the required CSR amount during a financial year, it must take specific actions depending on the nature of the projects:

For ongoing projects:

The unspent amount must be transferred to a special account called the "Unspent CSR Account" within 30 days from the end of the financial year.
The company is then required to utilize this amount within the next three financial years for the specified ongoing project.
If the amount is not spent within this period, it must be transferred to a fund specified in Schedule VII (like the Prime Minister’s National Relief Fund) within 30 days after the third financial year.

For other cases (non-ongoing projects):

The unspent amount must be transferred directly to a fund specified in Schedule VII within six months from the end of the financial year.

Net Profit for CSR Applicability

For determining whether a company falls under the CSR provisions of Section 135, net profit is calculated as per Section 198 of the Companies Act, 2013.

This net profit is not the same as the profit shown in the Profit & Loss statement under standard accounting; it is specifically calculated after excluding:

Profits from overseas branches (whether operated as a separate company or otherwise).
Any dividend income received from other companies in India that are already complying with CSR obligations.

This approach ensures that only consistently profitable companies are required to undertake CSR, promoting sustained social responsibility without burdening businesses that may be experiencing financial stress.

CSR Committee under Section 135 of the Companies Act, 2013

Under Section 135 of the Companies Act, 2013, certain companies must set up a Corporate Social Responsibility (CSR) Committee. This committee ensures that the company’s CSR activities are well-planned, properly implemented, and monitored effectively.

The CSR Committee usually includes at least three directors, with one being an independent director. In private companies with only two directors, both can form the committee. For foreign companies, it should include at least two people, one of whom must live in India.

The main job of the CSR Committee is to create and recommend a CSR policy that outlines which activities the company will support, following the list given in the law (Schedule VII). It also decides how much money should be spent and oversees the actual work being done.

The committee helps make sure that the company’s CSR efforts are not just about ticking boxes but truly helping society and the environment. It also ensures that all activities are reported clearly in the company’s annual report and on its website.

Overall, the CSR Committee plays an important role in guiding the company to act responsibly and make a positive impact on communities.

Duties of the CSR Committee

Below are the key duties of the CSR Committee under Section 135 of the Companies Act, 2013, outlining their role in planning, recommending, monitoring, and ensuring proper reporting of CSR activities:

Formulate and recommend the CSR policy

The committee prepares and suggests a detailed CSR policy to the Board, listing the social and environmental activities the company will support, ensuring they align with legal requirements and the company’s values.

Recommend the CSR expenditure

It decides how much money should be allocated for CSR each year (minimum 2% of average net profits from the last three years), ensuring sufficient funds are dedicated to meaningful and impactful social projects.

Monitor implementation of CSR projects

The committee oversees CSR projects to ensure they are carried out as planned, funds are properly used, timelines are met, and the intended social or environmental benefits are actually delivered to the targeted communities.

Ensure alignment with legal requirements

The committee ensures that all CSR activities strictly follow Section 135 and related rules, and that projects genuinely address social and environmental issues rather than being superficial or purely for publicity.

Oversee impact assessment (if applicable)

For large projects, the committee ensures detailed impact assessments are done to measure effectiveness, learn from outcomes, and improve future CSR strategies, making programs more transparent and result-driven.

Assist in disclosures and reporting

The committee helps prepare complete reports for inclusion in the Board’s annual report and on the website, ensuring stakeholders are informed and promoting transparency, accountability, and public trust in CSR efforts.

Fines and Penalties for Non-Compliance

If a company fails to comply with the CSR provisions under Section 135 such as not spending the required amount, not transferring unspent funds to specified accounts, or not disclosing CSR activities properly it faces strict penalties.

For the company:

A fine ranging from Rs.50,000 to Rs.25 lakh.

For every officer in default:

Punishable with imprisonment for up to three years, or
A fine ranging from Rs.50,000 to Rs.5 lakh, or both.

Additionally, failure to transfer unspent CSR funds (as per the rules for ongoing and other projects) to specified accounts or government funds within the given timelines is a serious offense.

These penalties emphasize that CSR is not merely a voluntary or symbolic gesture but a legal responsibility. The stringent provisions are designed to ensure that companies take their social obligations seriously, contribute actively to community development, and maintain transparency and accountability.

Conclusion

Section 135 of the Companies Act, 2013, has transformed the role of businesses in India by making Corporate Social Responsibility (CSR) a legal mandate rather than a voluntary choice. This provision ensures that profitable companies actively contribute to addressing social, environmental, and community challenges, promoting inclusive and sustainable growth. By mandating CSR committees, setting spending requirements, and enforcing transparent reporting, the law encourages companies to operate ethically and build stronger relationships with society. While compliance can present challenges, it also offers opportunities to strengthen brand reputation, engage employees, and support nation-building. Ultimately, Section 135 represents a visionary step that aligns corporate success with social welfare, creating a framework for more responsible and impactful business practices in India.

If you have any queries regarding Corporate Social Responsibility (CSR) , then you can connect with Compliance Calendar LLP experts through email info@ccoffice.in or Call/Whatsapp at +91 9988424211.

FAQs

Q1. What is Section 135 of the Companies Act, 2013

Ans. Section 135 mandates certain companies to spend a portion of their profits on Corporate Social Responsibility (CSR) activities and to disclose these efforts publicly.

Q2. Which companies are required to comply with CSR provisions?

Ans. Companies with a net worth of Rs.500 crore or more, turnover of Rs.1,000 crore or more, or net profit of Rs.5 crore or more in any financial year.

Q3. How much must a company spend on CSR activities?

Ans. At least 2% of its average net profits from the three immediately preceding financial years.

Q4. What is the role of the CSR Committee?

Ans. The committee formulates and recommends the CSR policy, decides the budget, and monitors implementation of CSR activities.

Q5. What are permissible CSR activities?

Ans. Activities include promoting education, healthcare, gender equality, environmental sustainability, rural development, and contributions to specified government funds.

Q6. What happens if a company fails to spend the required CSR amount?

Ans. The unspent amount must be transferred to a specified fund within set timelines. Non-compliance attracts penalties for the company and officers.

Q7. Can CSR activities be done through a trust or NGO?

Ans. Yes, companies can implement CSR through registered trusts, societies, or Section 8 companies, subject to compliance with certain conditions.

Q8. How is net profit calculated for CSR applicability?

Ans. Net profit is calculated as per Section 198, excluding profits from overseas branches and dividends from compliant Indian companies.

Q9. Is CSR mandatory for private and foreign companies?

Ans. Yes, if they meet the financial thresholds, both private and foreign companies with operations in India must comply with CSR provisions.

Q10. Is impact assessment mandatory?

Ans. Yes, companies with average CSR obligation of Rs.10 crore or more must conduct impact assessments for projects with outlays of Rs.1 crore or above.