Section 135 CSR Compliance Guide: 2% Mandate, Unspent Account & Rules

Executive Overview: Legislative Evolution from "Comply or Explain" to Strict Statutory Penalties

India made global corporate history by becoming the first country to statutorily mandate Corporate Social Responsibility (CSR) expenditure for qualifying corporate entities under Section 135 of the Companies Act, 2013. When originally enacted, the legislative framework was built upon a "comply or explain" philosophy: companies meeting designated financial thresholds were expected to spend at least 2% of their average net profits on social impact activities listed in Schedule VII, and if they failed to do so, the Board of Directors was merely required to specify the reasons for non-spending in their annual Board's Report under Section 134(3)(o).

However, observing systemic under-spending and token disclosures across corporate India, the Parliament introduced comprehensive amendments via the Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020, complemented by the overhauled Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. This legislative transformation decisively dismantled the "comply or explain" regime, establishing a strict statutory mandate backed by monetary penalties. Unspent CSR funds can no longer simply be explained away in board notes; they must be transferred within rigorous statutory timelines either to a designated "Unspent Corporate Social Responsibility Account" with a scheduled bank (for ongoing multi-year projects) or directly to a Central Government fund specified in Schedule VII (for other than ongoing projects). Failure to comply attracts severe corporate fines and personal monetary penalties on defaulting officers. Corporate secretarial heads, general counsels, and ESG steering committees utilizing assureOffice and its corporate governance suite assurePractice must master the intricate threshold calculations, Section 198 profit adjustments, ongoing project mechanics, Form CSR-1 / CSR-2 filings, and impact assessment mandates under Section 135.

Statutory Applicability Thresholds and Committee Composition

Under Section 135(1) of the Companies Act, 2013, the requirement to constitute a Corporate Social Responsibility Committee and undertake mandatory CSR expenditure applies to every company (including its holding, subsidiary, and foreign company branch/project offices in India under Section 379) having:

Net Worth of ₹500 Crores or more; OR
Turnover of ₹1,000 Crores or more; OR
Net Profit of ₹5 Crores or more;

during the immediately preceding financial year. Note: Prior to the 2017 amendment, the evaluation examined "any financial year" (often interpreted as any of the preceding 3 years); the law now firmly anchors applicability strictly to the immediately preceding financial year.

CSR Committee Constitution and Statutory Exemptions

Where an entity meets any of the three thresholds above, it must constitute a CSR Committee of the Board consisting of:

Three or more directors, out of which at least one director shall be an independent director.
Private Limited Company Exemption: An unlisted public company or a private company that is not required to appoint an independent director under Section 149(4) can constitute its CSR Committee with two directors.
Foreign Company: Must comprise at least two persons, of which one must be a resident authorized representative in India under Section 380(1)(d).
Sub-section (9) Exemption from Constituting Committee: By virtue of the amendment inserted by the Companies (Amendment) Act, 2020, where the amount to be spent by a company on CSR does not exceed ₹50 Lakhs, the requirement for constitution of the CSR Committee shall not apply, and the functions of such Committee shall be discharged directly by the Board of Directors of the company!

Corporate secretarial departments using assurePractice can monitor MCA financials and automate board notifications the moment any entity crosses the ₹5 Crore net profit threshold.

Computation of Net Profit under Section 198 and the 2% Mandatory Spend

The calculation of the mandatory 2% CSR obligation is governed by Section 135(5) read with Section 198 of the Companies Act, 2013 and Rule 2(1)(h) of the CSR Rules. The company must spend, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years (or where the company has not completed the period of three financial years since incorporation, during such immediately preceding financial years).

Section 198 Computation Nuances

"Net profit" for Section 135 is NOT the accounting Profit After Tax (PAT) or Profit Before Tax (PBT) reported in the audited Statement of Profit and Loss. It must be computed in strict accordance with the provisions of Section 198, which mandates specific additions and deductions:

Exclusions from Net Profit (Rule 2(1)(h)):
1. Any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and
2. Any dividend received from other companies in India which are covered under and complying with the provisions of Section 135. (Prevents double counting of profits across corporate tiers).
Items Excluded under Section 198: Credit shall NOT be given for:
- Profits by way of premium on shares or debentures.
- Profits on sales by the company of forfeited shares.
- Profits of a capital nature (including profits on the sale of an undertaking or immovable property, unless the business of the company consists in buying and selling such property).
- Any unrealized gains, notional gains, or revaluation of assets (Ind AS fair value through OCI or P&L).
- Any change in carrying amount of an asset or of a liability recognized in equity reserves.
Permissible Deductions: All usual working charges, executive remuneration, interest on debentures and loans, revenue repairs, bad debts written off, and depreciation calculated in accordance with Section 123 (Schedule II). Income tax paid is NOT deductible.

Finance controllers utilizing assureFinancials can auto-extract audited general ledgers to generate mathematically audited Section 198 net profit reconciliation statements with full traceability.

Treatment of Unspent CSR Amounts: Ongoing Projects vs. Other Projects

The core compliance engine of modern CSR law revolves around the treatment of unspent funds at the close of the financial year (31st March). Under Section 135(5) and Section 135(6), unspent amounts are strictly bifurcated into two legal pathways:

Pathway 1: Ongoing Projects (Section 135(6))

An "ongoing project" means a multi-year project undertaken by a company in fulfillment of its CSR obligation having timelines not exceeding three years excluding the financial year in which it was commenced (maximum total duration of 4 years), and includes projects initially not approved as multi-year projects but extended beyond one year by the Board based on reasonable justification.

30-Day Mandatory Transfer: Any unspent CSR amount relating to an ongoing project must be transferred by the company within a period of thirty (30) days from the end of the financial year (i.e., on or before 30th April) to a special bank account opened by the company in that behalf for that financial year in any scheduled bank, to be called the "Unspent Corporate Social Responsibility Account".
Spending Window: The funds in this account must be spent by the company in pursuance of its obligation towards the ongoing project within a period of three financial years from the date of such transfer.
Clawback to Schedule VII Fund: If the company fails to spend the amount within three financial years, the remaining unspent balance must be transferred to a Fund specified in Schedule VII within thirty (30) days from the date of completion of the third financial year!

Pathway 2: Other Than Ongoing Projects (Section 135(5))

Where the unspent CSR amount does not relate to any ongoing project (e.g., annual donations, one-time health camps, or general school asset grants):

6-Month Mandatory Transfer: The company must transfer such unspent amount to a Fund specified in Schedule VII (such as the Prime Minister's National Relief Fund, Clean Ganga Fund, Swachh Bharat Kosh, PM CARES Fund, or any other fund set up by the Central Government) within a period of six (6) months of the expiry of the financial year (i.e., on or before 30th September).

Missing these deadlines by even a single day constitutes an actionable criminal and civil violation of the Companies Act, 2013.

Practical Case Studies and Numerical Illustrations

The following eight comprehensive real-world case studies illustrate the practical application, Section 198 adjustments, ongoing project accounting, set-off mechanics, and penal calculations under Section 135.

Case Study 1: Step-by-Step Section 198 CSR Net Profit Calculation

Facts: Apex Auto Components Ltd. reported the following financial figures across the three preceding financial years in its audited financial statements:

FY 2023-24: PBT = ₹120 Crores (Includes Capital Gain on sale of factory land = ₹20 Crores; Dividend from domestic subsidiary complying with Sec 135 = ₹5 Crores; Unrealized MTM gain on investments = ₹3 Crores).
FY 2024-25: PBT = ₹80 Crores (Includes Profit from overseas branch in UK = ₹10 Crores; Loss on sale of fixed assets = ₹2 Crores).
FY 2025-26: PBT = ₹140 Crores (Includes Share forfeiture surplus = ₹4 Crores; Government grant in P&L = ₹6 Crores).

Section 198 Net Profit True-Up:

FY 2023-24 Adjusted Profit:
- Gross PBT: ₹120 Crores
- Less: Capital Gain on land (excluded u/s 198(3)(a)): -₹20 Crores
- Less: Inter-corporate dividend from Sec 135 entity (Rule 2(1)(h)): -₹5 Crores
- Less: Unrealized MTM gain (excluded u/s 198(4)(l)): -₹3 Crores
- Adjusted Net Profit FY 2023-24 = ₹92 Crores.
FY 2024-25 Adjusted Profit:
- Gross PBT: ₹80 Crores
- Less: Overseas UK branch profit (Rule 2(1)(h)): -₹10 Crores
- Adjusted Net Profit FY 2024-25 = ₹70 Crores.
FY 2025-26 Adjusted Profit:
- Gross PBT: ₹140 Crores
- Less: Share forfeiture surplus (excluded u/s 198(3)(b)): -₹4 Crores
- Adjusted Net Profit FY 2025-26 = ₹136 Crores.
Three-Year Average & 2% Spend Mandate for FY 2026-27:
- Sum of Adjusted Profits = ₹92 Cr + ₹70 Cr + ₹136 Cr = ₹298 Crores.
- Average Net Profit under Section 198 = ₹298 Crores / 3 = ₹99.33 Crores.
- Mandatory 2% CSR Spend = ₹99.33 Crores × 2% = ₹1.9866 Crores (₹1,98,66,000).

Case Study 2: Ongoing Project Workflow and the 30-Day Unspent Account Transfer (Section 135(6))

Facts: Titan Cement Ltd. had a mandatory CSR obligation of ₹5,00,00,000 for FY 2025-26. In June 2025, the Board approved a 3-year ongoing project: "Construction of a 100-bed Rural Specialty Hospital" with a total budgeted outlay of ₹6,00,00,000. During FY 2025-26, the company disbursed ₹3,20,00,000 towards land excavation and civil structural piling. As of 31st March 2026, ₹1,80,00,000 remained unspent due to monsoon delays.

Statutory Execution Timeline:

Classification: The hospital project was formally designated by the Board as an "Ongoing Project" under Rule 2(1)(i).
Action Deadline: Under Section 135(6), Titan Cement must transfer the unspent amount of ₹1,80,00,000 to a special bank account opened in a scheduled bank, titled "Titan Cement Ltd. - Unspent CSR Account - FY 2025-26" on or before 30th April 2026.
Subsequent Expenditure: During FY 2026-27, Titan spends ₹1,10,00,000 from this account, and in FY 2027-28, it spends the remaining ₹70,00,000, fully completing the hospital.
Form CSR-2 Reporting: In both years, the company reports the opening balance, disbursements, and zero year-end lapse in Form CSR-2, achieving total regulatory compliance. Corporate secretarial teams track these deadlines in assurePractice.

Case Study 3: Other Than Ongoing Project and 6-Month Schedule VII Transfer (Section 135(5))

Facts: Delta Pharma Ltd. had an annual CSR obligation of ₹2,40,00,000 for FY 2025-26. The company planned multiple short-term programs: mobile medical vans (₹1,00,00,000) and drinking water filtration units (₹1,40,00,000). By 31st March 2026, the company spent ₹1,00,00,000 on medical vans, but the water filtration vendor defaulted, leaving ₹1,40,00,000 unspent. The Board did not designate the water project as an ongoing multi-year project.

Statutory Execution Timeline:

Classification: Because this is "other than an ongoing project", Section 135(5) applies.
Action Deadline: The company cannot keep this money in its operational bank accounts or open an Unspent CSR Account. It must transfer the unspent balance of ₹1,40,00,000 to a Fund specified in Schedule VII (e.g., PM CARES Fund or Clean Ganga Fund) on or before 30th September 2026 (within 6 months from financial year-end).
Board Disclosure: The Board's Report for FY 2025-26 must state the reasons for failure to spend the full amount and confirm that the unspent balance was remitted to the designated Schedule VII fund within the statutory 6-month window.

Case Study 4: Excess CSR Spend and Multi-Year Set-Off Mechanics (Rule 7(3))

Facts: Zen Infrastructure Ltd. had a mandatory CSR spend of ₹1,00,00,000 in FY 2024-25. Demonstrating deep community commitment, the company spent ₹1,60,00,000 (an excess of ₹60,00,000) on building flood defense barriers. In the subsequent two financial years, its CSR obligations were: FY 2025-26 = ₹80,00,000; FY 2026-27 = ₹90,00,000.

Set-Off Rules under Rule 7(3):

Statutory Right: Under the third proviso to Section 135(5) read with Rule 7(3), if a company spends an amount in excess of requirements, such excess amount may be set off against the requirement to spend up to immediately succeeding three financial years.
Conditions for Set-Off:
- The excess amount available for set-off must NOT include the administrative overheads.
- The Board of Directors must pass a specific resolution approving the carry forward and set-off.
Utilization Schedule:
- FY 2025-26 Obligation (₹80,00,000): Zen sets off ₹50,00,000 from the FY 2024-25 excess and spends ₹30,00,000 in fresh funds. Remaining excess carry-forward balance = ₹10,00,000.
- FY 2026-27 Obligation (₹90,00,000): Zen sets off the remaining ₹10,00,000 from the FY 2024-25 excess and spends ₹80,00,000 in fresh funds. The excess is fully utilized within the permitted 3-year window!

Case Study 5: Mandatory Impact Assessment Thresholds and Budget Caps (Rule 8(3))

Facts: GreenEnergy Corporation Ltd. has an average CSR obligation of ₹18 Crores over the preceding three financial years. During FY 2024-25, it executed a major rural electrification project with a total project outlay of ₹3,50,00,000. The project was completed on 31st December 2024. In FY 2026-27, the company initiates impact assessment.

Rule 8(3) Thresholds & Budget Limits:

Mandatory Applicability: Under Rule 8(3), impact assessment is mandatory for every company having an average CSR obligation of ₹10 Crores or more in the three immediately preceding financial years. GreenEnergy (₹18 Cr) exceeds this threshold.
Project Eligibility: The project must have an outlay of ₹1 Crore or more and must have been completed not less than one year before undertaking the study. The rural electrification project (outlay ₹3.50 Cr, completed >1 yr ago) qualifies on both counts.
Independent Agency: The study must be conducted by an independent agency. The impact assessment report must be placed before the Board and annexed to the annual CSR report.
Budget Cap: Under Rule 8(3)(c), expenditure incurred on impact assessment can be booked as CSR spend, capped at the higher of:
- 2% of total CSR expenditure for that financial year; OR
- ₹50 Lakhs.
If GreenEnergy's CSR spend for FY 2026-27 is ₹20 Crores, 2% is ₹40 Lakhs. Hence, it can book up to ₹50 Lakhs (the higher statutory floor) as impact assessment expenses!

Case Study 6: Administrative Overheads 5% Ceiling and Ineligible CSR Activities

Facts: Nova Retail Ltd. had a mandatory CSR budget of ₹2,00,00,000 for FY 2025-26. The internal CSR department incurred the following expenses:

Direct funding of education scholarships: ₹1,75,00,000
Salaries of dedicated CSR personnel & office rent of CSR cell: ₹14,00,000
Sponsorship of local marathon carrying the company brand logo prominently: ₹8,00,000
Employee recreational gym in corporate headquarters: ₹3,00,00,000 / 100 = ₹3,00,000

Compliance & Disallowance Audit:

Administrative Overheads Cap (Rule 2(1)(d) & Rule 7(1)): "Administrative overheads" means expenses incurred by the company for 'general management and administration' of CSR functions. Under Rule 7(1), administrative overheads shall NOT exceed five per cent (5%) of total CSR expenditure. Total CSR Spend = ₹1,75,00,000 5% Statutory Ceiling = ₹1,75,00,000 × 5% = ₹8,75,000. Actual general expenses incurred = ₹14,00,000. The excess of ₹5,25,000 (₹14,00,000 - ₹8,75,000) CANNOT be counted as CSR spend and must be absorbed as regular corporate administrative overheads!
Ineligible Activities (Rule 2(1)(d)):
- Marathon sponsorship benefiting company brand marketing: Disallowed under Rule 2(1)(d)(iii) (activities benefiting marketing/sales).
- Staff gym: Disallowed under Rule 2(1)(d)(iv) (activities benefiting exclusively employees).
Net Compliant CSR Spend: ₹1,75,00,000 + ₹8,75,000 = ₹1,83,75,000. The company has a shortfall of ₹16,25,000 that must be transferred to Schedule VII funds!

Case Study 7: Implementation through Implementing Agencies & Form CSR-1 Registration

Facts: Sunshine Infotech Ltd. wishes to channel its annual CSR budget of ₹3,00,00,000 through three non-governmental partner entities:

NGO 1: A Section 8 company with 5 years of track record, possessing 12A/80G, but has NOT filed Form CSR-1 on the MCA portal.
NGO 2: A registered public charitable trust with active Form CSR-1 registration (Unique Registration Number: CSR00012345).
NGO 3: A society registered under Societies Registration Act established by the company itself with active Form CSR-1.

Rule 4 Eligibility Audit:

Mandatory Form CSR-1 Requirement: Under Rule 4(2) of the CSR Rules, every entity intending to undertake any CSR activity must register with the Central Government by filing Form CSR-1 electronically with the Registrar. No company can disburse CSR funds to an implementing agency that does not possess an active Form CSR-1 registration number!
Evaluation:
- NGO 1: Disqualified! Any funds disbursed to NGO 1 will be rejected as non-compliant CSR spend by the MCA and statutory auditors.
- NGO 2 & 3: Fully eligible. Sunshine can disburse funds to NGO 2 and NGO 3.
Ongoing Monitoring: Under Rule 4(5), the Chief Financial Officer (CFO) or the person responsible for financial management must certify that the funds disbursed have been utilized for the approved purposes. assurePractice maintains active Form CSR-1 tracking and CFO fund utilization vaults.

Case Study 8: Penal Prosecution under Section 135(7) for Default in Unspent Fund Transfer

Facts: Horizon Infrastructure Ltd. had an unspent CSR amount of ₹2,00,00,000 for FY 2024-25 relating to non-ongoing projects. The company failed to transfer this amount to a Schedule VII fund on or before 30th September 2025. In February 2026, the Registrar of Companies (ROC) issued a Show Cause Notice under Section 135(7).

Penal Mathematics under Section 135(7):

Penalty on Company: Under Section 135(7), the defaulting company is liable to a penalty of twice the amount required to be transferred to the Fund specified in Schedule VII or the Unspent CSR Account, or ₹1 Crore, whichever is LESS: Twice the Unspent Amount = 2 × ₹2,00,00,000 = ₹4,00,00,000 Statutory Cap = ₹1,00,00,000 Penalty on Horizon Infrastructure Ltd. = ₹1,00,00,000 (Rupees One Crore).
Penalty on Every Officer in Default: Every officer of the company who is in default is liable to a penalty of one-tenth of the amount required to be transferred, or ₹2 Lakhs, whichever is LESS: One-Tenth of Amount = ₹2,00,00,000 / 10 = ₹20,00,000 Statutory Cap = ₹2,00,000 Penalty on Managing Director, CFO, and CS = ₹2,00,000 EACH!
Continuing Default: Paying the penalty does NOT extinguish the original obligation! The company must still transfer the ₹2,00,00,000 to the Schedule VII fund immediately. Corporate legal teams utilize assureNotice to file compounding applications before the Regional Director to mitigate penal fallout.

10-Step Audit Verification Matrix for Section 135 CSR Compliance

Secretarial auditors issuing Form MR-3, statutory auditors reviewing the Board's Report, and corporate governance teams must follow the standardized 10-step verification framework:

Step	Audit Dimension	Verification Protocol & Substantive Testing	Compliance Deliverable
1	Threshold Applicability Testing	Evaluate net worth (>=₹500 Cr), turnover (>=₹1,000 Cr), and net profit (>=₹5 Cr) from the preceding year's audited financial statements.	CSR Applicability Certificate
2	CSR Committee Constitution Check	Verify board minutes for committee composition: >=3 directors with >=1 independent director, or verify ₹50 Lakh spend exemption u/s 135(9).	Committee Charter & Composition Note
3	Section 198 Net Profit Re-computation	Re-perform Section 198 mathematical deductions (capital gains, MTM unrealized gains, foreign branch profits, inter-corporate dividends).	Section 198 Audit Workpaper
4	2% Mandatory Spend Calculation	Compute 2% of the three-year average Section 198 net profit. Verify any eligible excess spend set-off from the preceding 3 financial years.	CSR Spend Determination Memo
5	Schedule VII Activity Eligibility	Cross-reference all CSR project charters against permissible items in Schedule VII. Weed out marketing, sponsorship, and employee welfare items.	Project Eligibility Audit Sheet
6	Implementing Agency CSR-1 Audit	Verify valid Form CSR-1 registration numbers on the MCA portal for all third-party NGOs and section 8 companies prior to fund disbursement.	Form CSR-1 Verification Dossier
7	Administrative Overheads 5% Cap	Audit general administration and management overheads. Ensure they do not exceed 5% of total CSR spend under Rule 7(1).	Overheads Allocation Schedule
8	Ongoing vs. Non-Ongoing Bifurcation	Examine Board approvals for multi-year ongoing projects (max 3 yrs). Track physical progress milestones and fund disbursements.	Ongoing Project Progress Register
9	Unspent Fund Transfer Verification	Verify bank statements for 30-day transfer to Unspent CSR Account (by 30th April) or 6-month transfer to Schedule VII Fund (by 30th Sept).	Statutory Bank Transfer Receipts
10	Form CSR-2 & Board Report Disclosures	Verify Annexure to Board's Report and ensure Form CSR-2 (annual report on CSR) is filed with the ROC along with Form AOC-4.	Filed Form CSR-2 & Board Report

Mandatory MCA Reporting in Form CSR-2 and Secretarial Automation

By virtue of the Companies (Accounts) Amendment Rules, 2022, every company covered under Section 135(1) must file a comprehensive annual return on CSR in Form CSR-2 as an addendum to Form AOC-4 or AOC-4 XBRL. Form CSR-2 captures granular operational data:

Three-year Section 198 net profit calculation and 2% statutory obligation.
Detailed table of ongoing projects: project name, Schedule VII item, state/district, project duration, budgeted outlay, amount spent in current year, amount transferred to Unspent CSR Account, and implementing agency CSR-1 registration number.
Details of unspent amounts from prior financial years spent in the current year.
Details of capital assets created or acquired through CSR spend, including address, beneficiary details, and registered owner.
Impact assessment details and reports attached as PDF.

By leveraging assurePractice, corporate secretarial teams can automate the end-to-end generation of Form CSR-2, maintain digital board resolutions, and eliminate Section 135(7) penalty risks through automated statutory calendar alerts.

Frequently Asked Questions (FAQs) for Corporate Practitioners

Below are 16 detailed, practitioner-grade answers to the most common legal, operational, and procedural questions regarding Section 135 CSR compliance:

Q1: Can a company spend its CSR funds on activities benefiting only its own employees and their families?

Answer: No. Under Rule 2(1)(d)(iv) of the Companies (CSR Policy) Rules, 2014, activities benefiting exclusively the employees of the company as defined in clause (k) of Section 2 of the Code on Wages, 2019 are strictly excluded from the definition of CSR. Such spending cannot be counted towards the mandatory 2% CSR obligation.

Q2: Can CSR expenditure be claimed as a tax deduction under Section 37 of the Income-tax Act, 1961?

Answer: No. Explanation 2 to Section 37(1) of the Income-tax Act, 1961 explicitly provides that any expenditure incurred by an assessee on 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 assessee for the purposes of the business or profession. However, specific donations to approved institutions under Section 80G or scientific research bodies under Section 35 may continue to be eligible under their respective independent provisions if statutory conditions are met.

Q3: What happens if a company ceases to meet the eligibility thresholds under Section 135(1)?

Answer: Under Rule 3(2) of the CSR Rules, a company which ceases to meet the criteria specified in Section 135(1) for three consecutive financial years shall not be required to constitute a CSR Committee and comply with Section 135 provisions until it meets the criteria again in a subsequent financial year.

Q4: Can a company carry forward excess CSR expenditure to subsequent financial years?

Answer: Yes. Under the third proviso to Section 135(5) read with Rule 7(3), where a company spends an amount in excess of the 2% requirement, such excess amount may be set off against the requirement to spend up to immediately succeeding three financial years, provided the Board passes a specific resolution and the excess excludes administrative overheads.

Q5: Is impact assessment mandatory for all companies covered under Section 135?

Answer: No. Impact assessment under Rule 8(3) is mandatory ONLY for companies that have an average CSR obligation of ₹10 Crores or more in the three immediately preceding financial years, and applies to projects having outlays of ₹1 Crore or more that were completed at least one year prior.

Q6: Can a company create or acquire a capital asset through its CSR expenditure?

Answer: Yes, but under Rule 7(4), the capital asset created or acquired must NOT be held by the company itself. It must be held by: (a) a Section 8 company, registered public trust, or registered society having Form CSR-1 registration; (b) the beneficiaries of the CSR project (e.g., self-help groups, local village panchayats); or (c) a public authority.

Q7: What is the maximum duration for which an "ongoing project" can be undertaken?

Answer: Under Rule 2(1)(i), an ongoing project can have a duration not exceeding three years excluding the financial year in which it was commenced. Therefore, the maximum allowable duration from commencement to completion is four (4) financial years.

Q8: If a company fails to transfer unspent funds to the Unspent CSR Account within 30 days, can it pay later with interest?

Answer: Section 135 does not provide any statutory interest mechanism to cure a delay. Failure to transfer the funds within 30 days of year-end (by 30th April) constitutes an immediate statutory default, triggering penalties under Section 135(7) (up to ₹1 Crore on the company and ₹2 Lakhs on defaulting officers). The company must transfer the funds immediately and file an adjudication/compounding application before the MCA.

Q9: Can a private limited company have a CSR Committee without an independent director?

Answer: Yes. Under the proviso to Section 135(1) read with Rule 5(1), an unlisted public company or private company that is not required to appoint an independent director under Section 149(4) can constitute its CSR Committee with two or more of its existing directors.

Q10: Are contributions to political parties eligible as CSR spend?

Answer: Absolutely not. Under Rule 2(1)(d)(ii), contributions of any amount directly or indirectly to any political party under Section 182 of the Act are strictly excluded from CSR. Any such contribution will be disallowed and investigated for violation of election and company law.

Q11: What is the statutory ceiling on administrative overheads for CSR?

Answer: Under Rule 7(1), administrative overheads (expenses for general management and administration of CSR activities) shall NOT exceed 5% of total CSR expenditure of the company for the financial year.

Q12: Can a company fulfill its CSR mandate by providing free goods manufactured by it?

Answer: Under Rule 2(1)(d)(i), activities undertaken in the normal course of business do not constitute CSR. However, exemption is provided for pharmaceutical companies conducting research on COVID-19 vaccines/drugs. Generally, donating products manufactured in the normal course of business is scrutinized; if permitted by specific government circulars, it must be valued at cost without any profit element.

Q13: Does an unspent CSR balance in the Unspent CSR Account lapse if not spent within 3 years?

Answer: If the funds in the Unspent CSR Account are not spent within three financial years from the date of transfer, the company must transfer the remaining balance to a Fund specified in Schedule VII within 30 days of completion of the third financial year under Section 135(6).

Q14: What is Form CSR-1 and who must file it?

Answer: Form CSR-1 is an electronic application filed on the MCA portal by implementing agencies (Section 8 companies, registered public trusts, registered societies) to register with the Central Government before receiving any CSR funds. Upon approval, the MCA issues a unique CSR Registration Number.

Q15: When must Form CSR-2 be filed with the MCA?

Answer: Form CSR-2 must be filed annually as an addendum to Form AOC-4 or Form AOC-4 XBRL for the relevant financial year within the statutory deadline prescribed by the MCA.

Q16: How does assurePractice streamline corporate CSR governance?

Answer: assurePractice delivers end-to-end secretarial automation for Section 135: it monitors financial thresholds, verifies Section 198 net profit adjustments, manages the 5% administrative overheads cap, tracks 30-day and 6-month statutory unspent fund transfer deadlines, verifies Form CSR-1 partner registrations, auto-populates Form CSR-2, and maintains digital audit trails for CFO and Board certifications.