Updated as on July 2025 | Law ⬩ Rules ⬩ Circulars ⬩ FAQs ⬩ Legal Interpretation
Legal Framework – Section 135 of the Companies Act, 2013
CSR is applicable if, during the immediately preceding financial year, the company satisfies any one of the thresholds under Section 135(1):
Criteria | Threshold |
---|---|
Net Worth | ₹500 Crore or more |
Turnover | ₹1,000 Crore or more |
Net Profit (Sec. 198) | ₹5 Crore or more |
Amendments (2021–2025): Shift to Annual Trigger-Based CSR
Date | Amendment/Event | Impact |
---|---|---|
Jan 2021 | Rule 3(2) introduced via GSR 40(E) | Allowed CSR exit after 3 consecutive ineligible years |
Sept 2022 | Rule 3(2) deleted via GSR 700(E) | ✅ CSR is now triggered purely based on preceding year financials |
Feb 2022 | CSR-2 made mandatory | CSR digital compliance reporting initiated |
Jan 2024 | Rule 12(1B) amended | CSR-2 to be filed separately by 31 December each year |
Jan 2024 | Impact Assessment mandated (> ₹1 Cr projects) | Enhances project accountability via 3rd-party review |
Nov 2023 | MCA FAQs updated | Clarified deemed CSR fulfillment for eligible Section 8 companies |
CSR Applicability
Financial Year | CSR Applicability Based On | CSR Obligation? |
---|---|---|
FY 2024–25 | FY 2023–24 | If any threshold met in FY 2023–24 |
FY 2025–26 | FY 2024–25 | Fresh test required |
Legal Interpretation – What the Law Now Requires
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Trigger Point: CSR becomes applicable in the next FY if any threshold is met in the preceding FY.
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Non-Applicability: If all criteria are missed in a given FY, CSR obligation does not arise in the following year.
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Exit Logic Abolished: Rule 3(2), which allowed continuation/exits over 3 years, was deleted in 2022.
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Re-Trigger: CSR re-applies whenever a company again satisfies any eligibility criteria under Section 135(1), even after a break.
CSR Spending Framework
Component | Requirement |
---|---|
Spend Requirement | Minimum 2% of average net profits (Sec. 198) over 3 preceding FYs |
Eligible Activities | Must be aligned with items listed in Schedule VII |
Net Profit Basis | As per Section 198 – excludes capital profits, revaluation reserves, etc. |
Board Disclosure | Must be reported in the Board’s Report under Section 134(3)(o) |
Mandatory Impact Assessment
When Required | Condition | Capped Cost Allowance |
---|---|---|
For any project spending > ₹1 Crore | Third-party Impact Assessment is mandatory | Max 2% of CSR obligation or ₹50 Lakhs, whichever is higher |
Management of Unspent CSR Funds
Category | Action Required | Timeline |
---|---|---|
Ongoing Projects | Transfer to Unspent CSR Account | Within 30 days of FY end |
Non-Ongoing Projects | Transfer to PM CARES / Govt. Fund | Within 6 months of FY end |
Unused for 3 Years | Transfer to separate designated CSR Fund | After 3 years of inaction |
CSR Compliance Calendar – FY 2024–25 & FY 2025–26
Compliance Task | Timeline | Relevant Law / Rule |
---|---|---|
Check CSR applicability (Sec. 135(1)) | Post-audit every FY | Section 135(1) |
Form CSR Committee (if spend > ₹50L) | At start of FY | Section 135(1), Rule 5 |
Draft/Revise CSR Policy | Within 6 months of applicability | Rule 6 |
Identify Schedule VII causes | Before allocation/spending | Rule 4 |
Transfer Unspent Funds (Ongoing) | Within 30 days of FY end | Rule 10 |
Transfer Unspent Funds (Other) | Within 6 months of FY end | Rule 10 |
File Form CSR-2 | By 31 December | Rule 12(1B) |
Conduct Impact Assessment (> ₹1 Cr) | Before next cycle begins | Rule 8(3) |
Disclosure in Board Report | Along with financial statements | Section 134(3)(o), Rule 8 |
FAQs – Clarified with Law & Reasoning
Question | Answer | Law / Guidance |
---|---|---|
If only one criterion is met, does CSR apply? | ✅ Yes. Any one of net worth, turnover, or profit | Section 135(1) |
Can CSR continue if criteria aren’t met for one year? | ❌ No. Rule 3(2) deleted – annual re-testing only | GSR 700(E), Sept 2022 |
Can CSR re-apply after previous inapplicability? | ✅ Yes. Once any threshold is met again | Section 135(1) |
Are Section 8 companies exempt from CSR? | ⚠️ No. But deemed fulfilled if 100% spent on Schedule VII | MCA FAQ, Nov 2023 |
What is the profit base for CSR spend calculation? | Net Profit as per Section 198 | Section 135(5) + Sec. 198 |
Can a new company be tested for CSR applicability? | ❌ No. No preceding FY data available | MCA FAQ |
Deadline for CSR-2 filing? | 📌 31 December following FY (after AOC-4) | Rule 12(1B) |
Legal Position Matrix – At a Glance
Scenario | CSR Applicable? | Legal Reasoning |
---|---|---|
Any one Section 135(1) trigger met | ✅ Yes | Law requires only one criterion |
All triggers missed in one FY | ❌ No | No obligation for following year |
Triggers missed for 3 consecutive years | ❌ No | Irrelevant now – Rule 3(2) repealed |
Trigger met again after break | ✅ Yes | Re-triggered by fresh satisfaction of Sec. 135(1) |
Newly incorporated company | ❌ No | No previous year data for testing |
Section 8 Company using all income on CSR | ✅ Deemed fulfilled | Per MCA FAQ (Nov 2023) |
CSR Is a Responsibility, Not a Ritual
“CSR is not a legacy — it is a live test of governance, impact, and intention.”
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CSR is dynamic, not frozen.
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Compliance must follow real-time financials — not legacy assumptions.
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Annual testing, transparent disclosure, and impact-driven outcomes are now the legal and ethical expectations.
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Boardrooms must institutionalize CSR into strategy, policy, compliance, and reputation management.