CSR COMPLIANCE NOTICE UNDER SECTION 206? RECONCILE FIRST, RESPOND SECOND

By CA Surekha Ahuja

A practical framework for CSR computation, unspent amounts, project delays and an evidence-backed ROC response

“The strongest regulatory response is not the longest one. It is the one in which every number, date and conclusion can be traced to the law and the underlying evidence.”

A notice under Section 206 of the Companies Act, 2013 should never be treated as a routine request for information.

The immediate task may be to answer questions raised by the Registrar of Companies (ROC). The more important task is to reconstruct the company’s complete CSR position—from the statutory obligation and Section 198 computation to actual expenditure, unspent amounts, project status, transfers, disclosures and supporting records.

That leads to the most important practical principle:

DON’T START WITH THE NOTICE. START WITH THE RECONCILIATION.

Section 206 enables the ROC to seek further information, explanations and documents where scrutiny of filed documents or information warrants it. If the response is inadequate, further books, papers and explanations may be called for.

Therefore, a CSR response should not be prepared as a collection of explanations. It should be prepared as a reconciled evidence file.

THE CSR COMPLIANCE CHAIN

The complete position should ideally be reconstructed in this sequence:

CSR Applicability
↓
Section 198 Net Profit
↓
CSR Obligation @ 2%
↓
Eligible CSR Expenditure
↓
Unspent Amount, if any
↓
Ongoing Project / Other Unspent
↓
Statutory Transfer / Utilisation
↓
Board’s Report & CSR Disclosures
↓
CSR-2
↓
Books + Bank + Project Evidence
↓
ROC Response - A mismatch at any stage can create questions at the next.

ESTABLISH THE CSR OBLIGATION BEFORE EXAMINING THE SPEND

The first question is not: “How much CSR did the company spend?”

It is: “How much CSR was the company legally required to spend?”

Section 135 applies where the prescribed thresholds relating to net worth, turnover or net profit are met in the immediately preceding financial year.

Once applicable, the company generally has to spend at least 2% of the average net profits of the three immediately preceding financial years, calculated in accordance with Section 198. Where the company has not completed three financial years since incorporation, the prescribed computation is based on the completed preceding financial years.

A simple working paper

Financial Year	Section 198 Net Profit	CSR Base	2% CSR Obligation
Year 1	₹X
Year 2	₹Y
Year 3	₹Z
Average		₹A	₹A × 2%

This computation should be capable of being traced to the audited financial statements and the underlying Section 198 adjustments.

A CSR reconciliation built on the wrong base will produce the wrong conclusion, however perfect the subsequent documentation may appear.

BUILD ONE MASTER CSR RECONCILIATION

Before drafting the ROC response, prepare one master statement covering the entire relevant financial year.

Particulars	Amount / Date / Status
CSR obligation	₹_____
Eligible CSR expenditure	₹_____
Unspent amount	₹_____
Nature of unspent amount	Ongoing project / Other
Statutory action required	_____
Amount transferred	₹_____
Date of transfer	_____
Applicable due date	_____
Amount actually utilised	₹_____
Amount reported in Board’s Report	₹_____
Amount reported in CSR-2	₹_____
Present status	_____
Supporting evidence available	Yes / No

This table often exposes issues before the ROC does. For example:

Books say ₹60 lakh spent.
Board’s Report says ₹75 lakh.
CSR-2 says ₹60 lakh.

The problem is no longer simply CSR expenditure. It is now a reconciliation and disclosure issue.

UNSPENT CSR: CLASSIFY BEFORE EXPLAINING

“Unspent CSR” is a factual position. Its legal treatment depends on the circumstances.

Broadly, the company must distinguish between:

Situation	Statutory treatment
Unspent amount relating to an ongoing project	Transfer to the prescribed Unspent CSR Account within the specified statutory period and utilisation in accordance with Section 135
Other unspent amount	Transfer to a Schedule VII fund within the prescribed statutory period

For an ongoing project, the amount transferred to the Unspent CSR Account is required to be spent within the statutory period; failure to spend the amount within that period triggers the subsequent transfer requirement prescribed under Section 135. For other unspent amounts, the transfer to a Schedule VII fund is required within the prescribed six-month period from the end of the financial year.

The professional mistake

A response should not simply say:

“The project was delayed, therefore the amount remained unspent.”

That explains the fact, but not the legal treatment.

The response must establish:

What was the project?
Why did it qualify as ongoing, if that is the position?
How much was actually spent?
How much remained unspent?
What statutory action was required?
Was that action taken within time?
What happened thereafter?

CASE STUDY: THE PROJECT WAS GENUINE — BUT DELAYED

Consider a company with a genuine CSR project having an approved budget of ₹1 crore.

During the year:

• ₹40 lakh was actually spent;
• the balance ₹60 lakh remained unspent;
• implementation was delayed because of land, regulatory, contractor or other documented issues.

Three statements must be kept separate:

1. COMMITMENT IS NOT EXPENDITURE

Approval of a ₹1 crore project does not establish that ₹1 crore was spent.

The accounts, bank records, invoices, utilisation evidence and project records must support actual expenditure.

2. PROJECT DELAY IS NOT NECESSARILY PROJECT ABANDONMENT

If the project genuinely satisfies the statutory conditions for an ongoing project, the prescribed unspent-CSR mechanism must be followed.

A delay should therefore be analysed under the ongoing-project provisions, rather than automatically labelled a default.

3. SUBSEQUENT UTILISATION IS NOT THE SAME AS TIMELY COMPLIANCE

If an amount was required to be transferred within a statutory deadline and was transferred later, the later action may demonstrate remediation, but it does not retrospectively convert a delayed statutory action into a timely one.

This distinction is critical in a regulatory response.

MCA guidance also makes an important point: mere disbursal of funds to an implementing agency does not by itself establish CSR expenditure where the amount has not actually been utilised; the utilisation position and supporting certification must be examined.

IF THE STATUTORY TRANSFER WAS DELAYED, SEPARATE THE TWO STORIES

A mature ROC response should distinguish between:

Historical position	Present position
What was required by law?	What has now been done?
What was actually done?	What remains outstanding?
What was the applicable due date?	Has the position been regularised?
Was there a delay?	What corrective action was taken?
What evidence existed at the relevant time?	What evidence now supports remediation?

The temptation is to write: “The amount has now been transferred; therefore there is no default.”

That is an unsafe formulation where the statutory deadline had already expired.

The better approach is factual: Acknowledge the historical position → explain the circumstances → establish the present status → document corrective action → address the applicable statutory consequences.

Section 135(7) prescribes penalties for failure to comply with the transfer requirements, subject to the statutory limits.

Do not convert a remediation fact into a historical compliance claim.

MAKE THE ROC RESPONSE MIRROR THE RECONCILIATION

A Section 206 response should preferably follow the ROC's questions one by one.

ROC Query	What the response should establish
CSR obligation	Section 135 applicability and Section 198 computation
Amount spent	Actual eligible expenditure and accounting support
Unspent amount	Exact reconciliation
Project status	Ongoing / other, with factual basis
Delay	Specific reasons and documentary evidence
Transfer	Amount, account/fund, date and proof
Utilisation	Actual utilisation and supporting records
Disclosures	Agreement with Board’s Report and CSR-2
Present status	Current position and corrective action, if any

A useful drafting formula is:  QUERY → LAW → FACT → RECONCILIATION → EVIDENCE → CONCLUSION

This keeps the response factual and prevents lengthy explanations from obscuring the actual issue.

EVIDENCE SHOULD FOLLOW THE ASSERTION

Every material statement in the response should have an evidence trail.

Assertion	Evidence that should ordinarily support it
CSR obligation was ₹X	Section 198 computation + financial statements
₹X was spent	Ledger + bank statement + invoices
Project was ongoing	Project approval + project documentation + implementation records
Delay was genuine	Correspondence, approvals, regulatory/contractual records
Amount was transferred	Bank statement + transfer proof
Amount was utilised	Utilisation records/certification + project expenditure
Disclosure was correct	Board’s Report + CSR-2 + reconciliation
Corrective action was taken	Transfer/payment proof + revised internal reconciliation

The principle is simple: Every important conclusion should be traceable backwards—from the ROC reply to the document, from the document to the accounting entry, and from the accounting entry to the underlying transaction.

FIVE RED FLAGS THAT CAN WEAKEN A CSR RESPONSE

1. CSR LIABILITY DOES NOT RECONCILE

The obligation differs between the working, Board’s Report and CSR-2.

2. “SPENT” DOES NOT AGREE WITH THE BOOKS

The response claims expenditure that cannot be traced to actual utilisation.

3. WRONG TREATMENT OF UNSPENT AMOUNT

The company explains the project delay but does not establish the statutory treatment of the unspent amount.

4. FILINGS TELL A DIFFERENT STORY

Annual Report, CSR disclosures, CSR-2, financial statements and the ROC response contain inconsistent figures or descriptions.

5. OVER-CLAIMING COMPLIANCE

A response attempts to describe a historical delay as complete compliance merely because the position was subsequently corrected.

A precise admission supported by evidence is usually stronger than an aggressive denial unsupported by reconciliation.

THE BOARD-LEVEL TEST BEFORE SIGNING THE RESPONSE

Before the response goes to the ROC, management and the Board should be able to answer YES to these questions:

• Do we know exactly how the CSR obligation was computed?
• Does the computation agree with Section 198 and the financial statements?
• Does actual CSR expenditure agree with the books and bank records?
• Have all unspent amounts been correctly classified?
• Have the applicable statutory transfers been identified and evidenced?
• Do the Board’s Report disclosures agree with CSR-2?
• Is every project-delay explanation supported by contemporaneous evidence?
• Have we separated historical compliance from subsequent remediation?
• Can every material figure and date in the response be independently verified?

If the answer to any is NO, the response should not be finalised merely because the deadline is approaching.

THREE POSSIBLE COMPLIANCE POSITIONS

Not every Section 206 response is a defence of a perfect compliance record.

The company may fall into one of three broad positions:

Position	Best response strategy
Compliant + well documented	Reconcile and demonstrate compliance clearly
Substantively correct + poorly documented	Reconstruct, substantiate and strengthen the evidence trail
Historical compliance gap	State the position accurately, explain the circumstances, remediate where possible and address the statutory consequences

This is an important professional distinction. The objective is not to make every historical position look perfect. The objective is to make the present response accurate, complete and defensible.

THE BIGGER PROFESSIONAL LESSON

CSR compliance is often viewed as a 2% calculation.

In practice, a regulatory review can turn it into a much broader exercise involving:

Profit computation → obligation → expenditure → project classification → unspent amount → statutory transfer → utilisation → accounting → Board disclosures → CSR-2 → evidence.

That is why a CSR compliance file should not be maintained as a collection of disconnected documents.

It should be maintained as a single audit trail. And the discipline should be year-wise.

CSR planning may extend across multiple years, but the statutory treatment of obligation, expenditure and unspent amounts must still be examined for each relevant financial year.

THE PROFESSIONAL FORMULA - INTERNAL COMPLIANCE

RECONSTRUCT
↓
RECONCILE
↓
VERIFY
↓
REMEDIATE, IF REQUIRED
↓
DOCUMENT
↓
RESPOND

ROC RESPONSE

QUERY
↓
LAW
↓
FACT
↓
EVIDENCE
↓
CONCLUSION

This is far more effective than beginning with a narrative and trying to find supporting documents afterwards.

FINAL TAKEAWAY

The most important question after receiving a CSR notice under Section 206 is not: “How do we reply to the ROC?”

It is:  “What exactly was the company required to do, what did it actually do, what happened subsequently, and can we substantiate every material number, date and conclusion?”

That is the real compliance exercise.

DON’T START WITH THE NOTICE. START WITH THE RECONCILIATION.

Because in regulatory compliance, credibility is built not by the strength of the explanation, but by the consistency of the evidence behind it.

LEGAL REFERENCE

Companies Act, 2013: Sections 135, 198 and 206, read with the applicable CSR Rules and MCA guidance on CSR implementation, unspent CSR and utilisation.

This article expresses general professional views for educational purposes. A response to a Section 206 notice should be finalised only after reviewing the specific notice, relevant financial years, statutory timelines, CSR records, books of account, filings and supporting evidence.

CSR, Tax Audit & Income-tax Treatment for AY 2025–26

A Complete Guide with Law, Interpretation, Judicial Support & Professional Insights

CSR Applicability – Companies Act, 2013

CSR obligations under Section 135 of Companies Act, 2013 apply if, in the preceding FY, a company has:

• Net worth ≥ ₹500 crore, OR

• Turnover ≥ ₹1,000 crore, OR

• Net profit ≥ ₹5 crore.

CSR Requirements

• Minimum spend: 2% of average net profits of last 3 years.

• Board must disclose CSR policy, spends, and unspent amounts.

• CSR-2 filing with MCA mandatory.

• Unspent CSR:

  • Ongoing projects → to “Unspent CSR A/c” within 30 days.

  • Other cases → transfer to notified funds within 6 months.

CSR and Income Tax – Allowability of Deduction

1 Section 37(1)

CSR is not deductible as business expense (Explanation 2).

2 When Deduction Allowed

• Section 80G: Donations to specified funds (e.g., PM CARES).

• Section 35 / 35CCA: Research, rural development, approved projects.

Allowed only under Old Regime – under Sec. 115BAC(1A) (new regime), most deductions including 80G are not available.

Illustration

CSR spend = ₹50 lakhs

• ₹20 lakhs → PM CARES (deductible u/s 80G, Old Regime only).

• ₹30 lakhs → School building (disallowed u/s 37(1)).

CSR in Tax Audit (Form 3CD)

1 Relevant Clauses

• Clause 21(a) – CSR spend disallowed u/s 37(1).

• Clause 34A – TDS compliance on CSR vendor/service contracts.

• Clause 40(a)(ia) – Disallowance for non-deduction of TDS.

• Clause 27 – If CSR involves large cash payments (>₹10,000), Sec. 40A(3) disallowance.

2 Auditor’s Responsibility

• Match CSR spend with Board Report disclosures & CSR-2 MCA filing.

• Verify unspent transfers as per Companies Act.

• Ensure correct reporting of allowable vs. disallowable portions.

Related Party CSR Expenditure – Precautions

This is a sensitive area:

• MCA Clarification (2020) – CSR to group trusts/societies allowed only if such entity is registered u/s 12AB and CSR-1 filed with MCA.

• CSR cannot be routed to related parties for business promotion, brand building, or benefit to directors’ relatives.

• Income-tax Angle:

  • If paid to related party trusts → check Section 40A(2)(b) (excessive/unreasonable payments).

  • Donations to related trusts only deductible u/s 80G if trust is registered & eligible.

✅ Professional Advice: Always prefer spending directly on approved projects or registered third-party NGOs instead of related entities, to avoid litigation.

Tax Audit Applicability – AY 2025–26

Thresholds under Section 44AB

• Business:

  • Turnover > ₹1 crore → Audit required.

  • Turnover ≤ ₹10 crore → Audit not required if cash receipts/payments ≤ 5%.

• Profession: Gross receipts > ₹50 lakh.

• Presumptive Taxpayers (44AD/44ADA/44AE): Audit required if opting out or declaring below presumptive income.

Continuation Once Applicable?

• Tax audit is not a continuing obligation – fresh check each year.

• CIT v. Suresh Chand Jain (2010) – audit liability is year-specific.

Due Dates – AY 2025–26

Compliance	Due Date
CSR-2 filing with MCA (FY 2024–25)	31st March 2026
Transfer of unspent CSR (non-ongoing)	30th Sept 2025
Transfer to Unspent CSR A/c (ongoing)	30th Apr 2025
Tax Audit Report (Form 3CD)	30th Sept 2025
ITR – Audit Cases	31st Oct 2025
ITR – Non-Audit Cases	31st July 2025

Practical Illustration

XYZ Ltd (FY 2024–25, AY 2025–26)

• Turnover: ₹12 crore (digital >95%, cash <5%).

• CSR obligation: ₹60 lakhs.

• CSR spend:

  • ₹25 lakhs to PM CARES (80G eligible).

  • ₹20 lakhs to related trust (registered u/s 12AB, CSR-1 filed).

  • ₹15 lakhs for school building.

Tax Treatment

• CSR debited = ₹60 lakhs.

• Old Regime:

  • 25 lakhs deductible u/s 80G.

  • 20 lakhs (trust) → deductible only if trust qualifies under 80G; else disallowed.

  • 15 lakhs (school) → disallowed u/s 37(1).

• New Regime:

  • Entire 60 lakhs disallowed.

Tax Audit Applicability

• Turnover > ₹10 crore → Tax Audit mandatory.

• Auditor disclosures:

  • ₹35–55 lakhs disallowable u/s 37(1) depending on 80G claim.

  • Related party payment disclosed separately.

Caution Points for Professionals

1. CSR cannot be claimed u/s 37(1) – only check 80G (Old Regime).

2. Regime planning critical – New Regime denies 80G.

3. CSR through related parties – ensure trust has valid CSR-1 & 12AB/80G registration.

4. Cross-verification – Books, CSR-2 (MCA), Board Report, and Tax Audit must align.

5. TDS on CSR spends – mandatory on contracts/services.

6. Cash restrictions – no CSR in cash >₹10,000.

7. Avoid indirect brand promotion – disallowed by MCA & IT.

8. Audit liability – year-specific, not perpetual.

 Final Takeaways

• CSR is a statutory duty, not a tax-saving tool.

• Income-tax law disallows CSR u/s 37(1); deductions only possible via 80G / 35-type spends, and only in Old Regime.

• Tax Audit Form 3CD clauses must properly capture CSR spends, disallowances, TDS, and related party disclosures.

• MCA compliance (CSR-2, unspent transfers, Board Report) must be consistent with Income-tax reporting.

• Related party CSR transactions demand heightened caution to avoid scrutiny under both MCA and Income-tax.

From Waste to Wealth in India: The Smart Refill Revolution India Cannot Afford to Miss

 How Chile’s Algramo Is Reinventing Sustainable Packaging—and Why Indian Businesses Should Pay Attention

India’s FMCG sector serves over a billion consumers with unmatched reach—but at a cost the environment can no longer bear. Single-use plastic sachets, pouches, and bottles fill landfills, choke urban drains, and burden municipalities. Yet the poorest consumers continue paying more per gram by buying products in micro-pack sizes.

Meanwhile, in another part of the world, a quiet revolution is underway.

Algramo, a Chilean startup, is challenging the economics and environmental impact of packaging itself—using smart technology, refillable containers, and mobile dispensing systems to bring everyday essentials to consumers without waste. The impact? Lower prices, zero disposable plastic, deeper brand loyalty—and a sustainable circular model that’s scalable in developing economies.

This is not a futuristic idea. It’s a working business model with proven traction. And India, more than any other country, stands to gain the most from replicating and localizing it.

What Is Algramo?

Founded in Santiago, Algramo (Spanish for “by the gram”) partners with global brands like Unilever and Nestlé to offer refill stations for products like shampoo, detergent, and cooking oil. But this isn’t just bulk-buying—it’s powered by smart RFID-embedded containers, mobile refilling vans, and a digital loyalty platform.

Consumers get a durable container, scan it at a nearby kiosk or van, pay for only what they need, and earn rewards for each refill. The result?

• Zero-waste packaging

• Reduced costs per unit

• Increased consumer engagement

• Brand-level traceability and ESG metrics

It’s sustainability without sacrifice.

Why This Model Is a Game-Changer for India

India’s market is uniquely suited to adopt and scale Algramo-like systems.

✅ High sachet dependency in rural and low-income urban areas
✅ Cost-sensitive consumers seeking value for money
✅ Strong kirana and community retail network for last-mile delivery
✅ Rising EPR compliance pressure on FMCG brands
✅ Expanding digital payment and loyalty tech stack

In other words, India has the problem, the infrastructure, and the urgency. What’s missing is coordinated industry action.

Strategic Opportunities for Indian Businesses

Here’s how this model can be a win across verticals:

🔹 For FMCG Brands

Deploy branded refill kiosks or mobile dispensers in urban clusters and rural blocks. Reduce packaging costs, meet EPR goals, and improve price access for low-income customers.

🔹 For Retail Networks

Integrate refill models at kirana stores, SHGs, and cooperative societies—embedding circular practices into local commerce.

🔹 For ESG and Sustainability Leaders

Refill models offer traceable data—perfect for ESG reporting, carbon reduction metrics, and BRSR disclosures.

🔹 For CSR and Family-Owned Businesses

Sponsor refill systems in underserved communities. You reduce waste, enhance brand goodwill, and support inclusive livelihoods.

🔹 For Startups and Tech Innovators

Build India-specific container tracking, app-based loyalty platforms, and rural route optimization software—enabling smart delivery.

Circularity Meets Business Logic

Algramo shows us that circular packaging isn’t just about reducing waste—it’s about redesigning consumption.

In fact, the model offers triple value:

• Economic: Lowers packaging cost and distribution inefficiency

• Environmental: Removes single-use plastics from the system

• Emotional: Builds consumer loyalty via purpose-driven rewards

For Indian businesses, this is not just an idea to admire—it’s a blueprint to localize, fund, and lead.

Global Movement, Local Relevance

Algramo’s model is now being replicated in:

• Indonesia, via smart refill stations on scooters

• UK supermarkets, for home cleaning products

• New York, through partnerships with circular packaging brands

But India remains the biggest opportunity—where consumption, regulation, and waste converge.

Consultant’s Perspective

As advisors to businesses navigating ESG, EPR, and CSR mandates, we believe refill and reuse models represent a powerful next step in India’s circular transition.

Smart packaging and localized refilling infrastructure aren’t “green” extras anymore. They’re operational imperatives that deliver cost savings, compliance ease, and long-term consumer loyalty.

Whether you’re a listed conglomerate, a family-led enterprise, or a rising startup—this is a model you can adapt, invest in, or champion.

Final Word

India doesn’t just need less waste. It needs better systems.

Algramo reminds us that the future of consumption isn’t about buying more—it’s about buying better. And in doing so, we can turn plastic from a pollutant into a platform—one refill at a time.

From Waste to Wealth: What Indian Businesses Can Learn from Bill Gates’ Sanitation Revolution

The Wake-Up Call: Why a Billion-Dollar Mind is Obsessed with Toilets

When Bill Gates stood on a stage in Beijing in 2018 holding a beaker of human waste, the world was stunned.

But that moment wasn’t a gimmick—it was a global alarm.
It signaled a future where sanitation is not a cost, but an economic multiplier.
Not a charity project, but human infrastructure.
Not a burden, but a billion-dollar business waiting to be built.

India’s Trilemma: Business Growth, Human Capital Loss, and the Sanitation Gap

India dreams of becoming a $5 trillion economy. Yet:

• ₹2 lakh crore is lost annually due to poor sanitation-related health and productivity.

• Over 1.5 million children die each year due to diarrheal diseases.

• School dropout rates among girls skyrocket after puberty due to lack of toilets.

This is not a health issue.
It is a human capital crisis.
And that means—it’s a business issue.

Dharma + CSR + ESG: A Trident Approach for Indian Business Families

India’s spiritual traditions always placed ‘Shauch’ (cleanliness) next to ‘Satya’ (truth) in the hierarchy of Dharma.
In the modern boardroom, that Dharma takes form through:

• Section 135 of the Companies Act, 2013 – CSR mandates

• BRSR and ESG compliance – for listed and global-facing companies

• Legacy consciousness – for family businesses carrying generational values

But the real question is:
Can we see toilets not as expenses—but as enablers of dignity, productivity, and prosperity?

What Bill Gates Got Right (And India Can Do Better)

Bill Gates did not fund toilets.
He funded R&D, new materials, AI-enabled diagnostics, waste-to-energy startups, decentralized off-grid systems.
He created an ecosystem—where science meets sanitation, and entrepreneurship meets empathy.

This is the model Indian business can and must replicate—with contextual intelligence.

 What That Looks Like:

Area	Gates Foundation	What Indian Companies Can Do
Vision	Reinvent the toilet	Reimagine sanitation as health, dignity & skilling
Strategy	Tech, not just toilets	Fund sanitation startups via CSR/ESG
Talent	Engineers & social scientists	Engage IITs, polytechnics, SHGs
Impact	Global R&D breakthroughs	India-specific models: rural, peri-urban, tribal
Returns	Disease reduction, innovation	Healthier workers, skilling women, ESG value

Five Ways Indian Businesses Can Lead the Sanitation Economy

1. Invest in Innovation, Not Just Infrastructure
   Fund R&D labs, social ventures, and scalable toilet tech—bio-toilets, AI for sanitation mapping, greywater recycling.

2. Adopt Districts, Not Just Villages
   Use CSR to create replicable sanitation ecosystems—toilets, water, awareness, menstrual hygiene, waste management.

3. Make Sanitation Part of HR Strategy
   Toilets are not just for guests. Worker welfare includes hygiene, clean drinking water, and preventive health—this boosts retention and output.

4. Women-Led Sanitation Enterprises
   Empower SHGs and women entrepreneurs to maintain facilities and deliver hygiene products—CSR meets livelihood.

5. Sanitation in ESG Reports
   Highlight measurable impact—ODF zones, school girl retention, disease reduction, behavioral change—in global ESG disclosures.

Sanitation is Not a Toilet Problem. It’s a Human Potential Problem.

Every time a girl skips school because there’s no toilet, we lose a future scientist.
Every time a factory worker misses work due to cholera, we lose GDP.
Every time we treat sanitation as a side issue, we weaken our nation’s foundation.

And every time we elevate it to a core strategic investment, we unlock India’s real wealth—its people.

Final Word:

Toilets, Dharma, and the Business of Legacy

Sanitation is not “CSR for the poor.”
It is capital investment in India’s most undervalued asset—human dignity.
It is where Dharma, innovation, and business intersect.
And for Indian family businesses, it is the perfect arena to demonstrate legacy leadership.

“Dharma does not reside in rituals alone—it shines when we clean what others won’t even see.”
— Adapted from Indian scriptures

Let’s stop thinking of toilets as the end of the pipeline.
They are the starting point of every sustainable transformation.

Corporate Social Responsibility (CSR) in India — The Ultimate Legal & Compliance Guide for FY 2024–25 & FY 2025–26

 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

CSR applicability is assessed afresh every year. It is not presumed or carried forward based on past status.

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

 Applicability is rolling and real-time. CSR applies if any one condition is met in the immediately preceding FY.

Legal Interpretation – What the Law Now Requires

• Trigger Point: CSR becomes applicable in the next FY if any threshold is met in the preceding FY.

• Non-Applicability: If all criteria are missed in a given FY, CSR obligation does not arise in the following year.

• Exit Logic Abolished: Rule 3(2), which allowed continuation/exits over 3 years, was deleted in 2022.

• 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.”

• CSR is dynamic, not frozen.

• Compliance must follow real-time financials — not legacy assumptions.

• Annual testing, transparent disclosure, and impact-driven outcomes are now the legal and ethical expectations.

• Boardrooms must institutionalize CSR into strategy, policy, compliance, and reputation management.

Corporate Social Responsibility (CSR) in India: Applicability, Amendments, and Management of Unspent Funds

Corporate Social Responsibility (CSR) has evolved into a critical component of corporate governance in India. It serves as an avenue for companies to contribute to the welfare of society, while also ensuring transparency and accountability in their operations. The Companies Act, 2013 mandates CSR activities for certain categories of companies. Over time, the Ministry of Corporate Affairs (MCA) has refined the regulations surrounding CSR, addressing ambiguities and introducing amendments to streamline the process. In this article, we explore the key provisions, recent amendments, and the management of unspent CSR funds, while ensuring compliance with the latest rules.

Applicability of CSR: Understanding the Criteria

As per Section 135 of the Companies Act, 2013, CSR provisions apply to companies that meet any of the following criteria during the immediately preceding financial year:

1. Net Worth: ₹500 Crores or more
2. Turnover: ₹1000 Crores or more
3. Net Profit: ₹5 Crores or more

Key Considerations:

• Annual Assessment: The applicability of CSR is determined annually based on the financials of the immediately preceding year. If a company fulfills any of the aforementioned criteria in that year, CSR provisions become applicable for the current year.

• Three-Year Rolling Average: The CSR obligations are typically assessed using the three-year average net profit, ensuring that companies consistently meeting the thresholds over multiple years continue their CSR activities.

• Exemption: Companies failing to meet any of the criteria in a given year are not required to fulfill CSR obligations for that year, but they must reassess their status in subsequent years.

Recent Amendments (2023-2024)

Several significant amendments were introduced to CSR rules in 2023-2024 to enhance clarity, efficiency, and transparency. These amendments address various issues, including the filing of CSR forms, impact assessments, and eligibility of implementing agencies.

1. Extension of CSR-2 Filing Deadline (2024):

• The MCA extended the deadline for filing Form CSR-2 to December 31, 2024, allowing companies more time to comply with CSR reporting requirements. This extension ensures that companies can present accurate disclosures without compromising on compliance standards.

2. Rule 12(1B) Amendment (2024):

• A new amendment mandates that companies submit Form CSR-2 separately, with a deadline of December 31, 2024, after filing their annual financial statements. This update helps in streamlining the process and avoids discrepancies between financial reporting and CSR compliance.

3. Impact Assessment for Large CSR Projects:

• The MCA has made it compulsory for companies spending over ₹1 Crore on a CSR project to conduct an impact assessment by an independent third-party agency. The cost of the assessment may be included as part of the CSR expenditure, subject to a cap of 2% of total CSR obligations or ₹50 Lakhs, whichever is higher.

4. Widening the Scope of Eligible Implementing Agencies:

• The eligibility criteria for implementing agencies have been expanded to include Section 8 Companies, public trusts, and societies with at least three years of experience in similar CSR activities. This expansion increases the avenues available to companies for collaboration on CSR initiatives.

Impact of Rule 3(2) Deletion (2022)

A significant change introduced in September 2022 was the deletion of Rule 3(2), which previously created ambiguity in CSR applicability.

Before the Amendment:

• Rule 3(2) previously stated that companies failing to meet CSR criteria for three consecutive years could discontinue CSR activities. However, this rule conflicted with Section 135(1), which determines CSR applicability on an annual basis, creating confusion on whether CSR obligations should continue after a temporary dip in profits or turnover.

Post-Amendment (September 2022):

• The deletion of Rule 3(2) clarified that CSR provisions now depend solely on the financials of the immediately preceding year. If a company fails to meet the CSR criteria in a given year, it is exempt from CSR obligations for that year.
• This ensures that CSR applicability is assessed annually based on the financials of the immediately preceding year, making CSR compliance more fluid and responsive to changing business conditions.

Example:

• Company XYZ, which had a net profit of ₹6 Crores in FY 2021-22, would be required to fulfill CSR obligations for FY 2022-23. If its net profit drops to ₹4 Crores in FY 2022-23, the company would be exempt from CSR requirements in FY 2023-24. However, if the company’s net profit increases to ₹5 Crores in FY 2023-24, CSR provisions would apply again for FY 2024-25.

Management of Unspent CSR Funds

Proper management of unspent CSR funds is crucial for maintaining compliance and ensuring that CSR objectives are achieved. The key guidelines for managing unspent CSR funds are as follows:

1. Unspent CSR Funds Account:

   • If a company has unspent CSR funds at the end of the financial year, these funds must be transferred to an Unspent CSR Account within six months of the financial year’s conclusion.

2. Utilization of Unspent Funds:

   • Funds in the Unspent CSR Account should be utilized for CSR activities in the subsequent year. However, if these funds remain unspent after three years, they must be transferred to a Separate Unspent CSR Fund or to approved government funds like the Prime Minister’s National Relief Fund.

3. Provision for Ongoing Projects:

   • For ongoing CSR projects, funds allocated in previous years can be utilized for the project’s completion, even if they span multiple financial years. There is no requirement to transfer funds to the Unspent CSR Account in such cases.

4. Impact Assessment:

   • For CSR projects with a budget exceeding ₹1 Crore, companies must conduct an impact assessment by an independent third-party agency. The cost of conducting this assessment can be included in the CSR expenditure, subject to a cap of 2% of total CSR obligations or ₹50 Lakhs, whichever is higher.

Conclusion: Best Practices for CSR Compliance

The amendments introduced in 2023 and 2024 provide clearer guidelines for companies to manage their CSR obligations and activities. By focusing on impact assessments, transparent reporting, and proper management of unspent funds, companies can ensure they meet their CSR obligations effectively.

To avoid any defaults, companies should:

• Reassess their CSR obligations annually based on the preceding year's financials.
• Ensure all unspent CSR funds are transferred to the Unspent CSR Account within six months.
• Prioritize projects that align with the company’s CSR strategy and ensure compliance with the new guidelines on impact assessments.

By staying proactive and compliant with the latest rules, companies not only fulfill their legal obligations but also contribute meaningfully to society, making CSR an integral part of their corporate ethos.

Treatment of Investment Income in Bonus and CSR Calculations

 Corporations often invest their surplus funds in financial instruments such as Futures & Options (F&O), shares, and debt mutual funds to generate additional income. However, when calculating employee bonus obligations and Corporate Social Responsibility (CSR) contributions, it is crucial to determine whether such investment income should be considered.

This guidance note provides a detailed analysis, including definitions, formulas, examples, and case studies, to clarify the treatment of investment income for bonus calculations under the Payment of Bonus Act, 1965, and CSR obligations under the Companies Act, 2013.

1. Definition of Futures & Options (F&O)

Futures & Options (F&O) are derivative instruments traded on stock exchanges:

• Futures: A legally binding contract to buy/sell an asset at a predetermined price on a future date.

• Options: A contract that grants the right (but not the obligation) to buy/sell an asset at a specific price before a set expiry date.

Tax Treatment:

• F&O trading income is classified as Business Income under the Income Tax Act, 1961.

• Income from shares and mutual funds can be classified as either business income or capital gains, depending on the frequency and intent of transactions.

2. Bonus Calculation Under the Payment of Bonus Act, 1965

Legal Provisions:

• The allocable surplus for bonus computation is derived from gross profits under Sections 4, 5, and 6 of the Payment of Bonus Act, 1965.

• Investment income is not considered part of business profits for bonus calculation since it does not arise from core business operations.

Formula for Bonus Calculation:

Example Calculation:

Case Study 1: Bonus Calculation for Zenith Consulting Pvt. Ltd.

• Business Activity: IT Consulting & Solutions

• Revenue from Core Business: ₹75 Cr

• Net Profit from Core Business: ₹7 Cr

• Investment in F&O, Shares, and Debt Mutual Funds: ₹10 Cr

• Returns Earned (Profit): ₹2 Cr

• Total Net Profit (Core + Investment Income): ₹9 Cr

Scenario Analysis:

Particulars	Core Business Income	Investment Income
Net Profit	₹7 Cr	₹2 Cr
Allocable Surplus for Bonus	₹7 Cr (✅ Included)	₹2 Cr (❌ Excluded)

Conclusion:

✅ The ₹2 crore investment income should be excluded from the allocable surplus for bonus calculation, and no bonus is payable on these profits.

3. CSR Calculation Under the Companies Act, 2013

Legal Provisions:

Under Section 135 of the Companies Act, 2013, companies meeting the prescribed financial threshold must spend at least 2% of their average net profit (before tax) of the last three financial years on CSR activities.

• Unlike the Bonus Act, investment income is included in CSR calculations, unless specifically exempt under Section 198 of the Act.

Formula for CSR Contribution:

Example Calculation:

Case Study 2: CSR Calculation for Zenith Consulting Pvt. Ltd.

• Net Profit from Core Business (Last 3 Years Avg.): ₹6 Cr

• Profit from F&O, Shares, Debt Mutual Funds (Last 3 Years Avg.): ₹1.5 Cr

• Total Net Profit Considered for CSR: ₹7.5 Cr

Scenario Analysis:

Particulars	Without Investment Income	With Investment Income
Average Net Profit	₹6 Cr	₹7.5 Cr
CSR Contribution (2%)	₹12 Lakhs (✅)	₹15 Lakhs (✅)

Conclusion:

✅ Investment profit of ₹1.5 crore is included in net profit for CSR purposes, increasing CSR obligations.

4. Summary Table

Particulars	Bonus Calculation	CSR Calculation
Core Business Profit (₹7 Cr)	✅ Included	✅ Included
Investment Profit (₹2 Cr)	❌ Excluded	✅ Included
Impact	No Bonus Payable on ₹2 Cr	CSR obligation increases by ₹3 Lakhs

5. Final Professional Opinion

Based on legal provisions and financial best practices:

• For Bonus Calculation: The ₹2 Cr investment profit is not included in allocable surplus, and no bonus is payable on it.

• For CSR Compliance: The ₹2 Cr investment profit must be included in net profits, increasing the CSR obligation by ₹3 Lakhs.

Companies should ensure accurate financial reporting and consult professionals to avoid compliance risks.

Accounting Treatment and Disclosure of Unspent CSR Obligations

This article outlines the accounting treatment, journal entries, and disclosure requirements for Corporate Social Responsibility (CSR) obligations in mid-segment private companies, as mandated under Section 135 of the Companies Act, 2013, in accordance with the ICAI Guidance Note on CSR Accounting and Ind AS 37.

Overview of CSR Compliance for Mid-Segment Private Companies

Applicability Criteria:

CSR provisions apply to private companies meeting any of the following thresholds in the preceding financial year:

• Net worth: ₹500 crore or more.
• Turnover: ₹1,000 crore or more.
• Net profit: ₹5 crore or more.

Such companies must allocate 2% of the average net profit of the last three financial years toward CSR activities as per Schedule VII of the Act.

Accounting Treatment: CSR Obligations and Unspent Amounts

Case Example:

For FY 2023-24, consider ABC Pvt. Ltd., a mid-segment private company:

• CSR Obligation: ₹50 lakhs.
• Actual CSR Expenditure: ₹35 lakhs.
• Unspent CSR Amount: ₹15 lakhs (ongoing projects).

The unspent amount must be transferred to a dedicated bank account (Unspent CSR Account) and utilized within 3 financial years.

Accounting Entries for CSR Obligations

Date	Particulars	Debit (₹)	Credit (₹)	Explanation
1. Obligation Recognition
01/04/2023	Profit and Loss A/c (CSR Expense)	50,00,000	CSR Obligation A/c	CSR obligation for FY 2023-24 recognized in line with Section 135 of the Companies Act.
2. Transfer to Unspent CSR Account
31/03/2024	CSR Obligation A/c	15,00,000	Bank A/c	₹15 lakhs transferred to a designated Unspent CSR Account for ongoing projects.
3. Expenditure Incurred
Various Dates	CSR Expense A/c	35,00,000	Bank A/c	₹35 lakhs spent on approved CSR activities.
4. Closing Liability for Ongoing Projects
31/03/2024	Unspent CSR A/c	15,00,000	Current Liabilities	Unspent CSR amount disclosed under liabilities for ongoing projects to be utilized in future years.

Disclosure Requirements for CSR Compliance

Mid-segment private companies must ensure transparent reporting in their financial statements. The following table summarizes the disclosure requirements as per the ICAI Guidance Note and Schedule III of the Companies Act, 2013:

Particulars	Amount (₹ Lakhs)	Disclosure Treatment
CSR Obligation for FY 2023-24	50	Mentioned under Notes to Accounts with details of activities and timelines.
Actual CSR Expenditure	35	Classified as Other Expenses in the Profit and Loss Account.
Unspent CSR Amount (Ongoing Projects)	15	Shown under Other Current Liabilities in the Balance Sheet.
Bank Balance in Unspent CSR Account	15	Separate disclosure under Cash and Bank Balances.
Nature of CSR Activities	-	Details of projects, sector-wise allocation, and progress must be disclosed.

Illustrative Notes to Accounts

1. Corporate Social Responsibility (CSR):

CSR Obligation for FY 2023-24:

• Total obligation for FY 2023-24: ₹50 lakhs.
• CSR expenditure incurred: ₹35 lakhs (details below).
• Balance unspent amount (₹15 lakhs) transferred to Unspent CSR Account for ongoing projects, to be utilized by March 2027.

Details of CSR Activities Undertaken:

• Healthcare Initiatives: ₹20 lakhs.
• Education Programs: ₹15 lakhs.

2. Movement in Unspent CSR Account:

Particulars	₹ Lakhs
Opening Balance	0
Amount Transferred in FY 2023-24	15
Amount Utilized in FY 2023-24	0
Closing Balance as of 31/03/2024	15

Key Compliance Considerations for Mid-Segment Companies

1. Timely Transfer:

   • Transfer unspent amounts for ongoing projects to the Unspent CSR Account within 30 days of the financial year-end.

2. Utilization Deadline:

   • Ensure utilization of unspent funds within 3 financial years. In case of failure, transfer the remaining amount to a Schedule VII Fund within 30 days after the third financial year.

3. ICAI Guidance Note Compliance:

   • Recognize CSR obligations as expenses when incurred.
   • Do not treat unspent amounts as provisions unless a legal or constructive obligation exists.

4. Adequate Disclosures:

   • Clearly disclose the nature of CSR projects, sectoral allocations, and timelines.
   • Disclose reasons for shortfalls, if any, along with plans for utilization.

Conclusion

For mid-segment private companies, compliance with CSR obligations requires precise accounting treatment, timely actions, and transparent disclosures. By adhering to the ICAI Guidance Note and aligning with the Companies Act, 2013, companies can ensure:

• No adverse impact on financial reporting.
• Regulatory compliance without penalties or defaults.
• Enhanced stakeholder confidence through clear and accurate reporting.

Recommendation: Companies should maintain a robust monitoring system for CSR projects and ensure alignment with statutory timelines to avoid any financial or reputational risks.