CSR Advisory & Form CSR-2 Filing

Under Section 135(1) of the Companies Act 2013, every company with a net worth of ₹500 crore or more, or a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more during the immediately preceding financial year is required to constitute a CSR Committee and undertake CSR activities. The company must spend at least 2% of the average net profits of the three immediately preceding financial years as computed under Section 198. Companies that do not meet any of these thresholds in a given year are exempt from CSR obligations for that year, though they must continue to file Form CSR-2 if they had obligations in prior years. Net profit for CSR threshold purposes excludes profits arising from overseas branches and dividends received from other companies covered under Section 135.

Only activities listed in Schedule VII of the Companies Act 2013 qualify as CSR expenditure, covering areas such as eradicating hunger and poverty, promoting education, gender equality, environmental sustainability, protection of national heritage, and rural development projects. Administrative overheads directly attributable to CSR activities are capped at 5% of total CSR expenditure for the financial year as clarified under Rule 7(1) of the Companies (CSR Policy) Rules 2014. Contributions to the PM CARES Fund and funds notified under Schedule VII are permissible, but contributions to political parties under Section 182 of the Act do not qualify. Activities exclusively benefiting employees or their families and activities undertaken in the normal course of business are explicitly excluded per MCA Circular dated 20 September 2019.

If a company fails to spend the required CSR amount, the unspent amount must be transferred within 30 days from the end of the financial year to a separate Unspent CSR Account held in a scheduled bank, as mandated under Section 135(6) of the Companies Act 2013. Amounts in the Unspent CSR Account must be spent on the ongoing CSR project within three financial years from the date of transfer, failing which they must be transferred to a fund specified in Schedule VII within 30 days of the expiry of that period. Non-compliance attracts penalties under Section 135(7): the company may be penalised up to twice the amount required to be transferred or ₹1 crore, whichever is less, and every defaulting officer faces a penalty of up to one-tenth of the required amount or ₹2 lakh, whichever is less. The board must also disclose reasons for non-spending in the Board Report.

Form CSR-2 is a standalone annual report on CSR activities that must be filed with the Registrar of Companies pursuant to Rule 12(1B) of the Companies (Accounts) Rules 2014, as amended by the Companies (Accounts) Amendment Rules 2022. The form captures details of CSR obligation computed, amount spent, details of implementing agencies, and amounts transferred to Unspent CSR Accounts or Schedule VII funds. For FY 2021-22 onwards, Form CSR-2 is filed separately as an addendum to Form AOC-4 or AOC-4 XBRL after filing those forms but not later than 31 March of the following year. Failure to file within the prescribed timeline attracts additional fees under Section 403 of the Companies Act 2013 and may constitute a continuing default under Section 450.

Yes, companies may implement CSR activities through registered public trusts, registered societies, Section 8 companies, or statutory bodies, provided the implementing entity has an established track record of at least three years in the relevant area as required under Rule 4(1) of the Companies (CSR Policy) Rules 2014. Since April 1, 2021, all implementing agencies must be registered on the MCA CSR portal and obtain a unique CSR Registration Number as mandated under Rule 4(2), and companies must verify this registration before routing funds. The implementing agency must submit utilisation certificates to the company, and the company's CSR Committee is responsible for monitoring expenditure and outcomes. Any amount paid to an implementing agency that is subsequently found to have been misutilised does not count as valid CSR expenditure, exposing the company to the penalties under Section 135(7).