CSR Applicability: The Three Thresholds
How Section 135 CSR applicability actually works in India - the three independent thresholds, the 2% spending rule, and what happens to unspent CSR money.
CSR applicability under Indian company law is decided by three independent financial thresholds, and a company only needs to cross one of them - not all three - to be pulled into CSR obligations.
Key facts at a glance
- CSR applies under Section 135 of the Companies Act, 2013 if, in the immediately preceding financial year, a company has net worth of Rs 500 crore or more, OR turnover of Rs 1,000 crore or more, OR net profit of Rs 5 crore or more.
- Crossing any one of the three thresholds is enough to trigger applicability - all three do not need to be met together.
- CSR-applicable companies must spend at least 2% of average net profit of the preceding three financial years.
- A separate CSR Committee is not mandatory if the CSR amount to be spent is less than Rs 50 lakh; the Board can perform its functions instead.
- Unspent CSR amounts follow specific transfer rules depending on whether they relate to an ongoing project.
- Implementing NGOs and Section 8 companies must be registered with the MCA on Form CSR-1 to legally receive CSR funds.
The three thresholds explained
CSR applicability is not about company size in a general sense - it is measured precisely against three financial figures from the immediately preceding financial year.
| Threshold | Trigger figure | What it measures |
|---|---|---|
| Net worth | Rs 500 crore or more | Overall balance-sheet strength |
| Turnover | Rs 1,000 crore or more | Scale of business operations |
| Net profit | Rs 5 crore or more | Profitability |
A company needs to meet only one of these in the preceding financial year to be brought within CSR obligations for the current year. This means even a relatively modest-turnover company can become CSR-applicable purely on the strength of a Rs 5 crore net profit year, while a very large but low-margin company can become applicable purely on turnover, regardless of profitability.
How much has to be spent
Once applicable, a company must spend at least 2% of its average net profit computed over the three immediately preceding financial years (or, for companies not yet three years old, over the years since incorporation) on CSR activities that fall within the categories listed in Schedule VII of the Companies Act - things like education, health, environmental sustainability, and rural development, among others.
The CSR Committee, and when it is not required
CSR-applicable companies are generally expected to set up a CSR Committee of the Board to formulate and monitor CSR policy. However, where the amount required to be spent does not exceed Rs 50 lakh, the law allows the company to skip forming a separate committee and let the Board itself exercise the committee's functions, which simplifies governance for companies that are only marginally over a threshold.
What happens to CSR money that doesn't get spent
Not every company manages to spend its full CSR obligation within the financial year, and the law has two different tracks depending on why:
- If the unspent amount is not tied to any ongoing project, it must be transferred to a fund specified in Schedule VII (such as a national relief-type fund) within six months of the financial year end.
- If the unspent amount relates to an ongoing project, it must instead be transferred to a designated Unspent CSR Account within 30 days of the financial year end, and then actually spent on that project within three financial years - if it still remains unspent after that period, it must then be transferred to a Schedule VII fund.
Who is allowed to receive CSR funds
A company cannot simply write a cheque to any NGO of its choice and count it as compliant CSR spending. The implementing agency - typically a registered trust, society, or Section 8 company - must itself be registered with the Ministry of Corporate Affairs via Form CSR-1 before it is eligible to receive and administer CSR funds on a company's behalf.
Sources
- Ministry of Corporate Affairs - mca.gov.in
- Companies Act, 2013, Section 135 and Schedule VII - accessible via mca.gov.in
If you are not sure whether your company currently meets any of the CSR applicability thresholds, ComplianceCheck's state-wise compliance assessment gives you a clear picture in a few minutes.
This guide is general information, not legal advice. Requirements vary by state, sector and headcount — confirm specifics with a compliance professional or the relevant authority.
Frequently Asked Questions
- What are the three thresholds that trigger CSR applicability?
- Under Section 135 of the Companies Act, CSR applies if a company's net worth is Rs 500 crore or more, or its turnover is Rs 1,000 crore or more, or its net profit is Rs 5 crore or more, in the immediately preceding financial year - meeting any single one of these is enough.
- How much must a CSR-applicable company spend?
- A company to which CSR applies must spend at least 2% of its average net profit calculated over the three immediately preceding financial years on CSR activities.
- Does a company need a CSR Committee?
- A separate CSR Committee is generally required, but companies where the amount to be spent on CSR is less than Rs 50 lakh are permitted to have the Board itself discharge the CSR Committee's functions instead of forming a separate committee.
- What happens if a company does not spend its full CSR obligation in a year?
- Unspent CSR amounts not earmarked for an ongoing project must generally be transferred to a specified government fund within six months of the financial year end, while amounts for an ongoing project must be moved to a designated Unspent CSR Account and spent within three years or transferred to a specified fund.
- Can an NGO receive CSR funds without any registration?
- No, an implementing agency such as an NGO or Section 8 company must register with the Ministry of Corporate Affairs using Form CSR-1 to be eligible to receive and administer CSR funds from companies.
- Once a company crosses a CSR threshold, does it always remain CSR-applicable?
- No, applicability is assessed based on the immediately preceding financial year's figures each year, so a company can move in and out of CSR applicability as its net worth, turnover, or net profit changes.
- Is CSR spending optional if a company qualifies under any threshold?
- No, once any one of the three thresholds is met the company must constitute a CSR policy and spend the prescribed amount; it can only carry forward or explain non-spending through the specific mechanisms set out in the law, not skip the obligation.
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