Can CSR funds be spent on employee welfare?

No. CSR must benefit external communities as per Schedule VII. Activities exclusively for the company's own employees do not qualify.

CSR Overview – Corporate Social Responsibility Compliance in India | NDS Avla

CSR Overview – Corporate Social Responsibility Compliance Under the Companies Act 2013

Q: Is CSR mandatory for all companies?

No. Only companies with net worth ≥ ₹500 crore, turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore in the preceding financial year.

Q: Can CSR spending be carried forward?

Unspent CSR for ongoing projects goes to an Unspent CSR Account (to be utilised within 3 years). Non-ongoing unspent amounts must be transferred to Schedule VII funds within 6 months of year-end.

Understanding Section 135 CSR Obligations, Eligible Activities, Committee Requirements, and Annual Disclosure Compliance

India is one of the few countries in the world where Corporate Social Responsibility (CSR) spending is a statutory obligation. Section 135 of the Companies Act 2013, read with the Companies (CSR Policy) Rules 2014 and subsequent amendments, mandates that eligible companies spend at least 2% of their average net profits of the preceding three financial years on prescribed CSR activities. Failure to spend the mandated amount — or to adequately explain the reasons for unspent funds — now attracts mandatory transfer to specific government funds and, from 2021 onwards, financial penalties on the company and its officers.

The CSR framework has undergone significant tightening since 2021, with unspent CSR amounts now required to be transferred to government funds if not utilised within specified time frames. Companies must also register their implementing agencies on the MCA portal using Form CSR-1 and disclose annual CSR activities in the Board's Report via Form CSR-2. Our CSR advisory practice ensures your company's CSR programme is not just compliant but also strategically structured for maximum impact.

Our CSR Advisory & Compliance Services

CSR Applicability Assessment

Determining whether your company meets the Section 135 thresholds based on net worth, turnover, and net profit — and computing the precise 2% spending obligation based on the average of the preceding three financial years' net profits.

CSR Committee Constitution

Advising on the constitution of the mandatory CSR Committee (minimum 3 directors including at least 1 independent director) — or the Board-level committee for companies with no independent director requirement.

CSR Policy Drafting

Drafting a comprehensive CSR Policy covering chosen Schedule VII activities, preferred implementing modalities (direct, through trusts, or through Section 8 companies), and geographic focus areas.

Implementing Agency CSR-1 Registration

Registering the company's own foundation or selected implementing agencies on the MCA portal using Form CSR-1 — a mandatory step for channelling CSR funds through any entity other than directly.

Unspent CSR Amount Management

Tracking ongoing project timelines and ensuring unspent amounts from ongoing projects are transferred to a designated Unspent CSR Account within 30 days of financial year end — and transferred to Schedule VII funds if not utilised within 3 years.

Annual CSR Disclosure (CSR-2)

Preparation and filing of Form CSR-2 — the annual CSR disclosure form — to be filed with the ROC as an addendum to AOC-4. This covers project details, amounts spent, unspent amounts, and implementing agency disclosures.

CSR Eligibility Criteria – Any One of the Following

Criterion	Threshold
Net Worth	₹500 crore or more
Turnover	₹1,000 crore or more
Net Profit	₹5 crore or more (in preceding financial year)

Schedule VII – Key CSR-Eligible Activity Areas

Eradicating hunger, poverty, malnutrition, and promoting preventive healthcare and sanitation
Promoting education, including special education and vocational skills for children and livelihood enhancement
Promoting gender equality, women empowerment, setting up homes for women and orphans
Ensuring environmental sustainability, ecological balance, and conservation of natural resources
Protection of national heritage, art, and culture including restoration of historic buildings
Measures for the benefit of armed forces veterans, war widows and their dependants
Training to promote rural sports, nationally recognised sports, and Paralympic sports
Contribution to PM National Relief Fund, PM CARES Fund, and other Central/State Government funds
Technology incubators within academic institutions approved by the Central Government
Rural development projects and slum area development
Disaster management, including relief, rehabilitation, and reconstruction activities

⚠️ From FY 2021–22, unspent CSR funds from completed projects must be transferred to Schedule VII funds (PM National Relief Fund etc.) within 6 months of financial year end. Failure to do so attracts a penalty of twice the unspent amount or ₹1 crore, whichever is less — on the company. Officers in default face penalties up to ₹2 lakh.

Frequently Asked Questions

Is CSR mandatory for all companies in India?

No. CSR is mandatory only for companies meeting at least one of three thresholds: net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the immediately preceding financial year. Private Limited Companies and even unlisted public companies meeting these thresholds are covered — it is not limited to listed companies. Foreign companies with branches or project offices in India are also covered if they meet the thresholds.

Can CSR spending be carried forward to the next year?

Not straightforwardly. If the full 2% is not spent in the financial year, the unspent amount must either be transferred to an Unspent CSR Account within 30 days of year-end (for ongoing multi-year projects) and spent within 3 years; or transferred to a Schedule VII fund (like PM National Relief Fund) within 6 months of year-end. This prevents simple carry-forward — the funds must either be earmarked for an ongoing project or surrendered to a government fund.

Can a company spend CSR funds on employee welfare or salaries?

No. CSR spending must be on external beneficiaries — activities listed in Schedule VII that benefit communities beyond the company and its employees. Activities exclusively for the company's own employees, their families, or the company's direct business interests do not qualify as CSR spending. Administrative overheads of the CSR function can be included up to a maximum of 5% of total CSR expenditure.

What is the role of the CSR Committee?

The CSR Committee is responsible for: formulating the CSR Policy; recommending the amount to be spent on CSR; monitoring the CSR Policy implementation; and reviewing and recommending the annual action plan. The Board approves the Policy and annual action plan based on the Committee's recommendations. For companies with net profit below ₹50 lakh, a full CSR Committee is not required — the Board as a whole performs the CSR Committee functions.

Is Your Company CSR-Compliant? Get a Free Assessment.

Our CSR advisory team assesses your CSR obligation, structures a compliant spending programme, and manages all MCA filings including CSR-1 and CSR-2 — so your company is protected from penalties.

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