Who must spend
Section 135(1) applies to a company with net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more during the immediately preceding financial year. Meeting any one test is enough. The company must spend at least 2% of the average net profit, computed under s.198, of the three immediately preceding financial years, or of the years since incorporation if it has not completed three. A loss year is included in the average. The Corporate Laws (Amendment) Bill, 2026 proposes raising the net profit trigger to ₹10 crore proposed; until it is passed and notified, ₹5 crore applies.
Unspent amounts
| Shortfall relates to | Action | Deadline |
|---|---|---|
| Ongoing project (multi-year, up to 3 years) | Transfer to the Unspent CSR Account in a scheduled bank | Within 30 days of the FY end (s.135(6)) |
| Anything else | Transfer to a Schedule VII fund | Within six months of the FY end (s.135(5) second proviso) |
Excess spend can be carried forward and set off over the next three financial years. Administrative overheads cannot exceed 5% of the total CSR expenditure of the year.
Changes in 2026
The Companies (CSR Policy) Amendment Rules, 2026, notified on 27 May 2026, let companies spend up to 10% of their CSR expenditure for the year on zero coupon zero principal instruments issued by not-for-profit organisations on a Social Stock Exchange. These contributions do not need an impact assessment. Separately, s.135(9) still removes the need for a CSR committee where the amount to be spent is ₹50 lakh or less; the board then discharges the committee's functions.
Common questions
Is the CSR obligation based on the current year's profit?
No. Applicability is tested on the immediately preceding FY, and the 2% is applied to the average net profit of the three immediately preceding FYs. The current year's profit has no effect on this year's obligation.
Can a loss year make the obligation zero?
Yes. Losses are included in the three-year average. If the average is negative or nil, the obligation is nil even though the company met a threshold in the preceding year.
When is a CSR committee not required?
When the amount the company must spend under s.135(5) is ₹50 lakh or less. The board performs the committee's functions.
When is an impact assessment required?
For companies with an average CSR obligation of ₹10 crore or more in the three immediately preceding FYs, for projects of ₹1 crore or more completed at least a year earlier. ZCZP contributions are exempt.