Here is a comprehensive note on the applicability, spending timeline, and consequences of non-spending for the CSR provision under Section 135 of the Companies Act, 2013, read with the Companies (CSR Policy) Rules, 2014.
The requirement to spend on CSR is triggered by certain financial thresholds achieved during the immediately preceding financial year.
I. CSR Applicability
A Company is required to comply with CSR provisions (i.e., constitute a CSR Committee* and formulate a CSR Policy) if, during the immediately preceding financial year, it met any one of the following criteria:
- Net Worth: ₹500 Crore or more; OR
- Turnover: ₹1,000 Crore or more; OR
- Net Profit: ₹5 Crore or more.
*CSR Committee is to be formed if the CSR expenditure is Rs.50 Lakhs or more.
II. Mandatory Spending Amount and Timeline
A. Spending Obligation
The mandatory spending obligation is 2% of the average net profit of the company made during the three immediately preceding financial years.
B. Spending Timeline and Mechanism
The Company has options regarding when and how to spend the mandatory ₹16 Lakhs:
| Scenario | Spending Requirement and Timeline |
| Full Spending | The Company must spend the entire during the current financial year. |
| Failure to Spend | If the company fails to spend the full amount, the consequences depend on whether the unspent amount relates to an Ongoing Project or not. |
III. Consequences for Non-Spending
The consequences for not spending the required amount are severe and depend on the nature of the project.
1. Unspent Amount Related to an 'Ongoing Project'
An 'Ongoing Project' is a multi-year project undertaken by the company.
- Action Required: The unspent amount (or the unspent portion) must be transferred to a special account called the 'Unspent Corporate Social Responsibility Account' within 30 days of the end of the financial year.
- Utilization: This amount must be spent within three financial years from the date of transfer. If the amount remains unspent after the expiry of three financial years, the unspent amount must be transferred to a specific fund (e.g., a Fund specified in Schedule VII of the Act) within 30 days after the completion of the third financial year.
2. Unspent Amount Not Related to an 'Ongoing Project'
This refers to general unspent CSR obligations.
- Action Required: The unspent amount must be transferred to a specific fund—the Fund specified in Schedule VII of the Act (e.g., the Prime Minister's National Relief Fund or any other specified fund)—within six months of the expiry of the financial year.
Penalty for Non-Compliance (Non-Transfer/Non-Spending)
The penalties for failing to comply with the mandated transfer of unspent funds are stringent, particularly after the 2020 amendments:
- Company Penalty: The company shall be liable to a penalty of twice the amount required to be transferred to the specific fund or the Unspent CSR Account, or ₹1 Crore, whichever is less.
- Officer Penalty: Every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred to the specified fund or Unspent CSR Account, or ₹2 Lakhs, whichever is less.