Section 135 CSR Spend + Schedule VII Allocation Calculator

Section 135(1) of the Companies Act 2013 covers every company (whether public or private, listed or unlisted, Indian or foreign with an Indian branch or project office) that, during the immediately preceding financial year, satisfies at least one of three quantitative triggers: (i) net worth of five hundred crore rupees or more, or (ii) turnover of one thousand crore rupees or more, or (iii) net profit of five crore rupees or more. The three triggers are alternative, not cumulative — meeting any one is sufficient. The lookback is to the immediately preceding financial year, but the 2 per cent CSR obligation quantum under Section 135(5) is computed on the arithmetic mean of the net profits (as defined under Section 198 of the Companies Act 2013) of the three financial years immediately preceding the current financial year. Companies constituting the CSR Committee for the first time (i.e. newly-covered companies in their first CSR year) use the average of the financial years for which financial statements are available where fewer than three preceding years exist. Section 135(9) exempts a company from constituting a CSR Committee (though not from the spending obligation itself) where the required spend is less than fifty lakh rupees; in that case the Board of Directors discharges the CSR Committee's functions directly. Tier-1 Indian cement producers (UltraTech Cement, Ambuja Cements, ACC Limited, Shree Cement, Dalmia Bharat, JK Cement, Ramco Cements, Nuvoco Vistas, Birla Corporation, JSW Cement, HeidelbergCement India, Prism Johnson, India Cements, Sagar Cements, JK Lakshmi Cement) each sit well above all three quantitative thresholds and carry a mandatory Section 135 CSR spending obligation running into the tens or hundreds of crore rupees per annum depending on the three-year average net profit level. The mandate is not optional; the Section 135(7) penalty for non-compliance is separately quantified and separately triggered (see the penalty question below).

The Section 135(5) CSR obligation quantum is 2 per cent of the arithmetic mean of the 'net profits' of the immediately preceding three financial years. The relevant definition of net profit for this purpose is not the Profit After Tax figure reported on the face of the Statement of Profit and Loss under Schedule III of the Companies Act 2013; it is the specific 'net profit' figure computed under Section 198 of the Companies Act 2013. Section 198 sets out the manner of calculation of net profit for managerial-remuneration and CSR purposes, adjusted for a specific list of additions (bounties and subsidies received from any Government or a public authority, subject to conditions) and a specific list of exclusions (profits of a capital nature, capital receipts, revaluation surplus, unrealised gains, capital-losses set off, income tax and any compensation or damages paid pursuant to any legal liability, among others). The Section 198 walk-through typically deviates from PAT by 5 to 15 per cent of PAT depending on the company's mix of capital-nature gains, unrealised fair-value gains on investments, tax provision movements and other Section 198 adjustments. The CA firm and the group's tax head compute the Section 198 net profit as a standing year-end working; the CFO does not compute it on the fly on this tool. This tool asks the user to enter Profit After Tax as a directional proxy for the Section 198 net profit for the purpose of getting a first-cut CSR obligation quantum on the table quickly; the accompanying note explicitly flags the Section 198 versus PAT reconciliation as a mandatory follow-up before any board-level CSR budget approval or any figure that goes into the annual report Section 134 Directors' Report CSR disclosure. The arithmetic-mean average across the three preceding FYs is applied uniformly: (FY-3 + FY-2 + FY-1) divided by 3, then 2 per cent of that mean. There is no weighting, no growth adjustment, no inflation correction; it is a simple three-year arithmetic mean by statute.

Schedule VII to the Companies Act 2013 enumerates the permissible activities on which the Section 135 CSR spend may be incurred. As amended from time to time by MCA notifications, Schedule VII covers eleven broad heads: (i) eradicating hunger, poverty and malnutrition, promoting health care (including preventive health care) and sanitation, and making available safe drinking water; (ii) promoting education, including special education and employment-enhancing vocation skills especially among children, women, elderly and the differently-abled, and livelihood enhancement projects; (iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans, and reducing inequalities faced by socially and economically backward groups; (iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund; (v) protection of national heritage, art and culture; (vi) measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces veterans and their dependents including widows; (vii) training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports; (viii) contribution to the Prime Minister's National Relief Fund or Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the Central Government for socio-economic development and relief and welfare of scheduled castes, scheduled tribes, other backward classes, minorities and women; (ix) contribution to incubators or research and development projects in the field of science, technology, engineering and medicine funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government, and contributions to public-funded universities, IITs, national laboratories and autonomous bodies engaged in conducting research in science, technology, engineering and medicine aimed at promoting the Sustainable Development Goals; (x) rural development projects; (xi) slum area development. Cement companies typically allocate CSR spend most heavily to (ii) education, (i) healthcare and preventive health, (iv) environmental sustainability (especially plantation, water-conservation and Clean Ganga contributions given the industry's high water-and-fuel footprint), (x) rural development (given the plant's location in mining hinterlands and the community-license-to-operate dimension around the mine-and-quarry catchment area), and skill development under (ii). The Schedule VII allocation must be board-approved as part of the CSR Policy under Section 135(4)(a) and disclosed at project-and-programme granularity in the CSR Committee register and in the Section 134 Directors' Report annual CSR disclosure.

Section 135(5) as amended by the Companies (Amendment) Act 2019 (with effect from 22-January-2021 following the corresponding Ministry of Corporate Affairs notification) and the Companies (Corporate Social Responsibility Policy) Rules 2014 as amended by the CSR Amendment Rules 2021 introduced a tightly time-bound two-track unspent-transfer mechanic that replaced the earlier 'comply-or-explain' regime. Where the actual CSR spend during the financial year falls short of the 2 per cent obligation quantum, the unspent balance must be classified into two buckets and transferred under two distinct statutory timelines: (i) Unspent amount relating to any ongoing project of the company (an 'ongoing project' being a multi-year project that the CSR Committee has designated as such at inception, with a project period not exceeding three years excluding the financial year of commencement, and with an ongoing-project-classified line in the CSR Policy and the CSR Committee register) must be transferred to a special bank account called the 'Unspent Corporate Social Responsibility Account' opened by the company in a scheduled bank for the specific financial year, within a period of thirty days from the end of the financial year. The company then has three financial years from the transfer date to spend the amount in the Unspent CSR Account on the specific ongoing project(s); any residual unspent balance in the Unspent CSR Account at the end of the three-year window must be transferred to a Schedule VII fund within thirty days of the expiry of the three-year period. (ii) Unspent amount relating to any non-ongoing project (i.e. any CSR obligation that was not designated as an ongoing multi-year project at inception, or any residual unspent from a completed project) must be transferred directly to a Schedule VII fund within a period of six months from the end of the financial year. Schedule VII funds eligible for the transfer include the PM CARES Fund, the Prime Minister's National Relief Fund, the Clean Ganga Fund, or any fund specified in Schedule VII. The tool computes both timelines quantitatively and surfaces the two separate transfer requirements on the output side so the CFO can see the working-capital drain and the treasury team can plan the fund transfer against the statutory 30-day and six-month windows.

Section 135(7) of the Companies Act 2013 as amended by the Companies (Amendment) Act 2020 (effective 22-January-2021) imposes a two-track civil penalty regime for non-compliance with the Section 135(5) actual-spend and unspent-transfer obligations. For the company: a penalty equal to twice the amount required to be transferred to the Unspent CSR Account or to the Schedule VII fund (as applicable), or one crore rupees, whichever is lower. For every officer of the company who is in default: a penalty equal to one-tenth of the amount required to be transferred to the Unspent CSR Account or to the Schedule VII fund, or two lakh rupees, whichever is lower. The Section 135(7) penalty is a civil penalty (not a criminal fine) recoverable by the Registrar of Companies under Chapter XXIX of the Companies Act 2013 read with the National Company Law Tribunal adjudication mechanic; the company and the officers-in-default are separately liable, so the aggregate cash outflow in a non-compliance year comprises the underlying unspent transfer requirement (which the company still owes over and above the penalty), plus the company civil penalty, plus the aggregate per-officer penalty across every officer designated as in default (which commonly includes the Chief Financial Officer, the Company Secretary, and every director on the CSR Committee at a minimum). For a Tier-1 cement producer with a 2 per cent CSR obligation running to Rs 30 to 100 crore per annum depending on the three-year average net profit, the Rs 1 crore company-penalty cap and the Rs 2 lakh per-officer cap are typically the binding constraints (the 2x-of-unspent quantum would exceed the cap for any unspent amount above Rs 50 lakh). The tool computes the Section 135(7) penalty exposure both as the raw formula quantum (2x of unspent, and 10 per cent of unspent per officer) and as the capped payable (Rs 1 crore for the company, Rs 2 lakh per officer) so that the CFO and the Company Secretary can see both figures side-by-side.

CSR spend under Section 135 of the Companies Act 2013 is treated as a business expense in the Statement of Profit and Loss under Ind AS 1 Presentation of Financial Statements and Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance (to the extent grants received from government agencies are involved in specific CSR projects, which is the exception rather than the rule for most cement-industry CSR programmes). The recognition trigger is the incurrence of the spend against a board-approved CSR project during the financial year, expensed as a period cost under 'Corporate Social Responsibility Expense' on the P&L. The Guidance Note on Accounting for Corporate Social Responsibility issued by the Institute of Chartered Accountants of India provides the detailed treatment: expenditure directly incurred is expensed in the year of incurrence; contributions to a Section 8 company or trust or society undertaking CSR activities on behalf of the company are expensed on payment; contributions to specified Schedule VII funds (PM CARES, Clean Ganga, etc.) are expensed on transfer; capital expenditure incurred on CSR assets (a school building constructed on non-company land, a community health centre, a rural water treatment plant not owned by the company) is expensed in the year of incurrence rather than capitalised, since the company has no future economic benefits accruing to it from the asset. The critical income-tax treatment: Explanation 2 to Section 37(1) of the Income-tax Act 1961 (inserted by the Finance (No. 2) Act 2014 with retrospective effect from 1-April-2015) explicitly provides that any expenditure incurred by an assessee on activities relating to Corporate Social Responsibility referred to in Section 135 of the Companies Act 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession, and is therefore not a deductible business expenditure under Section 37(1). This creates a permanent difference under Ind AS 12 Income Taxes: the CSR expense reduces the book profit but does not reduce the taxable profit, and the difference does not reverse over any future period (unlike a temporary difference on depreciation). Every rupee of CSR spend therefore increases the effective tax rate reported in the Ind AS 12 income-tax reconciliation note; a Rs 50 crore CSR spend at a 34.94 per cent normal-regime effective tax rate creates a Rs 17.47 crore permanent tax cost, and the Ind AS 12 reconciliation note in the annual report must disclose this specifically as a reconciling item between the accounting profit times the statutory tax rate and the reported income-tax expense. Contributions specifically to the Swachh Bharat Kosh and the Clean Ganga Fund carry a separate Section 80G deduction under sub-clauses (iiihk) and (iiihl) of Section 80G(2)(a) which recovers some of the permanent-difference impact, but this narrow window is a limited exception and does not change the general rule.