A company that is covered by Section 135 must spend at least 2% of its average net profits on CSR. The spend must be on the activities specified in Schedule VII, and the company must comply with the impact-assessment and unspent-amount rules.
The impact assessment
A company with an average CSR obligation of ₹10 crore or more in the three immediately preceding financial years must conduct an impact assessment of its CSR projects with an outlay of ₹1 crore or more. The impact assessment must be conducted by an independent agency. The report must be placed before the board.
The unspent amount
If the company does not spend the entire amount, it must:
- Transfer the unspent amount to the Unspent CSR Account within 30 days of the end of the financial year, if the amount relates to an ongoing project
- Transfer the unspent amount to a fund specified in Schedule VII within six months of the end of the financial year, if the amount does not relate to an ongoing project
The penalties
If the company fails to comply, it is liable to a penalty of twice the amount required to be transferred to the Unspent CSR Account or the Schedule VII fund, or ₹1 crore, whichever is less. The officers in default are liable to a penalty of one-tenth of the amount required to be transferred, or ₹2 lakh, whichever is less.
The practical points
The company should compute the CSR obligation and the impact-assessment threshold. It should transfer the unspent amount within the prescribed time. It should maintain the records of the CSR spend and the impact assessment. The company should disclose the CSR spend in the board's report.
Call to Action: We advise companies on CSR expenditure, impact assessment and unspent-amount compliance. For a CSR review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.