On 22 November 2025, the Registrar of Companies, Bangalore, penalised Niveus Solutions Private Limited ₹9,24,760, and ₹46,238 on each of its four directors, for one reason: the company had a CSR obligation and did not spend it. That is roughly ₹11 lakh out of pocket, on a private company, for missing a duty most founders still believe applies only to large corporates. It does not. CSR is mandatory the moment your company crosses a single line, and the most common way to cross it is simply by being profitable. If your net profit touched ₹5 crore last year, Section 135 of the Companies Act 2013 already applies to you.
Quick Summary
Who must comply: Any company with net worth ≥ ₹500 crore, OR turnover ≥ ₹1,000 crore, OR net profit ≥ ₹5 crore in the preceding financial year.
What you must do: Spend at least 2% of the average net profit of the last three financial years on CSR.
The trap: Unspent CSR money must be moved to an Unspent CSR Account within 30 days of year end, or to a Schedule VII fund within six months.
Penalty (Section 135(7)): Company pays 2× the unspent amount or ₹1 crore, whichever is less; each officer pays 1/10th or ₹2 lakh, whichever is less.
Form: File Form CSR-2 with AOC-4.
Why this matters: the ₹5 crore trigger that catches SMEs
CSR has an image problem. Founders picture the Tatas funding hospitals and assume it is a big-corporate duty. The numbers in Section 135(1) tell a different story. The section applies to any company that, in the immediately preceding financial year, had a net worth of ₹500 crore or more, OR a turnover of ₹1,000 crore or more, OR a net profit of ₹5 crore or more. The word that matters is “or”. You do not need to be large. You only need to be profitable.
A company doing ₹40 crore of revenue at a healthy margin can clear ₹5 crore of net profit and walk straight into CSR scope, often without anyone in the finance team flagging it. The duty then arrives quietly: a CSR Committee to constitute, a policy to adopt, 2% of profits to spend, a special bank account to open if the money is not spent in time, and Form CSR-2 to file. Miss any of it and the Registrar has a clean, arithmetic-driven default to adjudicate, because the unspent amount is visible in your own financial statements.
The legal hook is Section 135 of the Companies Act 2013, read with the Companies (Corporate Social Responsibility Policy) Rules 2014. Since the Companies (Amendment) Act 2021 gave the section real teeth, CSR stopped being a “comply or explain” gesture and became a hard obligation with a fixed penalty. The enforcement that followed is now visible in the monthly adjudication orders published by the Institute of Company Secretaries of India.
Are you covered? The applicability test
Two points trip people up. First, “net profit” for the threshold and for the 2% calculation is computed under Section 198, which is not the same as profit before tax in your accounts; certain items are added back and others excluded. Second, once you are covered, you stay in the CSR framework for the year even if you later fall below the threshold. If a company ceases to meet all three criteria for three consecutive financial years, it steps out until it crosses a threshold again.
The 2% rule: how much you must spend
Section 135(5) sets the spending obligation. A covered company must spend, in every financial year, at least 2% of the average net profits made during the three immediately preceding financial years. Where the company has not completed three years, the average is taken over the period it has existed.
Worked simply: if your net profits under Section 198 over the last three years averaged ₹6 crore, your annual CSR obligation is ₹12 lakh. That amount must go to activities listed in Schedule VII, through the modes the CSR Rules permit. Spending on your own normal course of business does not count, and neither does anything that benefits only your employees and their families.
The penalty: what Section 135(7) actually costs
The 2021 amendment converted CSR non-compliance into a fixed monetary penalty. The structure is unusual because it is tied to the size of your own default.
| Default under Section 135(5)/(6) | Penalty on the Company | Penalty on each Officer in default |
|---|---|---|
| Failure to spend, or to transfer the unspent amount as required | 2× the amount that should have been transferred, or ₹1,00,00,000, whichever is less | 1/10th of that amount, or ₹2,00,000, whichever is less |
Read the “whichever is less” carefully, because it cuts both ways. For a small shortfall the penalty is twice that shortfall, which can be modest. For a large shortfall the ₹1 crore cap kicks in for the company and ₹2 lakh per officer. Either way the directors pay personally, and the order names them. This is not a fine the company can quietly absorb on the entity’s books alone.
The trap most companies miss: unspent CSR money
Plenty of covered companies intend to spend their 2% and simply run out of road before 31 March. Section 135(6) governs what happens next, and it is where the defaults cluster.
End of financial year (31 March): CSR for the year is unspent.
Within 30 days (by 30 April): transfer unspent amounts relating to an ongoing project to a separate “Unspent CSR Account” in a scheduled bank.
Within 6 months (by 30 September): transfer unspent amounts not relating to an ongoing project to a Fund in Schedule VII (for example, the PM National Relief Fund).
Within 3 financial years: spend the Unspent CSR Account money on the ongoing project, or transfer it to a Schedule VII fund within 30 days of that period ending.
The failure that the Registrars are penalising is rarely a refusal to do CSR. It is the missed 30-day or six-month transfer, or the money sitting in a regular bank account instead of a designated Unspent CSR Account. The obligation to move the money is as enforceable as the obligation to spend it.
Real orders, real money: the 2025 enforcement record
CSR defaults are being adjudicated steadily, and the Institute of Company Secretaries of India digests the orders in its Chartered Secretary Journal. The cases below are all from 2025, and two of them are from Bengaluru.
| Company | Registrar & date | What went wrong | Penalty |
|---|---|---|---|
| Niveus Solutions Pvt Ltd | ROC Bangalore, 22 Nov 2025 | Did not spend CSR for FY 2022-23 | ₹9,24,760 company + ₹46,238 × 4 directors |
| Pace Digitek Ltd | ROC Bangalore, 17 Oct 2025 | Did not spend 2% and did not transfer the unspent amount [Sec 135(5)/(6)] | Penalty on company & Managing Director |
| GKB Hi-Tech Lenses Pvt Ltd | ROC Goa, 4 Aug 2025 | Did not spend the required CSR amount | ₹2,00,000 company + ₹50,000 × 4 directors |
| Dhariwal Buildtech Ltd | ROC Delhi, 1 Aug 2025 | No CSR Committee; CSR report missing from the Board’s Report | ₹2,00,000 company + ₹50,000 director |
The Niveus order is the one every Bengaluru founder should sit with. A private company, doing well enough to have a CSR obligation, penalised not for any wrongdoing in its business but for leaving a statutory spend undone. Separately, MCA has imposed a penalty of ₹1.06 crore in a single Section 135(5) matter, which shows how high the company exposure climbs once the unspent amount is large.
By the numbers: Section 135 CSR
net-profit trigger that brings a company into CSR
of the last 3 years’ average net profit must be spent
to move unspent ongoing-project money to the Unspent CSR Account
cap on the company penalty under Section 135(7)
What you must do now, step by step
1. Run the applicability test. Take the preceding financial year and check net worth, turnover and net profit under Section 198 against the three thresholds. Any one of them brings you in. If you crossed ₹5 crore net profit, you are covered for the current year.
2. Constitute a CSR Committee. A covered company forms a CSR Committee of the Board. There is one relief: where the amount to be spent does not exceed ₹50 lakh, the requirement to have a separate committee does not apply, and the Board itself discharges the function.
3. Adopt a CSR policy and pick projects. The Board approves a CSR policy and the projects, which must fall within Schedule VII. Keep the policy and the project list on record and on the website if you have one.
4. Spend the 2%. Spend at least 2% of the three-year average net profit during the year, through the permitted modes. Plan early; the most common failure is a March scramble that leaves money unspent.
5. Handle anything unspent. For an ongoing project, move the unspent amount to the Unspent CSR Account within 30 days of year end. For anything else, transfer it to a Schedule VII fund within six months. Do not leave it in your operating account.
6. Report and file. Include the CSR report in the Board’s Report and file Form CSR-2 with AOC-4 on the MCA V3 portal. A clean spend with no CSR-2 on record is still a default.
Form CSR-2 and its deadline
Form CSR-2 is the dedicated CSR report to the Registrar. Every company covered by Section 135(1) files it as an addendum, and from FY 2024-25 as a linked form, to Form AOC-4. For FY 2024-25 it is filed along with AOC-4 on the V3 portal. Treat CSR-2 as a separate obligation from the spend itself: a company can spend its full 2% and still be in default if it never files CSR-2, just as it can file CSR-2 and still be penalised for not spending. Both have to be right.
The deeper implication for profitable founders
According to CS Sapna Malpani, CSR defaults almost always come from a timing gap, not a refusal. “The companies that get caught are profitable and well run,” she notes. “They cross ₹5 crore net profit, the obligation switches on, and it gets treated as a year-end formality rather than a year-long plan. Then March arrives, the money is not spent, the 30-day transfer window is missed, and a clean default is sitting in the financials for the Registrar to read.”
The forward signal for 2026 is plain. With MCA V3 making financial data easy to analyse, a profitable company with a visible CSR shortfall and no transfer to an Unspent CSR Account is an easy order to pass. Founders who crossed the ₹5 crore profit line in FY 2024-25 or FY 2025-26 are precisely the group now in scope, often for the first time. The sensible move is to test applicability before the Registrar does it from your own balance sheet.
CSR is not a donation, and not a tax deduction
A frequent and expensive misunderstanding is to treat CSR like a charitable donation that also saves tax. It does neither cleanly. CSR is a statutory spend, not a voluntary gift, and CSR expenditure is generally not allowed as a business deduction under the Income Tax Act. Writing a cheque to any charity does not discharge the duty either; the spend has to fit Schedule VII and the CSR Rules. Founders who confuse CSR with their 80G donations tend to discover the gap only when the CSR-2 and the Board’s Report do not add up.
Key Takeaways
- ✅ CSR is mandatory at net worth ≥ ₹500 crore, OR turnover ≥ ₹1,000 crore, OR net profit ≥ ₹5 crore. Any one trigger is enough.
- ✅ The ₹5 crore net-profit trigger pulls in many profitable private companies, not just large corporates.
- ✅ Spend at least 2% of the average net profit of the last three years, on Schedule VII activities.
- ✅ Move unspent ongoing-project money to the Unspent CSR Account within 30 days; other unspent amounts to a Schedule VII fund within 6 months.
- ✅ Section 135(7) penalty: company pays 2× the unspent amount or ₹1 crore (whichever is less); each officer 1/10th or ₹2 lakh.
- ✅ ROC Bangalore penalised Niveus Solutions Pvt Ltd ₹9,24,760 plus ₹46,238 on each of four directors in November 2025.
- ✅ File Form CSR-2 with AOC-4; it is a separate default from the spend.
Sources and references
- Companies Act 2013, Section 135 (Corporate Social Responsibility), India Code: indiacode.nic.in
- Companies (Corporate Social Responsibility Policy) Rules 2014 and Form CSR-2, Ministry of Corporate Affairs: mca.gov.in
- National CSR portal, Government of India: csr.gov.in
- ICSI, Chartered Secretary Journal, GIST of ROC and RD Adjudication Orders (Sep and Dec 2025): icsi.edu
- ROC Bangalore order, Niveus Solutions Pvt Ltd, 22 November 2025, reported via TaxGuru
- MCA ₹1.06 crore Section 135(5) penalty order, reported via TaxGuru
- MCA ROC Adjudication Orders portal: mca.gov.in
Not sure if CSR applies to your company this year?
Check your obligations with the Annual Compliance Checker, then confirm your CSR position before the Registrar reads it from your accounts.
For a confidential CSR applicability and Section 135 review: Contact CS Sapna Malpani | WhatsApp
Frequently asked questions
Is CSR mandatory for a private limited company?
Yes, past a threshold. Under Section 135, CSR applies to any company, private or public, that in the preceding financial year had net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. The ₹5 crore net-profit trigger brings many profitable private companies into scope, including mid-sized ones that never thought of CSR as their concern.
What is the penalty for not spending CSR under Section 135?
Section 135(7) imposes on the company twice the amount that should have been transferred to the Unspent CSR Account or a Schedule VII fund, or ₹1 crore, whichever is less. Every officer in default pays one-tenth of that amount or ₹2 lakh, whichever is less. ROC Bangalore applied this in November 2025 against Niveus Solutions Pvt Ltd, with ₹9,24,760 on the company and ₹46,238 on each of four directors.
How is the 2% CSR amount calculated?
It is 2% of the average net profit of the three immediately preceding financial years, with net profit computed under Section 198, not simply profit before tax in the accounts. If the company is younger than three years, the average is taken over the years it has existed.
Does CSR spending reduce my tax?
Generally no. CSR is a statutory obligation, and CSR expenditure is not allowed as a normal business deduction under the Income Tax Act. Treating it as a tax-saving donation is a common and costly error; the spend must meet Schedule VII and the CSR Rules to count as CSR at all.
What happens if I form the CSR committee but still do not spend?
Constituting the committee is only one duty. If the 2% is not spent and the unspent amount is not transferred as required under Section 135(5) and 135(6), the Section 135(7) penalty still applies, and the order will name the company and its officers, as the 2025 ROC orders show.
Disclaimer: This article is for general information and reflects the position as on 23 June 2026. It is not legal advice. Thresholds, penalty figures and deadlines are taken from the Companies Act 2013, the CSR Rules, and reported adjudication orders; verify the current text and your specific facts with a practising company secretary before acting.