Section 135 of the Companies Act, 2013, clause by clause

Section 135 of the Companies Act, 2013 is the law that makes corporate social responsibility (CSR) compulsory for larger companies in India. In nine sub-sections it says which companies are covered, who decides how the money is spent, how much must be spent, what happens to money that isn’t spent, and the penalties for getting it wrong.

Two other layers fill it in. Schedule VII of the Act lists what the money can be spent on, and the Companies (Corporate Social Responsibility Policy) Rules, 2014, known as the CSR Rules, supply the detail Section 135 leaves to be “prescribed”. The Ministry of Corporate Affairs (MCA) explains how it reads them in its CSR FAQs, General Circular 14/2021.

This guide takes Section 135 one sub-section at a time, as in force on 3 October 2026. Each box paraphrases the wording closely; the text after it explains what it means in practice. It is written for CSR heads, company secretaries and finance teams, and for NGO staff who want to read the law their funders work under.

How Section 135 is built

Section 135 sits in Chapter IX of the Act, on company accounts, straight after Section 134 on the board’s report.

Sub-sections (1) to (5) come from the original Act and took effect on 1 April 2014. Sub-sections (6) to (9) were added by the Companies (Amendment) Acts of 2019 and 2020 and took effect on 22 January 2021, when CSR moved from “comply or explain” to “comply or transfer”.

The government makes the CSR Rules under Section 469 and can change Schedule VII by notification under Section 467; our guide to the CSR Rules takes them rule by rule. The thresholds, the 2% rate and the penalties sit in Section 135 itself, so only Parliament can change them.

Sub-section (1): who is covered, and the CSR committee

• Any one test is enough. A company with ₹6 crore of net profit is covered even if its turnover and net worth are far below the other tests.
• The tests look back one year. Coverage for 2026-27 depends only on the figures for 2025-26.
• Every company is tested on its own. Private, public, listed, unlisted and Section 8 (not-for-profit) companies are all covered if they meet a test (FAQ 1.3), and a holding company isn’t covered just because its subsidiary is (FAQ 1.2). Rule 3(1) adds foreign companies’ branches and project offices in India.
• The measures are defined elsewhere. Net worth is defined in Section 2(57), turnover in Section 2(91), and net profit is calculated under Section 198.

The Rules set the committee’s make-up for each kind of company, and sub-section (9) switches the requirement off for small obligations: see the CSR committee.

Sub-sections (2) to (4): the committee’s job and the board’s

The division of labour is simple: the committee recommends, the board decides. The MCA calls CSR “a Board-driven process” (FAQ 2.3), and the government has no role in approving projects (FAQ 2.4). It checks compliance through what companies disclose.

The Rules add detail to each duty. Rule 5(2) makes the committee recommend an annual action plan each year, listing the projects and how they will be run, funded and monitored. Rule 9 requires the committee’s composition, the policy and every project the board approves to be on the website. And Rule 4(5) backs the duty to ensure activities happen: the board must satisfy itself that money disbursed was used as approved, and the chief financial officer (CFO) must certify it. Where there is no committee, the board does the committee’s work itself.

Sub-section (5): the 2% rule

This is the heart of the section:

• 2% of profit, averaged. The base is net profit, not turnover, averaged over three years. See how much a company must spend for loss years and young companies.
• Net profit has a special meaning. It is profit before tax under Section 198, minus two exclusions in the Rules: overseas branches’ profits, and dividends from Indian companies that comply with Section 135.
• “Spends” means spends. Disbursal to an implementing agency isn’t spending unless the agency uses the money (FAQ 7.4), and gifts in kind can’t be valued and counted (FAQ 3.12).
• Local preference isn’t binding. The MCA reads it as “directory and not mandatory” (FAQ 3.9).
• A shortfall must be explained and moved. Money not linked to an ongoing project goes to a Schedule VII fund by 30 September (for a March year-end), and can’t be spent on projects meanwhile (FAQ 7.3).
• Excess can be set off. Rule 7(3) allows it over the next three financial years, by board resolution, excluding surplus, and only for excess spent from 2020-21 (FAQ 3.7). See setting off excess spending.

Sub-section (6): unspent money for ongoing projects

An ongoing project is defined in Rule 2(1)(i): a multi-year project lasting no more than three years, not counting the year it started, including a one-year project the board has extended with reasonable justification.

For money left at the end of 2025-26, the dates are: into the account by 30 April 2026; spent during 2026-27, 2027-28 and 2028-29; any balance to a Schedule VII fund by 30 April 2029. A company opens one account per year, not per project (FAQ 7.5), and the money is ring-fenced (FAQ 7.6). Our guide to unspent CSR money covers the rest.

Sub-section (7): penalties

• It is a civil penalty, not a crime. Non-compliance has been “a civil wrong” since 22 January 2021 (FAQ 2.6).
• The officer’s share is a tenth of the amount, not of the company’s penalty. For an untransferred ₹15 lakh, the company faces ₹30 lakh and each officer in default ₹1.5 lakh.
• Smaller companies pay less. Under Section 446B, a One Person Company, small company, start-up or producer company pays at most half the penalty, capped at ₹2 lakh for the company and ₹1 lakh for each officer in default.
• The penalty comes on top of the transfer (FAQ 8.2), and it covers only sub-sections (5) and (6). Other CSR failures fall under Section 134(8) or Section 450 (FAQ 8.3 and 8.4).

The Registrar of Companies imposes penalties as adjudicating officer under Section 454, with an appeal to the Regional Director. See penalties for breaking the CSR rules.

Sub-sections (8) and (9): directions, and when no committee is needed

Sub-section (8) is a reserve power: binding orders on compliance without changing the Rules.

Sub-section (9) matters to far more companies. “Doesn’t exceed” includes exactly ₹50 lakh, so Riverbend Foods, with a ₹44 lakh obligation, can leave the committee’s work to its board. There is one exception, in the Rules rather than the Act: since 20 September 2022, a company with any money in its Unspent CSR Account must have a CSR committee until the account is empty (Rule 3(1)). Either way, the board must still approve a policy and plan and see the money spent.

How the wording has changed since 2014

The 2019 Act first wrote sub-section (7) with fines and imprisonment; the 2020 Act replaced that with civil penalties, and the civil version is the one in force. Other changes people link to Section 135, such as the 2022 committee rule and the Social Stock Exchange route of May 2026, were made in the Rules. Our short history of CSR in India tells the longer story.

What the pending Bill would change

Until it is passed and brought into force, ₹5 crore, 30 days and ₹50 lakh stand. The net worth and turnover tests, the 2% rate and the penalties wouldn’t change. For a full course on Section 135 and the Rules, with worked examples, see CSR Law in Depth in the SocioStory Academy.