Bhavik Chokshi (7977299310) www.benchmarxacademy.

com

CORPORATE SOCIAL RESPONSIBILITY

Important Amendments / Clarifications
(Applicable May 21 Onwards)

1. Excess CSR Spending

The excess amount spent would be allowed to be carried forward to next year. If the
company decides to adjust such excess against future obligation, then to the extent
of such excess, an asset will have to be recognized for the amount which is spent
in excess of 2%.
If the company decides not to carry forward such excess spend in full or in part, the
same to the extent not carried forward is to be recognized as expense.
2. Amount Unspent for an Ongoing Project
In case of any amount remaining unspent under section 135(5) pursuant to any
ongoing project, undertaken by a company in pursuance of its Corporate Social
Responsibility Policy, shall be transferred by the company within a period of thirty days
from the end of the financial year to a special account to be opened by the company in
that behalf for that financial year in any scheduled bank to be called the Unspent
Corporate Social Responsibility Account, and such amount shall be spent by the
company in pursuance of its obligation towards the Corporate Social Responsibility
Policy within a period of three financial years from the date of such transfer, failing
which, the company shall transfer the same to a Fund specified in Schedule VII, within
a period of thirty days from the date of completion of the third financial year.
3. Amount Unspent – Other than for an Ongoing Project
Any entity needs to transfer the unspent amount after current years CSR Spending
(including Unspent Expenditure on Ongoing Projects) to a Fund specified in Schedule
VII, within a period of six months of the expiry of the financial year.
Accordingly, a provision for liability for the amount representing the extent
to which the amount is to be transferred either for an ongoing project or
other than ongoing project, needs to be recognised in the financial
statements.
4. Summary:
Minimum CSR Spending (2% of Average Net Profit) XX

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Less: Actual CSR Spent (XX)

Provision (Shortfall) / Prepaid (Excess) XXX

As per the revised Law, Shortfall needs to be transferred to:

a. Unspent CSR A/C (Ongoing Project) (within 30 days)
b. Eligible Fund (Other than Ongoing Project) (within 6 Months)
Hence, an obligation exists and year end and a provision needs to be created for the
shortfall
5. Penalties on Default
If a company defaults in complying with section 135(5) and 135(6), the company
shall be liable to a penalty of twice the amount required to be transferred by the
company to the Fund specified in Schedule VII or the Unspent Corporate Social
Responsibility Account, as the case may be, or one crore rupees, whichever is
less.
In addition to it, 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 by the company to
such Fund specified in Schedule VII, or the Unspent Corporate Social
Responsibility Account, as the case may be, or two lakh rupees, whichever is less.
6. CSR Committee Threshold
Where the amount to be spent by a company does not exceed fifty lakh rupees,
the requirement for constitution of the Corporate Social Responsibility Committee
shall not be applicable and the functions of such Committee be discharged by the
Board of Directors of such company.
7. Applicability / Non Applicability (Clarification)
While checking whether CSR applies to a Company we need to check the Limits in
the IMMEDIATELY PRECEDING FINANCIAL YEAR only.
However, in case an entity which is already covered under CSR provisions needs to
stop complying CSR provisions, it needs to be below the limits for the
IMMEDIATELY PRECEDING THREE FINANCIAL YEARS

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Illustration 5
ABC Ltd. is a company which is covered under the ambit of CSR rules. As part of its CSR
contribution an amount of ` 15,00,000 was spent as CSR expense towards the education
of girl child. The average net profit of the company for the past three years was ` 7 crore.
As the company incurred a CSR expense in excess of what is required by the rules, it
decided to utilise this expense as a carry forward to the next year and reduce next year’s
CSR spend by ` 1,00,000.
Can the excess expenditure towards CSR be carried forward to next financial year?
Solution
As per the current law of land, carry forward of excess amount over 2% of average
profits, will be allowed, if the company decides to adjust such excess against future
obligation.
If the company decides not to carry forward such excess spend in full or in part, the same
to the extent not carried forward is to be recognized as expense.
Illustration 6
In the year 2011, XYZ Ltd. falls within the purview of CSR provisions as per the
Companies Act, 2013 since its net profit for the financial year exceeded ₹ 5 crore. The
company discharged CSR obligations in the year 2012. However, the net profit of the year
2012 was less than ₹ 5 crores. Also, it was also not satisfying the other two criteria of the
section 135 for CSR compliance. Therefore, the company stopped performing CSR
activities from the year 2013 onwards. Comment on the company’s accountability for CSR
Solution
Once a company has fulfilled the net worth / turnover / net profit criterion for one year it
has to fulfil its CSR obligations for the subsequent three financial years, even if it does not
fulfil any of these criteria in those years.
In the given case, XYZ Ltd. falls in the ambit of CSR obligations by fulfilling the criteria of
net profit exceeding ₹ 5 crores in the year 2011. So it has to discharge its CSR obligations
by spending two percent of its average profit every year starting from 2012 till 2014. It
cannot stop spending on CSR activities as per the Act after 2012.

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Accounting Entries of the CSR Expenditure

Accounting entries of the CSR Expenditure may be as under:

Sr No Particluars Dr. Cr.

Amount Amount
(in `) (in `)
1. CSR in Cash
CSR Expenditure A/c
Dr.
To Cash / Bank
2. CSR in Kind
CSR Expenditure A/c Dr
To Purchase /cost of goods consumed
3. CSR when not fully spent during the year as per
proposed amendment to S. 135 (5)
CSR Expenditure A/c Dr.
To Cash/Purchase/Cost of goods consumed (as
applicable)
To CSR to be Deposited in Fund
4. CSR when not fully spent during the year as per
proposed amendment S. 135 (6)
CSR Expenditure A/c Dr.
To Cash/Purchase/Cost of goods consumed (as
applicable)
To CSR to be Spent on Ongoing project
5. CSR when spent in excess as per proposed
amendment to S. 135 (5)
CSR Expenditure A/c Dr.
CSR Pre-Spent A/c Dr.
(As per proposed amendment)
To Cash/Purchase/Cost of goods consumed (as
applicable)