CSR Committee: What They Really Do

Last year, Indian companies recorded a total CSR spend of about ₹34,909 crore across roughly 59,634 projects. Every rupee of that spend should pass through one small but important group inside the company: the CSR Committee. Most people have never heard of it.

Maybe you’ve sat through a board meeting and heard someone mention “the CSR Committee” and nodded along. That’s common-CSR often brings to mind a cheque, a tree-planting drive, a social media post, and that’s it. But in India, CSR is not just a charity add-on. For many companies it’s a legal obligation under Section 135 of the Companies Act, 2013.

What does the CSR Committee do? Put simply: it makes sure the company follows the law, spends the required amount on eligible activities, and keeps the process transparent.

What is CSR (for Indian companies)?

Corporate Social Responsibility (CSR) generally refers to business practices that contribute to social and environmental goals. While CSR is often described as voluntary worldwide, Section 135 of the Companies Act, 2013 makes it mandatory for certain Indian companies to spend on CSR. It’s an obligation alongside other statutory duties such as tax and accounting compliance.

Which companies must comply?

A company must comply with Section 135 if, in the immediately preceding financial year, it meets any one of these thresholds:

• Net worth of ₹500 crore or more, or
• Turnover of ₹1,000 crore or more, or
• Net profit of ₹5 crore or more.

If a company crosses any one of these thresholds, it must spend at least 2% of the average net profit of the preceding three financial years on CSR activities every year.

Why does a company need a CSR Committee?

Boards already handle strategy, finance, risk and compliance. The Act delegates CSR oversight to a specialized committee so spending and program delivery are structured: draft a policy, set a budget, monitor execution and report to the board. The committee runs the process; the board retains ultimate responsibility.

Important exception: If the company’s CSR spending obligation under Section 135(5) does not exceed ₹50 lakh in a financial year, the company is not required to form a separate CSR Committee — the Board may discharge those functions directly.

Who must be on the CSR Committee?

Composition varies by company type:

• Public companies (and others required to have an independent director under Section 149) must have at least three directors on the CSR Committee, with at least one being an independent director.
• Companies not required to have an independent director under Section 149(4) (generally certain private companies) must have at least two directors on the CSR Committee; an independent director is not mandatory.
• Private companies with only two directors can constitute the CSR Committee with those two directors.
• For foreign companies with operations in India, the practical expectation is at least two members, including one person resident in India for receipt of notices; check relevant MCA guidance for specifics.

Lower threshold: Where the aggregate CSR obligation in a year is ₹50 lakh or less, no separate committee is required and the board can perform CSR functions.

Important practical point: If a company once crossed the thresholds and incurred CSR obligations (including unspent project funds), it should continue to maintain CSR governance and follow unspent fund rules even if it later falls below thresholds until obligations are closed per the Act and rules.

What the CSR Committee actually does

The committee’s core responsibilities typically include:

1. Draft and recommend the CSR policy.

• The CSR policy must align with Schedule VII of the Companies Act, which lists permissible activities (poverty alleviation, education, healthcare, gender equality, environment, disaster relief, etc.). The board approves the policy and the company must disclose it on its website.

2. Calculate and recommend allocation of funds.

• The committee computes the required 2% of average net profit (preceding three years) and recommends how to allocate it across projects or programs. Practical best practice: focus resources on priority themes for measurable impact.

3. Oversee implementation and monitoring.

• The committee monitors project progress, validates expenditure, reviews implementing partners, conducts site visits and recommends corrective actions. Monthly/quarterly or periodic monitoring schedules are recommended depending on project scale.

4. Put in place transparent controls and reporting.

• Controls include written agreements with implementing agencies, periodic progress reports, documentation of outcomes, and independent verification where appropriate. The committee ensures disclosures in the Board’s Report (including CSR policy, amounts spent, and composition of the committee).

How the committee ties to the board

The CSR Committee recommends; the Board approves and is accountable. Board-level responsibilities include:

• Approving and publishing the CSR policy.
• Ensuring CSR funds are spent on approved projects only.
• Making sure at least the prescribed minimum (2%) is spent, or explaining why not.
• Including prescribed disclosures in the Board’s Report: committee composition, CSR policy summary, amount spent, and reasons for shortfalls if any.

What happens if the company doesn’t spend enough?

The Rules under the Companies Act set out treatment for unspent CSR amounts:

• If the unspent amount relates to an ongoing project, it must be transferred to a separate “Unspent CSR Account” within 30 days from the end of the financial year and spent within the next three financial years on that project.
• If the unspent amount is not related to an ongoing project, it must be transferred to a specified government fund (for example, certain notified funds such as the Prime Minister’s National Relief Fund or other funds as may be specified) within six months of the financial year end.

Penalties for non-compliance can include fines on the company and on officers in default. Recent practice and judicial interpretations vary by case, and penalties depend on facts — so internal legal advice is essential. (Recommend confirming current penalty ranges and enforcement guidance from MCA/notifications before publishing.)

Why this matters beyond penalties

Treating CSR as a checkbox misses the opportunity. A well-functioning CSR Committee converts compliance into credible social outcomes: schools that open and operate well, health programmes that reach intended beneficiaries, and livelihoods that are measurably improved. Good governance—clear policy, focused funding, rigorous monitoring and transparent disclosure—turns statutory obligation into impact.

Practical advice

• Start with a clear CSR policy tied to a few focused priority themes.
• Create monitoring KPIs and require regular, documented progress updates from implementing partners.
• Keep an audit trail: budgets, agreements, receipts, site visit notes, and independent verification where required.
• If you expect unspent amounts, plan their treatment early (ongoing project vs. transfer to funds).
• Review MCA notifications and the Ministry’s guidance before finalizing the policy or making compliance decisions.

(This post is a practical overview of Section 135 and attendant rules as currently applied. Composition requirements, exemptions, timelines and specified funds have been subject to amendments and notifications; check the latest MCA/Government releases or talk to legal counsel for the most current compliance requirements).

If you’re setting up a CSR Committee or reviewing your CSR policy, Score Accounting can help walk you through a checklist and a draft policy tailored to your company’s size and sector.