How to Calculate CSR Amount with Example

 How to Calculate CSR Amount with Example

Corporate Social Responsibility (CSR) is a legal compliance requirement—but, it reflects a company’s commitment/responsibilty to giving back to society.  CSR was introduced under Section 135 of the Companies Act, 2013 in India, making India one of the few countries in the world to mandate CSR spending for certain companies.

But when it comes to implementation, one of the biggest challenges companies face is: “How do we calculate the exact CSR amount?”

This article explains the eligibility, calculation process, examples, and key compliance points in detail and its elements.

1. Applicability of CSR – Which Companies Need to Spend?

As per Section 135(1) of the Companies Act, 2013, CSR provisions apply to every company (public or private, listed or unlisted) that meets any of the following conditions during the immediately preceding financial year:

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

👉 Important: "Net profit" here refers to profit before tax (PBT) calculated as per Section 198, not the profit shown in your tax return.

Once a company becomes eligible, it must:

• Form a CSR Committee of the Board (except in some private and small companies where exemptions apply).
• Approve and disclose a CSR Policy.
• Ensure spending of the required CSR amount every year.

2. CSR Spending Requirement

As per Section 135(5), every eligible company must spend:

At least 2% of the average net profits of the last 3 financial years on CSR activities listed in Schedule VII of the Companies Act.

3. How to Calculate CSR Amount – Step by Step

Step 1: Calculate Net Profit (as per Section 198)

This is not the same as the profit in your income tax records. Certain inclusions/exclusions apply:

• Include: operating profits, interest income, etc.
• Exclude:
• Profits from overseas branches
• Capital profits from sale of assets
• Revaluation gains
• Dividend income from other companies in India

Step 2: Take Net Profits of Last 3 Financial Years

Collect the adjusted net profits for each of the previous three financial years.

Step 3: Find the Average

Add the three years’ profits and divide by 3.

Step 4: Apply 2% Formula

CSR obligation = Average Net Profit × 2%

4. Example 1: Basic CSR Calculation

ABC Pvt. Ltd. has the following net profits (as per Section 198):

Year	Net Profit (₹ in Crores)
2021-22	10
2022-23	15
2023-24	20

• Step 1: Total = 10 + 15 + 20 = 45 crore
• Step 2: Average = 45 ÷ 3 = 15 crore
• Step 3: CSR = 15 × 2% = ₹0.30 crore (₹30 lakh)

✅ Therefore, ABC Pvt. Ltd. must spend ₹30 lakh on CSR in FY 2024-25.

5. Example 2: CSR When Profit is Fluctuating

XYZ Ltd. has the following net profits:

Year	Net Profit (₹ in Crores)
2021-22	25
2022-23	(-5) (loss)
2023-24	10

• Step 1: Total = 25 + (-5) + 10 = 30 crore
• Step 2: Average = 30 ÷ 3 = 10 crore
• Step 3: CSR = 10 × 2% = ₹20 lakh

👉 Even though one year had a loss, it is still included in the calculation. Hence, CSR obligation is ₹20 lakh.

6. What if a Company Doesn’t Spend the CSR Amount?

Earlier, companies could simply provide a reason for not spending CSR in the Board’s Report. But after the amendment in 2021, unspent CSR obligations carry penalties.

• Unspent CSR on Ongoing Projects → Transfer to a special “Unspent CSR Account” within 30 days from the end of the financial year. The company must spend it within 3 financial years.
• Unspent CSR on Other Projects → Transfer to a Fund specified in Schedule VII (like PM Relief Fund) within 6 months.

Penalties for Non-Compliance:

• Company: Twice the unspent amount or ₹1 crore (whichever is less).
• Officer in default: One-tenth of the unspent amount or ₹2 lakh (whichever is less).

7. Can Excess CSR Spending be Adjusted?

Yes ✅. As per the rules, if a company spends more than the required CSR amount in a particular year, the excess can be carried forward and adjusted against future obligations for up to 3 succeeding years, provided:

• The excess does not include surplus arising out of CSR activities.
• Proper board resolution is passed to approve this adjustment.

8. Eligible CSR Activities (Schedule VII)

CSR activities must fall under the categories listed in Schedule VII, such as:

• Eradicating hunger, poverty, and malnutrition
• Promoting education and vocational skills
• Promoting gender equality and women empowerment
• Ensuring environmental sustainability
• Rural development projects
• Contribution to government funds like PM CARES Fund
• Supporting healthcare, sanitation, and safe drinking water

👉 Activities like employee welfare, normal business expenses, political contributions, or activities outside India (except sports training) are not considered CSR.

9. Key Compliance Points for Companies

• The Board of Directors must approve the CSR Policy and expenditure.
• The CSR Committee monitors implementation.
• CSR spending and unspent amounts must be disclosed in the Board’s Report and uploaded on the company’s website.
• Proper accounting and documentation are essential in case of audits.

Conclusion

The formula for CSR calculation is simple:

CSR Obligation = 2% × (Average Net Profit of Last 3 Years as per Section 198).

But compliance is more than just numbers—it involves accurate profit computation, board approval, policy formation, project monitoring, and reporting.

By following the law, companies not only avoid penalties but also create real, measurable impact on society. CSR is an opportunity to build goodwill, strengthen brand reputation, and contribute to nation-building.