What is the minimum prescribed net profit threshold for Companies to be required to undertake Corporate Social Responsibility (CSR) activities under clause 135 of the Companies Act, 2013?

Correct option is B

Under Section 135 of the Companies Act, 2013, companies meeting certain financial criteria are required to spend at least 2% of their average net profit on Corporate Social Responsibility (CSR) activities. The CSR mandate applies to companies that satisfy any one of the following conditions in the preceding financial year:

1. Net worth of ₹500 crore or more, or

2. Turnover of ₹1000 crore or more, or

3. Net profit of ₹5 crore or more

If a company meets any of these thresholds, it must form a CSR Committee comprising at least three directors, including one independent director, to oversee CSR activities and spending.

The 2% expenditure is calculated on the average net profits of the company over the last three financial years. The aim is to ensure businesses contribute to societal development through initiatives in areas such as education, healthcare, environmental sustainability, and poverty alleviation.

Failure to comply with CSR spending requirements results in penalties, including fines for the company and its officers.

Information Booster:

1. CSR (Corporate Social Responsibility) is a business obligation to contribute to social welfare beyond profit-making.

2. The Companies (CSR Policy) Rules, 2014, outline how CSR activities should be conducted.

3. Companies can undertake CSR projects directly or through registered non-profit organizations (NGOs).

4. If a company fails to spend the required 2%, it must explain the reason in its Board’s annual report. 

5. The 2021 amendment made non-compliance with CSR spending punishable, reinforcing the government’s commitment to corporate social responsibility.

Additional Knowledge:

1. 1% of net profit (Option 1):

   • No provision in the Companies Act, 2013, mandates CSR spending at1% of net profit.

   • The legal requirement is explicitly set at 2%, not 1%.

   • Some companies voluntarily contribute more or less than the required 2%, but 1% is not the official mandate.

2. 3% of net profit (Option 3):

   • The Companies Act does not mandate 3% spending on CSR.

   • Some organizations, like Public Sector Undertakings (PSUs), may set internal higher CSR targets, but this is not a legal requirement.

3. 5% of net profit (Option 4):

   • No law prescribes 5% of net profit for CSR.

   • While some large corporations and philanthropic businesses may voluntarily spend beyond 2%, the statutory requirement remains 2%.​