What happens to unspent CSR money?
Unspent CSR money has to be moved. An amount tied to an ongoing project goes into the company’s Unspent CSR Account. Any other unspent amount goes to a fund in Schedule VII. A sentence in the board’s report does not replace that transfer.
Where does ongoing-project money go?
If the unspent amount relates to an ongoing project, the company transfers it to a separate account, called the Unspent Corporate Social Responsibility Account, in a scheduled bank, within 30 days of the end of the financial year. The company spends it on that project within three financial years from the date of transfer. Whatever is still unspent at the end of those three years is transferred, within 30 days, to a fund specified in Schedule VII. Who must spend in the first place is on the CSR applicability page.
Where does other unspent money go?
If the unspent amount is not for an ongoing project, the company transfers it to a fund specified in Schedule VII within six months of the end of the financial year. The board’s report still states the reasons the amount was not spent. The company also files the CSR return the accounts rules prescribe, with its financial statements. The activities the money may be used for are on the CSR activities page.
What is the penalty?
If the company fails to spend, or fails to transfer the unspent amount, section 135(7) applies. The company is liable to a penalty of twice the amount required to be transferred, or ₹1 crore, whichever is less. Every officer in default is liable to a penalty of one-tenth of the amount required to be transferred, or ₹2 lakh, whichever is less.
When is an impact assessment required?
A company whose average CSR obligation is ₹10 crore or more, over the three immediately preceding financial years, undertakes an impact assessment through an independent agency. The assessment covers a CSR project with an outlay of ₹1 crore or more that was completed at least one year before the study. The company may book that cost as CSR spending, up to 2 percent of the total CSR expenditure for the year or ₹50 lakh, whichever is higher. A company below the ₹10 crore average does not have this study.
Frequently asked questions
Four questions cover the board report, ongoing projects, the penalty, and impact assessment.
Is a reason in the board report enough?
No. The board still explains the shortfall. The unspent amount also has to be transferred on the section 135 deadline.
Is every unspent rupee kept for three years?
Only an amount that relates to an ongoing project goes to the Unspent CSR Account and can be spent over the next three financial years. Any other unspent amount goes to a Schedule VII fund within six months of the year-end.
What is the section 135 penalty for not transferring the money?
The company can be penalised twice the amount that had to be transferred, or ₹1 crore, whichever is less. An officer in default can be penalised one-tenth of that amount, or ₹2 lakh, whichever is less.
Does every company need an impact assessment?
No. It applies to a company whose average CSR obligation is ₹10 crore or more, and then only for a project of ₹1 crore or more that was completed at least a year earlier.
Sources
An ongoing project is section 135(6). Any other unspent amount is the proviso to section 135(5). The penalty is section 135(7). Impact assessment is in the Companies (CSR Policy) Rules, 2014.