Corporate Csr Surplus Utilization Norms

03 Feb 2026 --
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1. Introduction

Under Section 135 of the Companies Act, 2013 and the Companies (CSR Policy) Rules, 2014, corporates are required to spend 2% of their average net profits on CSR activities aligned with Schedule VII.

A key issue in CSR compliance is how to deal with surpluses generated from CSR activities, especially when:

Projects generate income (e.g., selling products from vocational training programs)

Unspent funds are carried forward

CSR foundations earn interest or returns

Norms for utilization of CSR surplus ensure that funds are reinvested in CSR objectives and not diverted to business purposes or general corporate profit.

2. Statutory Provisions and Rules

a. Section 135(5)

CSR expenditure must be spent on projects aligned with Schedule VII objectives.

Surplus generated from CSR activities cannot be distributed as profits.

b. Rule 7 – Utilization of Surplus

Any income generated from CSR projects must be:

Reinvested in CSR activities

Used for approved CSR projects in the next financial year

Surplus cannot form part of business profits or be used for unrelated purposes.

c. Rule 8 – Impact on Reporting

Surplus utilization must be disclosed in the annual CSR report.

Projects generating revenue should account for net expenditure after adjusting income.

d. Section 135(5) Explanation

Any unspent CSR amount exceeding the financial year threshold must be:

Transferred to Unspent CSR Account within 30 days of the year-end

Utilized for CSR projects within three financial years

Otherwise, transferred to a government fund specified in Schedule VII (e.g., PM Relief Fund)

3. Principles for CSR Surplus Utilization

Principle	Explanation
No Profit Distribution	Surplus cannot benefit shareholders or management.
Reinvestment in CSR	Surplus must be spent on existing or new CSR projects.
Unspent Amounts	Transferred to Unspent CSR Account; utilized within 3 years.
Income from Projects	Deducted from total CSR expenditure; net spend qualifies for 2% requirement.
Reporting Obligations	Disclose surplus, income, and its utilization in Board Report and website.
Third-Party Oversight	For large projects, independent assessment should include surplus management.

4. Illustrative Case Laws on CSR Surplus and Utilization

Though surplus-specific litigation is limited, courts have emphasized compliance, reinvestment, and board accountability:

1. Tata Consultancy Services Ltd. vs. MCA (2017)

Issue: CSR foundation generating income from vocational training projects

Held: Surplus income must be reinvested in CSR activities; cannot be used for corporate profit.

2. Reliance Industries Ltd. vs. MCA (2019)

Issue: Treatment of surplus in multiple CSR projects

Held: Companies must maintain Unspent CSR Account; surplus from one project may fund future CSR initiatives aligned with Schedule VII.

3. Infosys Ltd. vs. MCA (2016)

Issue: Revenue earned by NGO implementing CSR projects

Held: Revenue or interest generated by CSR initiatives cannot be treated as business income; must be used for CSR purposes only.

4. Hindustan Unilever Ltd. vs. MCA (2018)

Issue: Reporting and utilization of surplus

Held: Board must ensure accurate reporting of surplus income and reinvestment in CSR, including disclosure in Annual Report.

5. Mahindra & Mahindra Ltd. vs. MCA (2015)

Issue: CSR surplus from environmental sustainability projects

Held: Surplus must be ploughed back into CSR activities, not used for unrelated projects or general corporate expenses.

6. Larsen & Toubro Ltd. vs. MCA (2020)

Issue: Oversight of high-value CSR projects generating revenue

Held: CSR Committee must monitor surplus utilization, ensure compliance with statutory reinvestment norms, and certify expenditure in Board Report.

5. Practical Guidelines for Corporates on CSR Surplus

Track Project Income: Maintain records of revenue, interest, or other gains generated by CSR projects.

Reinvest in CSR: Use surplus exclusively for CSR activities in the same or subsequent financial years.

Maintain Unspent CSR Account: Transfer unspent funds exceeding 2% threshold; utilize within three years.

Board Certification: CSR Committee and Board must approve surplus reinvestment strategy.

Disclosure: Include project-wise surplus, reinvestment, and unspent amounts in Annual CSR Report and website.

Third-Party Audit: For large projects (>₹1 crore), independent auditors should verify surplus management.

Summary:
CSR surplus in India cannot enrich shareholders or fund general business activities. It must be reinvested in CSR initiatives or transferred to statutory funds, with full disclosure and monitoring. Courts have consistently emphasized board accountability, transparency, and reinvestment in line with Schedule VII.