CSR Obligation, Disallowed Spend and Unspent Ongoing Project
Navjeevan Pharma Ltd has average net profit of ₹12 crore for the three preceding financial years. Its CSR committee approved: ₹9 lakh for a government school lab, ₹5 lakh for a village health camp, ₹4 lakh for training its own sales staff in ethics, ₹2 lakh as donation to a political party, and ₹1.5 lakh for CSR office stationery and audit. It also wants to set off ₹3 lakh of excess CSR spend from last year. One ongoing project has a total outlay of ₹50 lakh and ₹8 lakh is unspent this year. The board proposes to leave the ₹8 lakh in the general bank account and spend it after three years. A director says CSR is voluntary and the company can choose any activity.
1. Compute the CSR obligation and identify eligible and disallowed items. What is the eligible CSR spend for the year?
Read the worked answer
CSR obligation = 2% × ₹12 crore = ₹24 lakh.
Eligible: school lab ₹9 lakh and health camp ₹5 lakh = ₹14 lakh. Both fall under Schedule VII.
Disallowed:
- Sales-staff ethics training ₹4 lakh: employee training is not a CSR activity.
- Political party donation ₹2 lakh: not CSR.
- Office stationery and audit ₹1.5 lakh: administrative overhead is allowed only within 5% of total CSR spend. If project spend is ₹14 lakh, maximum admin = 0.05 × 14 / 0.95 = about ₹0.74 lakh. So roughly ₹0.76 lakh is disallowed.
Eligible current spend is therefore about ₹14.74 lakh, leaving a shortfall against the ₹24 lakh obligation.
2. Can the company set off last year's ₹3 lakh excess? How should the ₹8 lakh unspent amount on the ongoing project be treated?
Read the worked answer
The ₹3 lakh set-off is allowed only if it was a genuine excess over the 2% obligation, was not unspent ongoing-project money, and is within the permitted three-year window. The board must document the calculation and keep it separate from this year's obligation.
The ₹8 lakh is an ongoing-project unspent amount. It must be transferred to the Unspent CSR Account within 30 days of the financial year-end and spent within three financial years. Leaving it in the general bank account is not compliant. If it remains unspent after three years, transfer it to a Schedule VII fund within 30 days. Impact assessment is not required because the project outlay is below ₹1 crore. Non-transfer attracts penalty of twice the amount, up to ₹1 crore, with officer liability.
3. Advise the board on the director's statement that CSR is voluntary and on the ethics of the proposed spending.
Read the worked answer
For a company with average net profit above ₹5 crore, CSR is mandatory, not voluntary. The board cannot choose political donations or staff welfare and label them CSR. The CSR committee should approve a Schedule VII plan, certify the 2% calculation, monitor the ongoing project, and disclose the spend and shortfall in the board report.
The ₹24 lakh obligation less eligible spend must be explained. Unspent amounts must follow the statutory route. Ethics also requires avoiding greenwashing: report actual beneficiaries, invoices, and outcomes, not mere announcements. A political donation is especially inappropriate because it creates a governance and reputational risk even if it is otherwise legally permissible.