CSR Non applicability.

This query is : Resolved

Ajay S.Yadav (Querist)
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27 February 2024 One of My Clients had crossed the threshold limit of profits mentioned for the applicability of CSR as mentioned in sec 135 CSR, in the FY 2019-20
Hence CSR was applicable to my client for the
FY 20-21
FY 21-22
FY 22-23
And accordingly 2% of avg past 3 years profit was incurred for CSR Expenditure from FY 20-21 to FY 22-23.

Now the Client has not crossed any threshold limits as mentioned in section 135 of Companies Act 2013, from FY 20-21 , will the CSR provisions still apply to the client for the FY 23-24? Please response as per latest Law , Rules and Regulation.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 As per the Companies Act, 2013 and the latest rules and regulations concerning Corporate Social Responsibility (CSR), here's how the applicability would be determined for your client:

1. **Applicability Criteria for CSR:**
- CSR provisions apply to a company if it meets any of the following criteria based on its average net profit over the last three financial years:
- The company's net profit in the last three financial years averages at least Rs. 5 crore.
- The company has a net profit of at least Rs. 5 crore in any one of the last three financial years.

2. **Assessment Period:**
- For FY 20-21, FY 21-22, and FY 22-23, your client had crossed the threshold limit for applicability based on the profits earned in FY 19-20. Hence, CSR expenditure was required and duly incurred for these years.

3. **Current Situation (FY 23-24):**
- According to the latest rules, the applicability of CSR for FY 23-24 will be based on the average net profit of the preceding three financial years, i.e., FY 21-22, FY 22-23, and FY 23-24.
- Since your client did not cross the threshold limits in FY 21-22 and FY 22-23 (as per your statement), the average net profit for these years will determine the applicability for FY 23-24.
- If the average net profit over FY 21-22, FY 22-23, and FY 23-24 meets or exceeds Rs. 5 crore, CSR provisions will apply for FY 23-24.

4. **Conclusion:**
- Your client's CSR applicability for FY 23-24 will depend on whether the average net profit over FY 21-22, FY 22-23, and FY 23-24 meets or exceeds Rs. 5 crore.
- If the average net profit criteria are met, your client will need to allocate 2% of the average net profits of these three years towards CSR activities as per the provisions of the Companies Act, 2013.

It's essential to review the financial statements for FY 21-22 and FY 22-23 to calculate the average net profit accurately and determine the CSR obligations for FY 23-24 accordingly.