How to Handle Unspent CSR Amount as per Companies Act Guidelines

Corporate Social Responsibility (CSR) is no longer just about goodwill—it is now a statutory requirement under the Companies Act, 2013. Indian businesses that cross a certain turnover, net worth, or profit threshold must spend at least 2% of their average net profits on CSR activities.

But here’s where many companies struggle: what happens if you cannot spend the required amount within the financial year? This is where the concept of the unspent CSR amount becomes crucial.

In this blog, let’s break down how to handle unspent CSR funds as per Companies Act guidelines, what the rules say, and how businesses can stay compliant while ensuring that their CSR initiatives have real impact.

What Does the Companies Act Say About Unspent CSR Amount?

The Companies (Amendment) Act, 2019 and subsequent rules issued by the Ministry of Corporate Affairs (MCA) made CSR compliance stricter. Companies can no longer treat unspent CSR funds lightly.

Here’s the crux:

1. For ongoing projects – If the unspent CSR amount relates to an approved ongoing project, the company must transfer the money to a special bank account called the Unspent CSR Account within 30 days from the end of the financial year. The company then has 3 years to spend this money on the project. If it still remains unspent, it must be transferred to a government-approved fund (like PM National Relief Fund).

2. For non-ongoing projects – If the money was not tied to an ongoing project, the company has 6 months from the end of the financial year to transfer the unspent CSR funds directly to one of the government-specified funds.

This shift means companies must plan CSR projects carefully and maintain strong monitoring systems to avoid last-minute lapses.

Why Companies Struggle with CSR Utilization

While the law is clear, many businesses still end up with unspent CSR amounts. Common reasons include:

• Delayed project approvals – Internal delays in identifying and approving CSR activities.

• Lack of credible partners – Difficulty finding reliable NGOs or implementing agencies aligned with compliance rules.

• Poor monitoring – CSR projects not being tracked properly, leading to underutilization.

• Last-minute spending mindset – Treating CSR as a year-end compliance activity rather than an integrated business responsibility.
  

These challenges show why CSR should not be treated as a checkbox exercise but as a strategic investment in social impact.

Steps to Handle Unspent CSR Funds Properly

If your company is facing issues with unspent CSR amounts, here’s a step-by-step approach to stay compliant:

1. Identify the Nature of the CSR Activity

• If the project is ongoing, move the amount to the Unspent CSR Account.

• If not, prepare to transfer it to an approved fund within the 6-month deadline.

2. Maintain a Dedicated CSR Account

Creating a separate Unspent CSR Account helps in tracking funds transparently and ensures compliance during audits.

3. Strengthen CSR Planning

Start CSR planning early in the financial year. Create a pipeline of projects and partnerships so that allocations are smoother.

4. Collaborate with Experienced NGOs

Work with trusted implementation partners who have the capacity to execute projects effectively within timelines.

5. Monitor and Report Transparently

Use regular reporting and impact measurement tools to ensure the funds are being utilized effectively. This not only avoids unspent CSR funds but also builds credibility.

Penalties for Non-Compliance

The Companies Act now treats CSR lapses as a serious compliance issue. If unspent CSR amounts are not transferred as per the rules:

• Companies may face a fine ranging from ₹50,000 to ₹25 lakh.

• Defaulting officers of the company may also face imprisonment up to 3 years or fines.

Clearly, mishandling unspent CSR funds is no longer an option for businesses.

Best Practices to Avoid Unspent CSR Amount

1. Early Strategy Alignment – Align CSR focus areas with business values and community needs.

2. Board-Level Oversight – Ensure the CSR committee meets regularly and monitors fund allocation.

3. Digital Tools – Use CSR management software to track budgets, timelines, and reporting.

4. Multi-Year Planning – Plan CSR in 2–3 year cycles so that ongoing projects absorb annual allocations smoothly.

5. Impact-Driven Partnerships – Partner with organizations that not only spend funds efficiently but also deliver measurable impact.

Why This Matters Beyond Compliance

Yes, handling unspent CSR amounts correctly helps you stay on the right side of the law. But there’s more to it. Companies that treat CSR as an opportunity rather than an obligation end up:

• Strengthening brand reputation.

• Building community trust.

• Improving employee engagement and pride.

• Contributing meaningfully to national development goals.

When CSR becomes strategic, the problem of unspent CSR funds automatically reduces.

Final Thoughts

The rules around unspent CSR amounts may seem strict, but they also push companies toward better planning, accountability, and meaningful impact. By creating strong systems, choosing the right partners, and treating CSR as a long-term investment, businesses can not only stay compliant but also make a difference where it truly matters.

In the end, CSR isn’t about avoiding penalties—it’s about building a sustainable future for both business and society.