Corporate Social Responsibility -CSR

This query is : Resolved

PARDEEP KAPIL (Querist)
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25 August 2024 Dear Sirs : One of my client, a Private Limited Company earned net profit (before tax) Rs.5.50 crores for period ending 31-03-2024. I undrstand that CSR is now applicable for period starting 01-04-2024 onwards. My query is (1) Party has to spend 2 % of Net profit before tax OR 2 % of net profit after tax. (2) Should I make a provision of this CSR fund in books ending on 31-03-2024 or not. Kind Regards

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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12 August 2025 CSR becomes applicable to a company if it meets any of the following criteria in the immediately preceding financial year (i.e., FY 2023–24 in your case):
Net worth ≥ ₹500 crore
Turnover ≥ ₹1,000 crore
Net profit ≥ ₹5 crore
➡️ Your client’s net profit before tax is ₹5.50 crore → CSR becomes applicable from FY 2024–25 (i.e., from 01-Apr-2024 onward).
✅ Your Questions Answered:
(1) CSR Expenditure: 2% of Profit Before or After Tax?
As per Section 135 and Rule 2(h) of CSR Rules, the CSR obligation is:
2% of the average net profits (before tax) of the company made during the three immediately preceding financial years, calculated as per Section 198 of the Companies Act.
So, answer:
✅ 2% of average net profit before tax as per Section 198.
Not the book profit, but profit computed per Section 198, which involves adjustments to net profit.

(2) Should Provision Be Made in Books for FY Ending 31-03-2024?
❌ No provision is required in the books for FY 2023–24, because:
CSR becomes applicable only from 01-Apr-2024
No CSR spending obligation arises for FY 2023–24
CSR expense/provision is booked in the year it is required to be spent, i.e., FY 2024–25
✅ Start computing and accounting for CSR from FY 2024–25 onwards, and any CSR provision will be in books as of 31-Mar-2025

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