Tag Archive for: Unspent Account

– Sourish Kundu, Executive | corplaw@vinodkothari.com

Every year, as companies close their books on 31st March, a silent timer begins ticking — one that could turn a minor delay into a major compliance miss. 30th April isn’t just another date on the calendar; it’s a hard stop for companies to take action regarding their unspent CSR (Corporate Social Responsibility) obligations.

Why 30th April? What must you do? What if you don’t? Let’s walk through it — step by step.

Why 30th April?

In terms of Section 135(6) of the Companies Act, 2013:

“Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account in any scheduled bank called the ‘Unspent Corporate Social Responsibility Account.'”

Thus, by 30th April, companies must transfer unspent CSR amounts related to ongoing projects into a special CSR account.

What Must Be Done by 30th April?

1. Open a dedicated bank account titled “Unspent Corporate Social Responsibility Account FY [Year].”
2. Transfer the unspent CSR amount related to ongoing projects into this account.
3. Update the Board Report appropriately (explained below).

What If You Don’t Do It?

If the company:

• Fails to transfer the amount by 30th April — it’s a default under Section 135(6).
  
• Fails to spend the amount altogether — Section 135(5) steps in:
  “If the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within six months of the expiry of the financial year.”

In short:
1. Unspent on non-ongoing projects? → Transfer to a Schedule VII Fund within 6 months of FY end (i.e., by 30th September).
2. Unspent on ongoing projects? → Transfer to Unspent CSR Account by 30th April, then spend it within 3 years, failing which again transfer to a Fund.

What is an Ongoing Project?

Rule 2(1)(i) of Amendment Rules defines the term ‘ongoing project’ as:

1. a multi-year project, stretching over more than one financial year; 
2. having timeline not exceeding three years excluding the year of commencement 
3. includes such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the Board based on reasonable justification. 

The same should have commenced within the financial year to call it ‘ongoing’. This includes a project that was initially not approved as a multi-year project. The intent is to include a project which has an identifiable commencement and completion. The expenses which are recurring in nature should not be included in the ongoing project. 

For example, if a company contributes to the annual running expense of a cancer hospital, the spending for the next year cannot be regarded as an “ongoing project”. However, if installation of a new facility at the same hospital is already undertaken during the year, such expense should be regarded as an “ongoing project”. 

Board’s and Auditor’s Responsibility

1. Board’s Responsibility: In the Board’s Report (Section 134(3)(o)), specify reasons for any unspent CSR amount.
2. Auditor’s Responsibility under Rule 3 of CARO, 2020:

The auditor must specifically report:

1. (xx)(a) whether, in respect of other than ongoing projects, the company has transferred unspent amount to a Fund specified in Schedule VII within 6 months of expiry of the financial year, in compliance with the second proviso to Section 135(5);
2. (xx)(b) whether any amount remaining unspent pursuant to any ongoing project has been transferred to the Unspent CSR Account within 30 days from the end of the financial year, as required under Section 135(6).

Thus, both the Board and Auditor are responsible for ensuring, documenting, and reporting CSR compliance – and failure can attract regulatory scrutiny and penal consequences.

Read more:

Knowledge Centre for Corporate Social Responsibility (CSR)

Need for strategic vision in CSR spending by companies

Corporate law changes: small steps towards procedural simplification