XYZ Ltd., a listed company, has the following net profits (as per Section 198): FY 2021-22: ₹6 crore FY 2022-23: ₹9 crore FY 2023-24: ₹15 crore During FY 2024-25, the company undertook CSR activities as follows: ₹25 lakh

Answer 2(a) (i) Minimum CSR obligation Average Net Profit Average Profit = (₹6 crore + ₹9 crore + ₹15 crore)/3 = ₹10 crore Minimum CSR Obligation (2%) 2% × ₹10 crore = ₹20 lakhs (ii) Eligible CSR Expenditure a) Analysis of CSR Expenditure & eligibility Particulars Amount (₹ lakh) Treatment Construction of a School building 25 Not eligible (capital asset cannot be owned and controlled by the company) Training Employee's children 12 Not eligible (since exclusive for employee benefits) Contribution to a registered NGO for rural health care 18 Eligible Ongoing sanitation project 10 Eligible (subject to transfer rules) PM CARES Fund 6 Eligible Administrative overheads 4 Eligible (Permissible 5% of total CSR expenditure) Surplus from CSR activities (5) Deduct (not income, must be reinvested) b) Administrative Overhead Limit Max. allowed = 5% of total CSR expenditure Total CSR spend (before adjustment) = ₹18 + ₹10 + ₹6 + ₹4 = ₹38 lakh Overhead Limit = 5% of ₹38 lakh = ₹1.9 lakh Allowed administrative overhead = ₹1.9 lakh (excess i.e. ₹4 Lakh - ₹1.9 Lakh = ₹2.1 Lakh disallowed) c) Eligible CSR Expenditure ₹18 + ₹10 + ₹6 + ₹1.9 = ₹35.9 lakh Considering that the Company would also be required to spend Surplus of ₹5 Lakh and accordingly, the CSR expenditure would be ₹35.9 Lakh + ₹5 Lakh = ₹40.9 Lakh. (Alternatively, this ₹35.9 Lakh may include the Surplus amount of ₹5 Lakh. Therefore, in such a case, eligible CSR expenditure would be ₹35.9 Lakh) (iii) Unspent CSR Amount Minimum CSR obligation for the year = ₹20 Lakh Add: Surplus (shall be utilized for CSR purposes only) = ₹5 Lakh Total CSR Obligation = ₹25 Lakh Amount Actual Spent = ₹40.9 Lakh Excess = ₹15.9 Lakh (In case alternative answer is chosen above in Sl. No. ii, then Amount Actual Spent would be ₹35.9 Lakh and accordingly, excess amount spent would be ₹10.9 Lakh) (iv) Special Treatments (a) Capital Asset created (School Building) Not treated as CSR since owned by company. To qualify, it must be held by Section 8 Company / Registered Public Trust / Registered society/Beneficiaries. (b) Ongoing Project ₹10 lakh must be transferred to Unspent CSR Account within 30 days from the end of the financial year. Must be spent within 3 years. (c) Surplus from CSR Cannot be treated as business profit. It shall be utilized for CSR purposes only. Must be reinvested in CSR, or transferred to Unspent CSR Account/specified fund. (v) Penal Consequences for Non-Compliance As per Companies (CSR Policy) Rules, 2014, if a company fails to spend the amount or transfer unspent amount: Company penalty: Lesser of ₹1 crore, or twice of unspent amount Officer in default: Lesser of ₹2 lakh, or 1/10th of unspent amount