CSR Carry-Forward and Set-Off Rules in India: A Practitioner Guide (FY 2026-27)
- Marpu Foundation
- Jul 22
- 14 min read
This article reflects observations on CSR carry-forward and set-off rules for Indian companies as of July 2026. The Companies Act 2013 and the Companies (CSR Policy) Rules 2014 continue to evolve. This article is updated annually. Last updated: July 2026.
Every financial year, CSR heads and Company Secretaries face the same specific question. What happens when the company has not spent its full 2% CSR obligation for the year? What happens when the company has spent more than its 2% obligation? What are the specific rules for treating unspent amounts, transferring to Schedule VII funds, and setting off excess spending in future years? These are not academic questions. They shape year-end compliance, Board's Report drafting, statutory audit conclusions, and CSR Committee decisions.
The answers are governed by Section 135 of the Companies Act 2013, the Companies (CSR Policy) Rules 2014, and the amendments introduced through the Companies (Amendment) Acts of 2019 and 2020. The framework is specific, technical, and requires precise application. Getting it right supports strong compliance. Getting it wrong creates penalty exposure under Section 135(7) and potential Board's Report qualifications.
This article walks through the framework practitioners work with. It covers what the specific terminology means, how unspent amounts are treated for non-ongoing and ongoing projects, how set-off provisions work for excess spending, a decision framework CSR Committees can apply, timing-specific action approaches for March-end, April planning, and September mid-year review, common mistakes, and framework connections.
The article is written for the CSR head, the Company Secretary, the CFO, the Chartered Accountant advising the company, the CSR Committee, and anyone thinking about CSR compliance treatment across the annual cycle. It is a practitioner-voice reference. It is not a substitute for the company's own Chartered Accountant, Company Secretary, and Legal counsel review of the specific facts, and the specific provisions applicable to the company's situation.
Important note: This article provides operational reference on CSR carry-forward and set-off rules based on the framework in effect as of July 2026. It is informational reference only and does not constitute legal, financial, tax, or compliance advice. The specific application of Section 135, the Companies (CSR Policy) Rules 2014, and related provisions to any company's situation depends on the specific facts, the specific financial year, and the specific programme structure, and must be reviewed by the company's Chartered Accountant, Company Secretary, and Legal counsel with reference to current MCA notifications and applicable provisions. The regulatory framework continues to evolve.
What the Terminology Actually Means (CSR Carry-Forward and Set-Off Rules in India)
Before walking through mechanics, three specific terms need clear definition, because they are often used loosely in sector conversation while having specific meaning in the framework.
1. Unspent CSR Amount
The portion of a company's Section 135 CSR obligation for a financial year that has not been spent by the end of that financial year. The specific treatment depends on whether the unspent amount relates to an ongoing project or a non-ongoing project.
2. Set-Off
The provision under Rule 7(3) of the Companies (CSR Policy) Rules 2014 that allows a company to set off excess CSR expenditure incurred in one financial year against the CSR obligation of succeeding financial years, subject to specific conditions.
3. Carry-Forward
Colloquial term often used to describe two distinct things. Sometimes it refers to the ongoing project unspent amount treatment under Section 135(6), where unspent amounts sit in the Unspent CSR Account and can be spent across up to three subsequent financial years. Sometimes it refers to the set-off provision under Rule 7(3) for excess spending. The two are structurally different, and precise language matters for compliance discipline.
Practitioner discipline requires distinguishing these three concepts clearly in every compliance discussion, Board's Report drafting, and CSR Committee documentation.
The Framework Governing Unspent Amounts
Section 135(5) establishes the 2% CSR spending obligation. The specific treatment of amounts not spent within the financial year is governed by the proviso to Section 135(5), Section 135(6), Rule 4(6), Rule 7, and Rule 10 of the Companies (CSR Policy) Rules 2014.
The framework distinguishes two categories of unspent amounts, and the treatment of each is materially different.
1. Unspent Amounts Related to Non-Ongoing Projects
Under the proviso to Section 135(5), any unspent amount that does not relate to an ongoing project must be transferred to a fund specified in Schedule VII of the Companies Act 2013 within six months from the end of the financial year.
2. Unspent Amounts Related to Ongoing Projects
Under Section 135(6), any unspent amount that relates to an ongoing project must be transferred to a special account, referred to as the Unspent Corporate Social Responsibility Account, opened by the company in a scheduled bank within thirty days from the end of the financial year. The amount must be spent by the company in pursuance of the CSR policy within three financial years from the date of such transfer. If it is not spent within those three financial years, it must be transferred to a fund specified in Schedule VII within thirty days from the date of completion of the third financial year.
The distinction between ongoing and non-ongoing projects is therefore the critical determinant of treatment. Understanding what qualifies as an ongoing project matters significantly.
What Qualifies as an Ongoing Project
Rule 2(1)(i) of the Companies (CSR Policy) Rules 2014 defines ongoing project. In substance, an ongoing project is a multi-year project undertaken by a company in fulfilment of its CSR obligation, with a timeline not exceeding three years excluding the financial year in which it was commenced. The project must include such other projects as may be identified by the Board as ongoing in specific circumstances.
Rule 4(6) provides the specific framework for ongoing projects. Six practitioner considerations shape how ongoing projects are structured.
1. Board Identification of Ongoing Status
The Board of Directors identifies specific projects as ongoing at the time of approval. The identification should be documented in the Board resolution and Annual Action Plan under Rule 5(2).
2. Project Timeline Documentation
The project timeline should be specific, documented, and reflect a genuine multi-year programme structure rather than a re-labelling of what would otherwise be a single-year programme.
3. Year-Wise Allocation and Milestones
The Annual Action Plan should document year-wise allocation and milestones for the ongoing project, supporting compliance verification and audit readiness.
4. Implementation Structure
The ongoing project structure applies whether the company implements directly, through the company's own foundation, or through a registered NGO under Rule 4(1).
5. Modification Provisions
Modifications to ongoing projects, including timeline extensions, budget changes, or scope revisions, require specific Board approval and documentation.
6. Termination Considerations
If an ongoing project is terminated before its planned timeline, the remaining balance in the Unspent CSR Account for that project requires specific treatment that should be reviewed with the company's Chartered Accountant and Legal counsel.
Non-Ongoing Project Unspent Amount Treatment
For unspent amounts that do not relate to ongoing projects, the treatment is specific and time-bound.
1. Identification of Unspent Amount
The company's Chartered Accountant and Company Secretary identify the specific unspent amount at the end of the financial year, based on CSR spend records, activity documentation, and Rule 4(1) implementation channel records.
2. Determination of Ongoing Status
Each portion of the unspent amount is examined to determine whether it relates to an ongoing project (Section 135(6) treatment) or a non-ongoing project (Section 135(5) proviso treatment). The determination requires reference to the Board resolutions, Annual Action Plan, and specific project documentation.
3. Transfer to Schedule VII Fund
The non-ongoing portion must be transferred to a fund specified in Schedule VII within six months from the end of the financial year. Schedule VII funds include specific national funds such as the Prime Minister's National Relief Fund and other funds identified in the schedule.
4. Board's Report Disclosure
The Board's Report under Section 134 must disclose the unspent amount, the reasons for not spending, and the specific transfer to Schedule VII fund. This disclosure is a specific compliance requirement.
5. Statutory Audit Coverage
The statutory audit covers CSR compliance including unspent amount treatment. Documentation supporting the transfer should be available for audit review.
6. Form CSR-2 Filing
Form CSR-2 filed under Rule 12 reports on CSR spend including unspent amount treatment for the financial year.
Ongoing Project Unspent Amount Treatment
For unspent amounts that relate to ongoing projects, the treatment is materially different and involves the Unspent Corporate Social Responsibility Account framework.
1. Identification of Ongoing Project Unspent Amounts
The company identifies which unspent amounts relate to Board-identified ongoing projects, based on Board resolutions, Annual Action Plan documentation, and project-specific tracking.
2. Opening the Unspent CSR Account
The company opens a special account, the Unspent CSR Account, in a scheduled bank. This is a separate account distinct from the company's regular operating accounts, dedicated to unspent CSR amounts for ongoing projects.
3. Transfer to Unspent CSR Account
The ongoing project unspent amount must be transferred to the Unspent CSR Account within thirty days from the end of the financial year.
4. Three-Year Spending Window
The amount transferred to the Unspent CSR Account must be spent by the company in pursuance of the CSR policy within three financial years from the date of such transfer. This provides a specific compliance window for completing multi-year ongoing projects.
5. Post-Three-Year Transfer
If the amount is not spent within the three financial years, it must be transferred to a fund specified in Schedule VII within thirty days from the date of completion of the third financial year.
6. Ongoing Documentation Discipline
Documentation of Unspent CSR Account balances, ongoing project progress, and periodic Board review supports both compliance and audit readiness across the three-year window.
7. Interest Treatment
Interest earned on the Unspent CSR Account balance receives specific tax and CSR treatment that should be reviewed with the company's Chartered Accountant and Legal counsel.
8. Board and Committee Review
The CSR Committee reviews Unspent CSR Account progress at least annually, and the Board considers ongoing project status in the annual review of the CSR programme.
Set-Off Provisions Under Rule 7(3)
Where a company spends more than the required 2% CSR obligation in a financial year, Rule 7(3) provides for set-off of the excess against the CSR obligation of succeeding financial years, subject to specific conditions.
1. Board Resolution Requirement
The Board of Directors must pass a resolution to that effect at the time the excess spending is incurred, documenting the intent to set off the excess against future obligations.
2. Chartered Accountant Certification
The excess amount available for set-off must be certified by the Chartered Accountant. This certification is a specific requirement supporting compliance verification.
3. Three-Year Set-Off Window
The set-off is available for the immediately succeeding three financial years. The excess spending in one year can be set off against the CSR obligation of the next year, the year after that, or the year after that, subject to Board decision each year.
4. Exclusion of Certain Amounts
Amounts that were required to be transferred to Schedule VII funds under the proviso to Section 135(5), or to the Unspent CSR Account under Section 135(6), are not eligible for set-off. Set-off applies specifically to excess spending, not to unspent amounts of prior years.
5. Board's Report Disclosure
The Board's Report should disclose the excess spending, the resolution supporting set-off, and any set-off applied in the current year.
6. Interaction With Ongoing Projects
The set-off framework interacts with ongoing project spending in specific ways that require careful review with the company's Chartered Accountant.
The CSR Committee Decision Framework
CSR Committees face specific decisions around unspent amounts and excess spending each year. A structured decision framework supports better decisions than ad hoc judgement.
Decision Step 1: Categorise the Unspent Amount
Determine whether the unspent amount relates to an ongoing project or a non-ongoing project. This determination drives every subsequent step.
Decision Step 2: Apply the Correct Timeline
Apply the six-month Schedule VII transfer timeline for non-ongoing project unspent amounts, or the thirty-day Unspent CSR Account transfer timeline for ongoing project unspent amounts.
Decision Step 3: Verify Ongoing Project Documentation
If the unspent amount is claimed as ongoing project related, verify that the specific project meets the Rule 2(1)(i) definition and Rule 4(6) framework requirements, including Board identification, timeline documentation, and Annual Action Plan alignment.
Decision Step 4: Assess Set-Off Opportunity
If the year had excess spending, assess whether Board resolution and Chartered Accountant certification support Rule 7(3) set-off treatment for succeeding years.
Decision Step 5: Document the Decision
Document the CSR Committee's specific decisions, the reasoning, and the compliance treatment applied. This documentation supports statutory audit, Board's Report drafting, and Form CSR-2 filing.
Decision Step 6: Coordinate With Professional Advisers
Every decision should be reviewed with the company's Chartered Accountant, Company Secretary, and Legal counsel before finalisation. The CSR Committee approves; professional advisers verify.
Timing-Specific Practical Action Approach
Three specific timing moments require specific compliance discipline. The following action tables walk through each moment.
Table 1: March Financial Year-End Actions
The end of the financial year is the highest-stress compliance moment for CSR carry-forward and set-off discipline. Specific actions produce cleaner year-end treatment.
Compile CSR spend records for the completed financial year, including implementation-channel-specific spending under Rule 4(1)
Identify unspent amounts through reconciliation of CSR obligation against actual spending
Categorise unspent amounts as ongoing project related or non-ongoing project related, with reference to Board resolutions and Annual Action Plan
Verify ongoing project documentation for amounts claimed as ongoing project related
Draft Board resolution documenting the year's CSR compliance treatment
Coordinate Chartered Accountant review of the compliance treatment before Board approval
Coordinate Legal counsel review of Board resolution language before finalisation
Plan Schedule VII transfer for non-ongoing project unspent amounts within the six-month window
Plan Unspent CSR Account opening or funding for ongoing project unspent amounts within the thirty-day window
Prepare Board's Report content on CSR compliance treatment for the financial year
Table 2: April to May New Financial Year Planning Actions
The start of the new financial year is the moment for structural planning that shapes the year's compliance trajectory.
Review prior year Unspent CSR Account balances and specific spending timelines
Update ongoing project status including remaining work and remaining budgets
Draft Annual Action Plan under Rule 5(2) for the new financial year, incorporating ongoing project continuations and new projects
Identify ongoing versus non-ongoing project structure for the new year's programmes
Document Board identification of ongoing projects in the new Annual Action Plan
Coordinate implementation channel selection under Rule 4(1) for the year's programmes
Assess set-off opportunities from any prior year excess spending, with Chartered Accountant certification
Draft Board resolution for the new financial year's CSR programme structure
Coordinate statutory audit preparation for the prior year's CSR compliance treatment
Support Form CSR-2 filing under Rule 12 for the prior financial year
Table 3: September Mid-Year Review Actions
The mid-year review is the strategic moment for course correction and planning the year's spending trajectory to avoid year-end unspent amounts.
Review CSR spend trajectory against the annual obligation to identify potential unspent amount risk
Review Unspent CSR Account spending progress for prior year ongoing project balances
Assess ongoing project delivery against timelines and consider whether course correction is needed
Review implementation partner performance and consider whether adjustments are needed for the second half
Coordinate Board review of CSR programme progress and any mid-year adjustments
Update Annual Action Plan if programme adjustments require formal modification
Plan year-end spending push if trajectory suggests unspent amount risk at year-end
Coordinate with implementation partners on spending timelines for the second half
Review documentation discipline for programmes delivered in the first half
Prepare interim compliance narrative for management review
Common Mistakes in CSR Carry-Forward and Set-Off Application
Across observed practice, seven recurring mistakes weaken CSR compliance treatment.
1. Confusing Carry-Forward With Set-Off
The colloquial term "carry-forward" is used loosely to describe both ongoing project unspent amount treatment and Rule 7(3) set-off treatment. The two are structurally different, and confusing them creates documentation errors and compliance risk.
2. Misclassifying Non-Ongoing Projects as Ongoing
Some companies attempt to classify single-year programmes as ongoing projects to avoid the six-month Schedule VII transfer requirement. Misclassification without Rule 2(1)(i) qualification creates compliance risk on statutory audit review.
3. Missing the Thirty-Day Transfer Window
The thirty-day window for transferring ongoing project unspent amounts to the Unspent CSR Account is specific and time-bound. Missing this window creates compliance exposure.
4. Missing the Six-Month Schedule VII Transfer Window
The six-month window for transferring non-ongoing project unspent amounts to Schedule VII funds is specific and time-bound. Missing this window creates compliance exposure and potential penalty exposure under Section 135(7).
5. Applying Set-Off Without Board Resolution or Chartered Accountant Certification
The set-off framework under Rule 7(3) requires specific Board resolution and Chartered Accountant certification. Applying set-off without these creates compliance risk.
6. Weak Documentation of Ongoing Project Modifications
Ongoing projects modified during the three-year window require specific Board documentation. Weak modification documentation creates compliance and audit exposure.
7. Insufficient Coordination With Chartered Accountant and Company Secretary
The specific mechanics of carry-forward and set-off require close coordination between the CSR head, the Chartered Accountant, the Company Secretary, and Legal counsel. Weak coordination produces inconsistent treatment across records, Board's Report, statutory audit, and Form CSR-2 filing.
How CSR Carry-Forward and Set-Off Connect to the Broader Framework
The specific mechanics of carry-forward and set-off connect to several components of the broader compliance framework.
Section 135(5) and its proviso: The core 2% CSR obligation and the non-ongoing project unspent transfer requirement
Section 135(6): The ongoing project unspent amount framework and the Unspent CSR Account requirement
Section 135(7): The penalty framework for non-compliance
Rule 4(1): The implementation channel framework that governs how CSR spending flows
Rule 4(6): The specific ongoing project framework
Rule 5(2): The Annual Action Plan requirement that documents ongoing project structure
Rule 7(3): The set-off framework for excess spending
Rule 8(3): The impact assessment framework that may apply to specific projects
Rule 10: The transfer of unspent amount provisions
Rule 12: The Form CSR-2 filing framework that reports on CSR treatment
Section 134: The Board's Report framework that includes CSR compliance disclosure
Schedule VII: The list of eligible cause areas and specific national funds
Understanding these connections supports integrated compliance treatment rather than isolated rule application.
A Note on the Limits of This Article
This article provides operational reference on CSR carry-forward and set-off rules based on the framework in effect as of July 2026. It is informational reference only and does not constitute legal, financial, tax, or compliance advice.
The specific application of Section 135 of the Companies Act 2013, the Companies (CSR Policy) Rules 2014, and related provisions to any company's situation depends on the specific facts, the specific financial year, the specific programme structure, the specific Board resolutions, and the specific documentation. Every decision on carry-forward, set-off, unspent amount treatment, and Schedule VII transfer should be reviewed by the company's Chartered Accountant, Company Secretary, and Legal counsel with reference to current MCA notifications, applicable provisions, and the specific facts of the situation.
The framework continues to evolve. The Companies (Amendment) Acts of 2019 and 2020 introduced significant changes, and further amendments and MCA circulars are issued periodically. Compliance treatment should always be verified against current provisions before finalisation.
What This Article Is Actually Saying
Three things are worth holding onto.
1. Carry-forward and set-off are two structurally different frameworks that require precise application. The Section 135(6) ongoing project unspent amount framework with the Unspent CSR Account and three-year window is materially different from the Rule 7(3) set-off framework for excess spending. Distinguishing them clearly in every compliance discussion, Board's Report drafting, and CSR Committee documentation supports strong compliance.
2. The distinction between ongoing and non-ongoing projects is the critical determinant of unspent amount treatment. Non-ongoing project unspent amounts require Schedule VII transfer within six months. Ongoing project unspent amounts sit in the Unspent CSR Account with a three-year spending window. Getting this classification right at the outset shapes every subsequent compliance step.
3. Structured timing discipline across March, April, and September produces cleaner compliance than year-end scrambling. The financial year-end actions, new financial year planning actions, and mid-year review actions each produce specific compliance value that ad hoc year-end treatment cannot match. Structured timing discipline is a genuine practitioner competency.
The companies that build strong CSR carry-forward and set-off discipline tend to be those that classify projects accurately at the outset, document ongoing project structure rigorously, maintain structured timing discipline across the annual cycle, coordinate closely with the Chartered Accountant, Company Secretary, and Legal counsel, and document CSR Committee decisions in real time rather than reconstructing at year-end. The compounding effect across years, in terms of compliance robustness and audit readiness, is meaningful.
Working With Marpu Foundation
Marpu Foundation currently works with 250+ corporate CSR partners across 23+ Indian states, with a network of 1M+ volunteers engaged across programme areas. Marpu maintains an 85% multi-year corporate partner retention rate and operates on a policy of zero foreign funding. Marpu holds current CSR-1 registration under Rule 4(1) of the Companies (CSR Policy) Rules 2014, current 12A registration, and current 80G registration.
Corporate CSR teams working on multi-year ongoing project structures, planning new financial year CSR programmes, or considering implementation partners for their programmes can visit marpu.org or write to connect@marpu.org. Send a brief note on the programme scope, ongoing project structure considerations, target geographies, and multi-year horizon, and Marpu responds within two working days.
For specific decisions on CSR carry-forward, set-off, ongoing project classification, Unspent CSR Account treatment, or Schedule VII transfer, engage the company's Chartered Accountant, Company Secretary, and Legal counsel. Compliance decisions belong with professional advisers with reference to the company's specific facts.
