Module: | Specialized Audits, Tech & ESG Disclosures
Q88: Consider the following statements regarding the set-off of excess Corporate Social Responsibility (CSR) expenditure under the Companies Act for 2025-2026:
1. If a company spends an amount in excess of its mandatory 2 percent CSR obligation in a financial year, it can set off such excess amount against its requirement to spend in succeeding financial years.
2. The excess CSR expenditure can be carried forward and set off for a maximum of three immediately succeeding financial years.
3. The Board of Directors can automatically set off the excess amount even if that excess amount included surplus arising out of previous CSR activities.
Which of the above statements is/are incorrect?
2. The excess CSR expenditure can be carried forward and set off for a maximum of three immediately succeeding financial years.
3. The Board of Directors can automatically set off the excess amount even if that excess amount included surplus arising out of previous CSR activities.
Which of the above statements is/are incorrect?
✅ Correct Answer: C
🎯 Quick Answer:
C. Only 3 is incorrect.Structural Breakdown: Statement 1 is correct; the law officially recognizes and rewards over-spending on social impact.
Statement 2 is correct; the carry-forward utility has a strict expiration date of three succeeding financial years.
Statement 3 is incorrect; the MCA rules explicitly state that the excess amount available for set-off shall NOT include any surplus arising out of the CSR activities (e.g., interest earned on CSR funds in a bank account). Furthermore, the Board must pass a specific resolution to claim the set-off; it is not automatic.
Historical/Related Context: Initially, companies were discouraged from funding massive, multi-year infrastructure projects (like building a hospital) because spending Rs 50 Crore in Year 1 did not legally excuse them from their Rs 10 Crore quota in Year 2. The set-off amendment fixed this misalignment.
Causal Reasoning: Excluding "surplus" from the set-off calculation ensures that the company is only rewarded for its own out-of-pocket corporate profits deployed into society, rather than claiming credit for the passive interest generated by the CSR capital itself.