Net Profit Calculation for CSR: Why Section 198 Is Not the Same as Your P&L Under Section 135 of the Companies Act 2013, every qualifying company must spend at least 2% of its average net profits — computed over the three immediately preceding financial years — on CSR activities. The law is clear that this net profit is not the figure appearing on your profit and loss account. It is a distinct, adjusted number calculated under Section 198 of the Act, read with Rule 2(h) of the Companies (CSR Policy) Rules, 2014. Getting this calculation wrong — in either direction — has direct regulatory consequences. Every year, finance teams and Company Secretaries across India sit down to calculate their company's CSR obligation for the coming financial year. And every year, a surprisingly large number of them use the wrong number as their starting point. The instinct is understandable. The audited financial statements are readily available. The Profit Before Tax figure is prominent...