CSR in India

Corporate Social Responsibility (CSR) is no longer a voluntary goodwill gesture in India — it is a statutory obligation enshrined in law. India became one of the first countries in the world to make CSR spending mandatory when Section 135 of the Companies Act, 2013 came into force. Over the past decade, the CSR framework has evolved significantly, and as of 2026, it stands as one of the most robust and structured corporate governance mechanisms in the country.

In the financial year 2024-25 alone, India’s top listed companies collectively spent over ₹25,000 crore on CSR activities, touching millions of lives across education, healthcare, environment, and rural development. The Ministry of Corporate Affairs (MCA) continues to tighten compliance norms, making it imperative for every eligible business to understand the rules thoroughly.

This comprehensive guide covers every dimension of India’s CSR rules — the legal framework, eligibility thresholds, approved activities, unspent fund management, penalties, reporting requirements, and best practices — all updated for 2026.

Legal Framework Governing CSR in India

Section 135 of the Companies Act, 2013

The primary legal basis for CSR in India is Section 135 of the Companies Act, 2013, read together with Schedule VII of the Act and the Companies (Corporate Social Responsibility Policy) Rules, 2014 (as amended). The law makes it mandatory for qualifying companies to spend a minimum of 2% of their average net profits on CSR activities.

Key Amendments and Updates (2020–2026)

The CSR framework has undergone multiple amendments since 2013. The most significant overhaul came through the Companies (Amendment) Act, 2019 and the revised CSR Rules notified in January 2021. Further amendments in 2022 and 2023 strengthened monitoring and reporting. In 2026, the MCA has introduced enhanced digital reporting requirements via the CSR-2 form and mandatory geo-tagging of CSR projects.

Governing Ministry & Regulatory Authority

The Ministry of Corporate Affairs (MCA) is the primary regulator overseeing CSR compliance in India. The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) also mandate Business Responsibility and Sustainability Reports (BRSR) for the top 1,000 listed companies by market capitalisation, adding another layer of accountability.

CSR Eligibility Criteria for Companies in 2026

As per Section 135(1) of the Companies Act, 2013, a company is required to constitute a CSR Committee and spend on CSR if it meets any ONE of the following financial thresholds in any of the immediately preceding three financial years:

Criterion	Threshold
Net Worth	₹500 crore or more
Turnover	₹1,000 crore or more
Net Profit	₹5 crore or more (net profit as per Section 198)

Note: The thresholds apply to every company including holding or subsidiary companies, and foreign companies having their branch or project office in India.

Constitution of the CSR Committee

Composition Requirements

Every eligible company must constitute a CSR Committee of the Board of Directors. The composition requirements under Section 135(1) are:

• Minimum three directors, including at least one Independent Director
• For companies not required to appoint an Independent Director: at least two directors
• For private companies with a single director: that director alone may constitute the committee
• For foreign companies: two persons, one of whom shall be the person resident in India authorised to accept service of process

Functions of the CSR Committee

• Formulate and recommend the CSR Policy to the Board
• Recommend the amount of expenditure to be incurred on CSR activities
• Monitor the CSR Policy of the company from time to time
• Review and approve annual CSR Action Plans
• Ensure that the Annual Report on CSR is prepared and placed before the Board

The 2% CSR Spending Mandate — How to Calculate

Calculating Average Net Profit

The mandatory CSR spend is 2% of the average net profits made during the three immediately preceding financial years. Net profit for this purpose is calculated as per Section 198 of the Companies Act, 2013, which has specific inclusions and exclusions different from the P&L account profit.

Inclusions in Net Profit (Section 198)

• Profit from operations of the company
• Bounties and subsidies received from any Government
• Profit on sale of immovable property or fixed assets
• Profit from shares, debentures, or other securities

Exclusions from Net Profit (Section 198)

• Capital gains arising from sale of investments and assets
• Profits of foreign subsidiaries
• Dividend paid or payable
• Any amount representing unrealised gains or notional gains

Worked Example (FY 2025-26)

Financial Year	Net Profit (₹ Crore)
FY 2022-23	80
FY 2023-24	100
FY 2024-25	120
Average	100
2% CSR Obligation	₹2 Crore

Approved CSR Activities — Schedule VII (Updated 2026)

Schedule VII of the Companies Act, 2013 lists the activities eligible for CSR spending. The list has been progressively expanded. Here are all approved CSR activity heads as of 2026:

1. Eradicating Hunger, Poverty & Malnutrition

Activities promoting preventive healthcare, sanitation, and safe drinking water. This includes mid-day meal programs, nutrition initiatives, anganwadi support, and clean drinking water projects. PM POSHAN and Jal Jeevan Mission aligned activities are eligible.

2. Promoting Education

Activities relating to education — including special education, vocational skills development among children, women, elderly, and the differently abled — qualify under CSR. Setting up schools, providing scholarships, digital literacy programs, and supporting Government schools with infrastructure are all covered.

3. Promoting Gender Equality & Women Empowerment

Setting up homes, hostels for women and orphans; old age homes; day care centres; and other facilities for senior citizens; measures for reducing inequality faced by socially and economically backward groups. Self-help group funding and livelihood support for women entrepreneurs are covered.

4. Ensuring Environmental Sustainability

Ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources, and maintaining quality of soil, air, and water. Clean energy projects, EV infrastructure, renewable energy installations, and climate action programs qualify here.

5. Protection of National Heritage, Art & Culture

Protection and restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts.

6. Measures for the Benefit of Armed Forces Veterans

Support to armed forces veterans, war widows, and their dependants. Training programs for skill development of ex-servicemen and their families also qualify.

7. Training to Promote Rural Sports, Paralympics & Olympic Sports

Promotion of rural sports, nationally recognised sports, Paralympic sports, and Olympic sports. Infrastructure support for sports academies and athlete welfare programs are eligible.

8. Contribution to Prime Minister’s Funds

Contributions to the Prime Minister’s National Relief Fund, PM CARES Fund, or any other fund set up by the Central Government for socio-economic development and relief — are approved CSR activities. Direct contributions to state-level funds notified by the MCA are also eligible.

9. Technology Incubators

Contributions to technology incubators located within academic institutions approved by the Central Government qualify as CSR. Start-up ecosystem support through approved incubators, IITs, NITs, and NITI Aayog-recognised bodies is included.

10. Rural Development Projects

Rural development, including rural infrastructure, road connectivity, sanitation facilities, and livelihood promotion in backward districts qualify. Aspirational District programmes aligned with government plans get additional regulatory support.

11. Slum Area Development

Any activity covering slum area development as defined under the Slum Areas (Improvement and Clearance) Act, 1956, or any other State legislation — including housing, livelihood, and water-sanitation projects in urban slum areas.

12. Disaster Management

Disaster management activities including relief, rehabilitation, and reconstruction activities are eligible under Schedule VII. This was prominently used during COVID-19 and subsequent flood-relief efforts across India.

13. COVID-19 & Pandemic Response (Carried Forward 2026)

While COVID-19-specific CSR guidance has been mainstreamed, companies can still contribute to healthcare infrastructure strengthening, vaccine awareness, and public health preparedness under the health and sanitation head.

Management of Unspent CSR Funds — 2026 Rules

Transfer to Unspent CSR Account

If a company has unspent CSR funds at the end of a financial year in respect of an ongoing project, such amount must be transferred within 30 days from the end of the financial year to a separate Unspent CSR Account opened in a scheduled bank. This must then be spent within 3 years of such transfer.

Transfer to PM CARES / Schedule VII Funds

If the unspent CSR amount is not attributable to any ongoing project, it must be transferred within 6 months from the end of the financial year to any fund specified in Schedule VII (such as PM CARES Fund, PM National Relief Fund, or Swachh Bharat Kosh). As of 2026, this rule is strictly enforced with penalties.

Financial Penalties for Non-Transfer

Failure to transfer unspent CSR funds within prescribed timelines attracts a penalty of ₹1 crore (maximum) on the company and ₹2 lakh (maximum) on every officer in default per financial year.

Implementation of CSR Projects — Permitted Modes

Direct Implementation by the Company

Companies may undertake CSR activities directly through their own CSR teams or foundations. However, the implementing arm must be an entity established under Section 8 of the Companies Act (non-profit company), or the company itself must have a dedicated CSR team.

Through Implementing Agencies

Companies may implement CSR through registered public trusts, societies, Section 8 companies, or any other entity established under an Act of Parliament or State Legislature. As of 2026, all implementing agencies must be registered on the MCA’s CSR Portal and hold a valid CSR Registration Number (CRN).

Government Collaboration

CSR activities may be undertaken in collaboration with other companies subject to reporting individually, or through any entity established under State or Central Government Acts. Joint CSR with other companies is permitted, with individual reporting obligations remaining intact.

International Organisations

Companies may engage international organisations for designing, monitoring, and evaluating CSR projects. However, actual CSR spend must be in India and for Indian beneficiaries as per the current MCA guidelines.

Activities NOT Permitted Under CSR

The following are explicitly excluded from qualifying as CSR expenditure:

• Activities undertaken in the normal course of business
• Activities outside India (except for training of Indian sports personnel at international level)
• Contribution to any political party or electoral trust
• Activities that benefit only employees of the company and their families
• Expenses incurred by the company for the fulfilment of any other statutory obligation
• Sponsorships for sporting events for commercial benefits
• Activities not listed in Schedule VII or not approved by MCA
• Advertisement expenditure — CSR spend must not be used for brand building purposes

Drafting a Legally Compliant CSR Policy in 2026

Mandatory Elements of a CSR Policy

• A list of CSR projects or programmes to be undertaken
• Modalities of execution of such projects (direct/agency)
• Implementation schedules and milestones
• Monitoring and reporting mechanism
• Details of the implementing agency (if applicable)
• The amount to be spent on CSR and the surplus from CSR activities

Board Approval & Display

The CSR Policy must be approved by the Board on the recommendation of the CSR Committee. It must be displayed on the company’s official website. As of 2026, the CSR Policy must also be linked from the company’s Annual Report and filed in the CSR-2 form with the Registrar of Companies (RoC).

Annual CSR Action Plan — What It Must Include

• List of CSR projects to be undertaken in the FY
• Manner of execution of each project (direct / through agency)
• Timelines and project milestones
• Local area focus — companies must give preference to local areas
• Modalities for utilisation of funds
• Details of implementation and monitoring agency
• Annual expenditure plan broken down project-wise

Reporting & Disclosure Requirements in 2026

Annual Report Disclosure

Every eligible company must disclose in its Annual Report the details of CSR activities undertaken, amount spent, shortfall (if any), and reasons for shortfall. The Board’s Report must include a CSR Annual Report prepared in the format prescribed under the Companies (CSR Policy) Rules, 2014.

CSR-2 Form (MCA Filing)

A separate CSR-2 form (introduced in 2021 and updated in 2023–2024) must be filed with the RoC annually. This form includes project-wise details, amount spent, implementing agency details, and status of unspent funds. As of 2026, non-filing of CSR-2 attracts a penalty of ₹10,000 per day (maximum ₹2 lakh) under Section 454.

BRSR — Business Responsibility and Sustainability Report

The top 1,000 listed companies by market cap must submit a BRSR as part of their Annual Report. From FY 2024-25, BRSR Core metrics require assurance from an independent third party, raising the bar for CSR transparency significantly.

Geo-Tagging of Projects (2026 Mandate)

The MCA’s 2025-26 notification mandates geo-tagging of all CSR projects with a value exceeding ₹1 crore. Companies must upload geo-tagged photographs and beneficiary details on the CSR portal. This ensures on-ground verification of project execution.

Penalties for CSR Non-Compliance in 2026

Violation	Penalty (₹)
Failure to spend 2% CSR amount	Twice the unspent amount on company; ₹1 crore max on company + ₹2 lakh max on officer in default
Non-transfer to Unspent CSR Account	₹1 crore (company) + ₹2 lakh (officer)
Failure to constitute CSR Committee	₹50,000 to ₹5 lakh on company; ₹50,000 on officer
Non-disclosure in Annual Report	₹25,000 to ₹5 lakh on company
Non-filing of CSR-2 Form	₹10,000 per day default; max ₹2 lakh

CSR Best Practices — What Leading Indian Companies Do in 2026

1. Align CSR with UN Sustainable Development Goals (SDGs)

Leading companies in India align their CSR programmes with SDGs, particularly SDG 1 (No Poverty), SDG 3 (Good Health), SDG 4 (Quality Education), SDG 13 (Climate Action), and SDG 17 (Partnerships). This alignment enhances global credibility and investor confidence.

2. Multi-Year Ongoing Projects

Rather than one-off donations, best-in-class CSR involves multi-year projects with clear milestones, impact assessments, and community ownership models. The MCA encourages multi-year commitments through the ‘Ongoing Project’ category with extended 3-year unspent fund periods.

3. Technology-Driven Impact Measurement

Companies like Tata Consultancy Services, Infosys, and Wipro use digital dashboards, beneficiary databases, and satellite imagery to measure and verify CSR impact. In 2026, the geo-tagging mandate has made digital impact measurement a compliance requirement, not just a best practice.

4. Community Participation & Need Assessments

Effective CSR starts with proper need assessments. Leading companies conduct baseline surveys, engage local PRIs (Panchayati Raj Institutions), and build CSR programs around community-identified priorities rather than top-down donor-driven agendas.

5. Transparency & Third-Party Audits

Voluntary third-party social audits and impact evaluations — especially for projects above ₹1 crore — have become standard practice among Nifty 100 companies. The BRSR Core assurance requirement for top-listed companies has further institutionalised this practice.

India’s Top CSR Spending Sectors in 2025-26

According to the MCA Annual Report 2025-26 data:

• Education & Skill Development — ₹7,200 crore (largest sector)
• Healthcare & Sanitation — ₹5,800 crore
• Environment & Sustainability — ₹3,600 crore
• Rural Development — ₹3,100 crore
• Women Empowerment — ₹2,400 crore
• Disaster Relief & Rehabilitation — ₹1,800 crore
• Sports & Culture — ₹900 crore

CSR Rules for Foreign Companies in India

Foreign companies having a branch office or project office in India are covered under CSR rules if they meet the prescribed thresholds. Key provisions:

• Foreign companies are required to constitute a CSR Committee with at least two persons, one of whom must be a resident in India
• CSR spend must be on activities within India
• Reporting must be done through the Annual Return filed with the RoC
• The CSR-2 form filing requirement applies equally to foreign companies
• Profits of Indian branch/project operations form the basis of average net profit calculation
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Conclusion

Corporate Social Responsibility in India has come a long way from voluntary philanthropy to a structured, legally mandated framework with teeth. As of 2026, the expectations from companies are higher than ever — from geo-tagging projects and filing CSR-2 forms to BRSR assurance and digital impact reporting. The good news is that companies that embrace CSR strategically — rather than as a compliance checkbox — create lasting social value while building stakeholder trust, brand equity, and employee morale.

Whether you are a CFO calculating your 2% obligation, a CSR Manager selecting implementing agencies, a Company Secretary preparing the Annual Report, or a startup crossing the threshold for the first time — this guide provides the foundational knowledge you need to stay compliant and impactful in 2026.

For specific legal advice tailored to your company’s structure and obligations, always consult a practising Company Secretary (CS) or a legal advisor registered with the Bar Council of India.