Corporate Social Responsibility (CSR) Rules in India
Corporate Social Responsibility (CSR) Rules in India A Complete 2026 Guide — Laws, Thresholds, Compliance & Best Practices 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
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