Corporate Social Responsibility in India is mandatory. Under the Companies Act 2013, companies that cross specific financial thresholds must comply with strict statutory obligations.
The Corporate Laws Amendment Bill 2026 proposes to raise the CSR threshold, revise committee requirements, and extend the transfer window. Companies need to reassess their CSR planning now.
Altacit Global guides companies through CSR compliance from policy design to reporting, ensuring seamless compliance at every stage.
What Is CSR Under Indian Company Law?
Under Section 135 of the Companies Act 2013, India became the first country to make corporate social responsibility legally mandatory. The law requires eligible companies to spend at least 2% of their average net profit on specific social development activities outlined in Schedule VII.
Parliament introduced the framework in 2014. Significant amendments in 2021 ensure stricter accountability and better fund utilisation.
For companies operating in India, understanding corporate social responsibility mandates is critical. The law transforms corporate philanthropy from a discretionary activity into a structured, measurable commitment to national development.
Which Companies Must Comply with CSR in India?
Any company meeting any one of the following financial criteria in the immediately preceding financial year must comply with CSR rules:
Criterion | Current Threshold | Proposed Threshold (2026 Bill) |
Net worth | ₹500 crore or more | Unchanged |
Turnover | ₹1,000 crore or more | Unchanged |
Net profit | ₹5 crore or more | ₹10 crore or more |
The Corporate Laws Amendment Bill 2026 proposes raising the net profit threshold from ₹5 crore to ₹10 crore. This adjustment would remove smaller companies from the compliance burden.
The bill is currently proposed and not yet enacted. Until the legislation officially passes, the current ₹5 crore threshold remains legally binding for all applicable businesses.
How Much Must a Company Spend on CSR?
Eligible companies must spend exactly 2% of their average net profit from the immediately preceding three financial years. The calculation follows this formula: Average Net Profit (last 3 FY) × 2%.
You calculate net profit as per Section 198 of the Companies Act, which excludes capital receipts and dividend income.
For example, if your company’s average net profit over the past three years is ₹15 crore, your mandatory CSR spending target would be ₹30 lakh.
What Activities Qualify as CSR Under Schedule VII?
You cannot donate to any charity of your choosing. Eligible CSR activities must align with Schedule VII of the Companies Act. The approved categories include:
- Eradicating hunger, poverty and malnutrition
- Promoting education and vocational skills
- Promoting gender equality and empowering women
- Ensuring environmental sustainability
- Protection of national heritage, art and culture
- Measures for the benefit of armed forces veterans
- Promoting sports
- Contribution to PM Relief Fund / PM CARES
- Technology incubators at academic institutions
- Rural development projects
- Slum area development
- Disaster management
- Setting up homes for senior citizens
- Reducing inequalities
- Making available safe drinking water
Activities not listed in Schedule VII do not qualify towards your mandatory CSR target.
CSR Committee Requirements
Current Requirements
Currently, companies with a CSR obligation must constitute a formal CSR Committee of the Board to maintain proper governance (Link to B2) over operations. This committee must consist of a minimum of three directors, including at least one independent director, where applicable.
Proposed Changes Under 2026 Bill
The 2026 Bill proposes a major shift for CSR committees. Under the proposed legislation, you must form a separate CSR Committee only if your CSR spend obligation is ₹1 crore or more. This increases from the current ₹50 lakh threshold.
For obligations below ₹1 crore, your board of directors can discharge all CSR functions without needing a separate committee. The proposed bill also introduces new government exemption powers for CSR activities in certain situations.
CSR Reporting and Compliance
Annual CSR Report (Form CSR-2)
You must file Form CSR-2 with the Registrar of Companies (ROC) as part of CSR compliance under the Companies Act. You file this document separately from the main Annual Report.
Form CSR-2 must contain details regarding your company’s CSR policy, the specific activities undertaken, the exact amount spent, and details of any funds carried forward.
Board Report Disclosure (Section 134)
Under Section 134, your annual Board Report must include a comprehensive CSR statement. This disclosure needs to outline the activities planned for the year, the exact amount allocated to be spent, the actual amount spent, and the total amount left unspent alongside a reason for the shortfall.
What Happens to Unspent CSR Funds?
Ongoing Projects
For ongoing, multi-year CSR projects, you must transfer any unspent amount to a separate CSR Unspent Account within 30 days of the financial year ending. You must then spend these funds within the next three financial years.
The proposed 2026 Bill seeks to clarify this timing framework, ensuring companies have exactly three years from the transfer date to utilise the funds.
Non-Ongoing Activities
Different rules apply for activities other than ongoing projects. If you have unspent amounts from non-ongoing activities, you must transfer these funds to designated Schedule VII funds, such as the PM Relief Fund or Swachh Bharat Kosh.
You must make this transfer within six months of the financial year ending. These specific funds cannot be carried forward to the next financial year.
Penalties for CSR Non-Compliance
Failing to meet these obligations carries severe financial repercussions. Your company faces a fine equal to twice the amount required to be transferred, or ₹1 crore, whichever is less. Every officer in default faces a personal fine of up to ₹2 lakh.
The 2026 Amendment Bill proposes decriminalising certain compliance defaults. If enacted, failures related to CSR non-reporting may shift from triggering criminal proceedings to strictly civil penalties.
CSR Implementation - Direct vs Through CSR Implementing Agencies
You have several options for executing your social initiatives. You can implement programmes directly, through registered NGOs and trusts, via Section 8 companies, or through established government bodies.
Since the financial year 2022-23, stringent new rules apply. Only registered entities holding a unique CSR registration number generated by the Ministry of Corporate Affairs (MCA) can act as valid implementing agencies.
For a comprehensive understanding of the legal framework governing businesses in India, read our detailed guide, Corporate Law in India (Link to Pillar): The Complete Guide for Businesses (2026).
Ensure Seamless Compliance with Altacit Global
Altacit Global helps companies design, implement, and report on their CSR programmes in strict compliance with the Companies Act 2013 and MCA regulations. From drafting your CSR policy to committee constitution, annual reporting, and adapting to the proposed 2026 Amendment changes, our expert corporate law team is ready to assist.
Contact Altacit Global today at info@altacit.com to secure your compliance framework.
Frequently Asked Questions - CSR India
Q1: Does the CSR obligation apply in the year the company first crosses the threshold?
No. The obligation formally applies in the financial year following the year in which your company first meets the specified net worth, turnover, or net profit threshold.
Q2: Can CSR funds be used for employee welfare activities?
Generally, no. Activities designed specifically to benefit your employees or their families do not qualify as eligible activities under Schedule VII.
Q3: If a company makes a loss, does it still have a CSR obligation?
Yes. If the average net profit calculated over the preceding three years remains positive, the obligation still exists, even if the current financial year results in a net loss.
Q4: Can a company contribute to political parties as CSR?
No. Financial contributions made directly or indirectly to any political parties strictly do not qualify as corporate social responsibility activities under Schedule VII.
