In India, Corporate Social Responsibility (CSR) is governed mainly by the Companies Act, 2013 and the Companies (CSR Policy) Rules, 2014 (as amended). India is one of the first countries to mandate CSR spending for qualifying companies.
1. Which Companies Must Comply with CSR?
A company must comply with CSR provisions if, during the immediately preceding financial year, it meets any one of these thresholds:
Net worth: ₹500 crore or more
Turnover: ₹1,000 crore or more
Net profit: ₹5 crore or more
This can apply to:
Indian companies
Holding/subsidiary companies
Certain foreign companies operating in India
2. Mandatory CSR Spending Requirement
Eligible companies must spend at least 2% of the average net profits of the last three financial years on CSR activities.
If the company has not completed three years since incorporation, calculations are based on available years.
3. CSR Committee Requirements
Companies that meet CSR applicability generally need governance oversight for CSR. Depending on the company type and amount involved, this may include a CSR Committee of the Board or direct Board oversight as permitted under current rules.
Typical responsibilities include:
Recommending the CSR Policy
Recommending annual CSR expenditure
Monitoring CSR projects and implementation
4. CSR Policy
The Board must approve a CSR Policy that outlines:
Focus areas/projects
Execution approach
Monitoring mechanism
Annual action plan (where applicable)
5. Eligible CSR Activities
CSR funds must be spent on activities listed in Schedule VII of the Companies Act. Common areas include:
Education
Healthcare
Hunger and poverty eradication
Gender equality and women empowerment
Environmental sustainability
Rural development
Skill development
Disaster relief
Sports promotion
Protection of national heritage and culture
6. Where CSR Money Cannot Be Used
CSR spending generally cannot be used for:
Activities benefiting only employees and their families
Normal business operations (except limited exceptions allowed in specific contexts)
Political contributions
One-off marketing sponsorships unrelated to CSR intent
Activities outside approved categories
7. Modes of Implementation
Companies may implement CSR through:
Direct implementation by the company
Registered eligible implementing agencies such as trusts, societies, or Section 8 companies meeting legal criteria
Collaboration with other companies (where allowed)
8. Registration of Implementing Agencies
Eligible implementing agencies usually need registration through the prescribed government filing mechanism (commonly known as CSR registration requirements).
9. Unspent CSR Amount Rules
If the required CSR amount is not fully spent:
For ongoing projects, unspent amounts may need transfer to a special Unspent CSR Account within prescribed timelines.For other unspent amounts, transfer may be required to specified funds listed by law within prescribed timelines.
10. Impact Assessment
Certain companies with higher CSR obligations may be required to undertake independent impact assessment of eligible large CSR projects, subject to thresholds under current rules.
11. Disclosure and Reporting
Companies must disclose CSR details in:
Board’s Report
Annual CSR Report format
Company website (where applicable)
This usually includes spending, project details, unspent amounts, and policy disclosures.
12. Penalties for Non-Compliance
Failure to comply with CSR provisions, reporting, or transfer requirements may attract penalties under the Companies Act.
Important Note
CSR law and thresholds can be amended. For current compliance, companies should consult the latest Ministry of Corporate Affairs (MCA) notifications or a qualified legal/compliance professional.
Conclusion
India’s CSR framework requires eligible companies to spend 2% of average profits on approved social causes, maintain governance oversight, disclose spending, and follow strict rules for unspent amounts and implementation. It is one of the world’s most structured corporate responsibility systems.