Corporate Social Responsibility (CSR) has become a mandatory legal requirement for eligible companies in India. For businesses that meet specific financial thresholds, it is a legal obligation under the Companies Act, 2013.
This post outlines the key legal requirements, responsibilities, and reporting procedures associated with CSR compliance.
What is CSR?
Corporate Social Responsibility refers to the practice of integrating social, environmental, and ethical responsibilities into business operations. In India, CSR compliance became mandatory through amendments to the Companies Act, 2013.
As per Section 135 of the Act, a company is required to comply with CSR provisions if it meets any one of the following criteria during a financial year:
-
A net worth of ₹500 crore or more
-
A turnover of ₹1,000 crore or more
-
A net profit of ₹5 crore or more
Companies falling under this bracket must spend at least 2% of their average net profits (calculated over the preceding three financial years) on approved CSR activities.
To ensure overall compliance with Indian corporate laws, companies should also stay updated on related requirements, such as private limited company compliance, especially if registered under that structure.
What Qualifies as CSR Under Indian Law
The Companies Act provides a list of permitted CSR activities under Schedule VII, which includes:
-
Promoting education, healthcare, and vocational skills
-
Advancing gender equality and women’s empowerment
-
Combating hunger, poverty, and malnutrition
-
Promoting environmental sustainability and ecological balance
-
Supporting rural development projects
-
Contributions to funds such as the PM CARES Fund and other government-approved initiatives
Activities undertaken solely for the benefit of company employees or efforts designed primarily to promote the company’s brand are not considered valid CSR initiatives.
Companies can execute CSR projects directly, through their foundations, or in collaboration with eligible NGOs or implementing agencies registered with the Ministry of Corporate Affairs (MCA).
Transparency, due diligence, and compliance with eligibility criteria are critical to ensuring that CSR activities meet regulatory standards.
How is a CSR Committee Formed?
Once a company qualifies under CSR regulations, it must form a CSR Committee of the Board. The composition of the committee should include at least three directors, with at least one serving as an independent director. However, exceptions apply for certain private and foreign companies.
The responsibilities of the CSR Committee include:
-
Formulating and recommending a CSR policy to the Board
-
Identifying and recommending CSR projects and corresponding expenditure
-
Monitoring the implementation and progress of CSR initiatives
-
Ensuring that CSR reporting and disclosures meet statutory requirements
This committee plays a vital role in aligning the company’s CSR strategy with both regulatory compliance and meaningful social impact.
How To Manage CSR Funds?
CSR funds must be utilized during the relevant financial year. However, if a portion of the allocated funds remains unspent, the Companies Act provides clear directives for their treatment:
-
For ongoing projects: The unspent amount must be transferred to a dedicated Unspent CSR Account within 30 days from the end of the financial year. These funds must then be utilized within the next three financial years.
-
For other cases: The unspent CSR amount must be transferred to a fund specified under Schedule VII, such as the PM National Relief Fund, within six months from the end of the financial year.
Failure to comply with these timelines may result in financial penalties and potential scrutiny from regulatory authorities.
For businesses operating under partnership-based structures, staying current with LLP compliance is equally important to maintain good standing with regulatory bodies.
CSR Reporting and Disclosure Requirements
Accurate reporting is a critical component of CSR compliance. As per the Companies Act, every qualifying company must include an annual report on CSR activities in its Board Report, following the format prescribed under the CSR Rules.
The CSR report should disclose:
-
The company’s CSR policy and objectives
-
Details of CSR projects undertaken
-
Total amount spent and any unspent funds
-
Implementation mechanisms and impact assessments
In addition to the Board Report, companies must publish their CSR policy and annual disclosures on their official website, ensuring transparency for stakeholders, investors, and the general public.
Penalties for Non-Compliance with CSR Provisions
Non-compliance with CSR obligations can lead to financial and reputational consequences. Under the Companies Act, the following penalties may be imposed:
-
A fine of up to ₹1 crore for the company
-
A fine of up to ₹2 lakh for each responsible officer
Beyond financial penalties, companies may face scrutiny from the Ministry of Corporate Affairs, leading to audits, show-cause notices, and potential public criticism.
Conclusion
Companies should view CSR not as a regulatory burden, but as a chance to contribute to inclusive growth, community welfare, and national development.
With proper governance, transparent reporting, and strategic execution, CSR can enhance a company’s brand image, stakeholder trust, and long-term impact.
Ultimately, CSR is not just about meeting legal standards—it is about building a legacy of purpose-driven business in a rapidly evolving economic landscape.
Need help picking the right CSR project or filing reports?
Reach out to compliance experts or trusted NGOs and let them guide you.