Corporate Social Responsibility (CSR) in India is not optional—it is legally mandated under Section 135 of the Companies Act, 2013. India was the first country in the world to make CSR spending a statutory obligation rather than a voluntary choice.
For company directors, finance teams, and compliance officers, understanding the CSR framework is essential to avoid penalties, director disqualification, and reputational damage. This guide covers everything you need to know about CSR compliance in 2026: applicability, spending thresholds, eligible activities, committee requirements, reporting, audit, penalties, and the latest amendments.
Quick CSR Compliance Checklist for 2026
| Compliance Area | Key Requirement |
|---|---|
| Applicability | Net worth ≥ ₹500 crore OR Turnover ≥ ₹1,000 crore OR Net profit ≥ ₹5 crore |
| Mandatory Spend | 2% of average net profit of preceding 3 financial years |
| CSR Committee | Required (3 directors, one independent director; proposed ₹1 crore spend threshold) |
| Reporting | Board's Report + Form CSR-2 (by 30 June) |
| Audit | CSR expenditure must be audited by statutory auditors |
| Unspent CSR | Transfer to unspent CSR account (ongoing projects) or Schedule VII fund (others) |
| Penalty | Twice the unspent amount (company) + 1/10th amount (officers in default) |
1. Which Companies Must Comply with CSR?
Current Eligibility Criteria
Under Section 135(1) of the Companies Act, 2013, any company meeting any one of the following financial thresholds in the immediately preceding financial year must comply with CSR provisions:
| Criterion | Threshold (Current) |
|---|---|
| Net Worth | ₹500 crore or more |
| Turnover | ₹1,000 crore or more |
| Net Profit | ₹5 crore or more |
Who is Covered?
- Indian companies (both public and private) meeting the thresholds
- Foreign companies with branch/project offices in India meeting the thresholds
- Holding and subsidiary companies: Each company is assessed separately based on its own financials
Important: Calculating "Net Profit"
Net profit for CSR purposes is calculated in accordance with Section 198 of the Companies Act, which excludes:
- Capital receipts
- Dividend income
- Certain prescribed sums
2. How Much Must a Company Spend on CSR?
The 2% Rule
Eligible companies must spend at least 2% of the average net profit of the immediately preceding three financial years on CSR activities every year.
Formula:
Mandatory CSR Spend = (Net Profit FY1 + Net Profit FY2 + Net Profit FY3) ÷ 3 × 2%
Example
If your company's average net profit over the past three years is ₹15 crore, the mandatory CSR spending target would be ₹30 lakh.
Net Profit Exclusions
For the purposes of Section 135, "net profit" shall not include such sums as may be prescribed, and shall be calculated in accordance with the provisions of Section 198 of the Companies Act.
3. What Activities Qualify as CSR?
Schedule VII: The Approved List
Eligible CSR activities must align with Schedule VII of the Companies Act. Activities not listed in Schedule VII do not count towards your mandatory CSR target.
The approved categories include:
| Activity Category | Description |
|---|---|
| (i) | Eradicating hunger, poverty, malnutrition; promoting health care, sanitation (including Swach Bharat Kosh); safe drinking water |
| (ii) | Promoting education, special education, vocational skills (especially children, women, elderly, differently abled) |
| (iii) | Promoting gender equality, empowering women; setting up homes for women/orphans, old age homes, day care centres |
| (iv) | Ensuring environmental sustainability, ecological balance, animal welfare, conservation of natural resources; Clean Ganga Fund |
| (v) | Protection of national heritage, art and culture; public libraries; traditional arts and handicrafts |
| (vi) | Measures for armed forces veterans, war widows, CAPF/CPMF veterans |
| (vii) | Training to promote rural sports, nationally recognized sports, Paralympic and Olympic sports |
| (viii) | Contributions to PM National Relief Fund, PM CARES Fund, or other central government funds |
| (ix) | Contributions to incubators, R&D in science/technology/medicine, public funded universities, IITs, etc. |
| (x) | Rural development projects |
| (xi) | Slum area development |
| (xii) | Disaster management |
2026 Update: Investment in Social Stock Exchange
The Ministry of Corporate Affairs has amended Schedule VII to include "(xiii) Subscription to zero coupon zero principal instruments on Social Stock Exchange" as an eligible CSR activity. Companies can now invest up to 10% of their total CSR expenditure in ZCZP instruments on the Social Stock Exchange.
Important Exclusions
The following do not qualify as CSR activities:
- Routine business activities
- Activities that benefit only the company's employees and their families
- Political contributions
- Sponsorship activities that are not directly aligned with Schedule VII
- Contributions to organizations not registered for CSR
Capital Assets
A company may spend CSR amount for the creation or acquisition of a capital asset, provided the asset is held by a registered CSR implementing agency.
4. CSR Committee: Structure and Requirements
Current Requirements
Under Section 135(2), companies with CSR obligations must constitute a formal CSR Committee of the Board.
| Requirement | Details |
|---|---|
| Composition | Minimum of three directors |
| Independent Director | At least one independent director (where applicable) |
| Functions | Formulate CSR policy, recommend spend, monitor implementation |
| Board Role | The Board must ensure CSR activities are undertaken as per the policy |
CSR Committee Threshold
- If the required CSR spend does not exceed ₹50 lakh, the requirement to constitute a CSR Committee is not applicable
- The Board of Directors can discharge all CSR functions directly
Proposed Changes (2026 Bill)
The Corporate Laws Amendment Bill 2025 proposes to raise the CSR committee threshold from ₹50 lakh to ₹1 crore. For obligations below ₹1 crore, the board can discharge all CSR functions without a separate committee.
5. CSR Reporting Obligations
Board's Report
Under Section 134(3)(o), the Board's Report must contain details of the CSR Committee and CSR activities undertaken. A new sub-rule (1B) requires every company covered under Section 135(1) to furnish a CSR report.
Form CSR-2
Every company covered under Section 135(1) must furnish a report on Corporate Social Responsibility in Form CSR-2.
Deadline for Form CSR-2: On or before 30th June of the following financial year.
Mandatory Disclosure Requirements
Companies must disclose:
- Composition of the CSR Committee
- CSR Policy
- CSR activities undertaken during the year
- Amount spent (and reasons for shortfall, if any)
- Unspent CSR amounts and their treatment
6. CSR Audit Requirements
The CSR framework in India is disclosure-based, and expenditure on CSR activities is required to be audited by the statutory auditors of the company.
Audit Scope
The ICAI has issued a Handbook on Audit of CSR Activities providing detailed guidance. Statutory auditors must verify:
- CSR expenditures as per Section 135 and CSR Rules
- Compliance with Schedule VII activities
- Proper utilisation of CSR funds
- Accuracy of CSR reporting
Impact Assessment
Every company having an average CSR obligation of ₹10 crore or more in the preceding three financial years must undertake an impact assessment.
7. Treatment of Unspent CSR Amounts
For Ongoing Projects
If a company fails to spend the full CSR amount in a year, the unspent portion must be:
- Transferred to a separate Unspent CSR Account
- Spent within the next three financial years
For Other Cases
The unspent amount must be transferred to funds specified under Schedule VII within six months of the expiry of the financial year.
Carry-Forward of Excess Spend
Where a company spends an amount in excess of the mandatory requirement, such excess amount may be set off against the requirement to spend in subsequent financial years, up to the immediately succeeding three financial years.
8. Penalties for CSR Non-Compliance
Penalty Framework Under Section 135(7)
If a company defaults in complying with Section 135(5) or 135(6):
| Defaulting Party | Penalty |
|---|---|
| Company | Twice the amount required to be transferred to the Schedule VII fund or Unspent CSR Account (up to ₹1 crore, whichever is less) |
| Officers in Default | One-tenth of the amount required to be transferred |
Recent Enforcement Actions
Case 1: PACE DIGITEK LIMITED (Bangalore ROC, October 2025)
- Failed to spend CSR obligations for FY 2020-21, 2021-22, and 2023-24
- Total unspent amount: ₹26,63,295
- Penalty imposed: ₹14,79,394 on the company
Case 2: AIRFLOA RAIL TECHNOLOGY LIMITED (Chennai ROC, January 2026)
- Required CSR spend: ₹19.64 lakh
- Failed to spend or transfer unspent amount on time
- Company later transferred amount to PMNRF
- Penalty imposed: Equivalent to the unspent CSR amount
Key Takeaway: Delayed compliance does not extinguish the original violation. CSR obligations are mandatory, time-bound, and strictly enforceable.
9. Upcoming Amendments: Corporate Laws Amendment Bill 2025/2026
The Corporate Laws Amendment Bill, 2025 was introduced in the Rajya Sabha on 5 December 2025, proposing significant changes to the CSR framework. The Bill has not yet been passed.
Key Proposed Changes
| Aspect | Current | Proposed |
|---|---|---|
| Net Worth Threshold | ₹500 crore | ₹100 crore |
| Turnover Threshold | ₹1,000 crore | ₹500 crore |
| Net Profit Threshold | ₹5 crore | ₹3 crore |
| CSR Committee Threshold | ₹50 lakh | ₹1 crore |
Impact of Proposed Lower Thresholds
The Bill aims to expand the CSR net by bringing medium-sized companies under mandatory compliance. This would significantly increase the number of companies subject to CSR obligations.
CSR Committee Expertise Requirement
The Bill proposes that the CSR Committee must include at least one director with extensive experience in planning and implementing CSR projects. Currently, there is no statutory requirement regarding qualifications or expertise of CSR Committee members.
Note: The Bill is not yet enacted. Companies must continue complying with the existing thresholds.
10. CSR Compliance Checklist for 2026
Quarterly/Annual Actions
| Frequency | Action |
|---|---|
| Annually | Determine if your company meets CSR thresholds based on preceding year's financials |
| Annually | Calculate 2% average net profit CSR obligation |
| Annually | Formulate/review CSR Policy |
| Annually | Hold CSR Committee meetings (if applicable) |
| Annually | Ensure CSR spend is at least 2% of average net profit |
| Annually | Transfer unspent CSR amounts (if any) to appropriate accounts/funds |
| Annually | Prepare Board's Report with CSR details |
| Annually | File Form CSR-2 by 30 June |
| Annually | Ensure statutory audit of CSR expenditure |
| As applicable | Conduct impact assessment (if CSR obligation ≥ ₹10 crore) |
Before 30 September 2026
Any FY 2025-26 CSR shortfall that does not relate to an ongoing project must be transferred to a fund specified in Schedule VII by 30 September 2026.
11. Common CSR Compliance Mistakes to Avoid
1. Assuming CSR is voluntary
CSR under Section 135 is mandatory for eligible companies. The expression "shall ensure" in Section 135(5) clearly implies a mandate.
2. Incorrect calculation of net profit
Net profit for CSR must be calculated under Section 198, excluding capital receipts and dividend income.
3. Spending on ineligible activities
Only activities listed in Schedule VII qualify. Routine business expenses and employee-only benefits do not count.
4. Missing the 30 June CSR-2 deadline
CSR-2 must be filed by 30 June. Late filing can trigger notices and penalties.
5. Not transferring unspent CSR amounts on time
Unspent CSR amounts (non-ongoing projects) must be transferred to Schedule VII funds within six months of the financial year end.
6. Delayed compliance does not avoid penalties
Even if you transfer unspent amounts later, the original violation remains—penalties apply.
12. Where Tax Garden Helps
CSR compliance under Section 135 is a multi-layered obligation that spans financial calculation, committee governance, project implementation, audit, and reporting. A single missed deadline or incorrect calculation can trigger penalties and director liability.
Tax Garden helps you:
- Determine if your company meets CSR thresholds
- Calculate the mandatory 2% CSR spend correctly
- Draft and implement CSR Policy
- File Form CSR-2 and Board's Report on time
- Ensure CSR expenditure is audited by statutory auditors
- Set up CSR Committee and maintain compliance
- Transfer unspent CSR amounts to the correct accounts/funds
- Respond to ROC notices and adjudication proceedings
Frequently Asked Questions
Q: Which companies are required to spend on CSR?
A: Any company meeting any one of the following thresholds in the immediately preceding financial year: net worth ≥ ₹500 crore, turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore.
Q: How much must a company spend on CSR?
A: At least 2% of the average net profit of the preceding three financial years.
Q: What activities qualify as CSR?
A: Activities listed in Schedule VII of the Companies Act, including eradicating hunger, promoting education, environmental sustainability, heritage protection, rural development, and contributions to PM funds.
Q: Is CSR Committee mandatory?
A: Yes, if your company's CSR obligation exceeds ₹50 lakh. For obligations below ₹50 lakh, the Board can discharge CSR functions without a separate committee.
Q: What is the penalty for not spending CSR funds?
A: The company is liable to a penalty of twice the amount required to be transferred (up to ₹1 crore). Officers in default are liable to one-tenth of that amount.
Q: What is the deadline for filing CSR-2?
A: Form CSR-2 must be filed on or before 30 June of the following financial year.
Q: Can CSR expenditure be audited?
A: Yes. CSR expenditure is required to be audited by the statutory auditors of the company.
Q: What happens to unspent CSR money?
A: For ongoing projects, it goes to an Unspent CSR Account and must be spent within 3 years. For other cases, it must be transferred to a Schedule VII fund within six months of the financial year end.
Q: What are the proposed CSR threshold changes?
A: The Corporate Laws Amendment Bill 2025 proposes lowering thresholds to: net worth ₹100 crore, turnover ₹500 crore, and net profit ₹3 crore. The Bill has not yet been passed.
Q: Can excess CSR spend be carried forward?
A: Yes. Excess spend over the mandatory 2% can be set off against future CSR obligations for up to 3 succeeding financial years.
Sources: Companies Act, 2013 (Sections 135, 134(3)(o), 198, 454); Schedule VII; Companies (Corporate Social Responsibility Policy) Rules, 2014; ICAI Handbook on Audit of CSR Activities; Corporate Laws Amendment Bill 2025; Ministry of Corporate Affairs notifications. Verify current thresholds, rules, and procedures on mca.gov.in before acting, as amendments may be enacted. This article is general information on CSR compliance and not a substitute for professional advice.