Understanding CSR Compliance Under Companies Act 2013

Corporate Social Responsibility (CSR) under India's Companies Act 2013 is not optional for companies that cross statutory thresholds. Boards, company secretaries, and CSR committees need a clear read on applicability, the 2% spend rule, eligible activities, reporting, and what happens when money is left unspent. This guide summarises the practical compliance picture Causewave teams use when advising companies and NGO partners.

What is CSR under Section 135?

Section 135 of the Companies Act 2013 introduced mandatory CSR for qualifying Indian companies. Qualifying companies must constitute a CSR Committee (where required), approve a CSR policy, and spend at least 2% of the average net profits of the three immediately preceding financial years on CSR activities listed under Schedule VII — either directly or through eligible implementing agencies.

The intent is not only statutory spend. Regulators and boards increasingly expect programmes that are planned, monitored, and reported with the same seriousness as other material business obligations. That is where compliance and impact design meet — a theme we expand in our impact measurement framework.

CSR applicability: who must comply?

A company (including certain classes of companies as notified) comes under Section 135 if, during the immediately preceding financial year, it meets any one of these thresholds:

• Net worth of ₹500 crore or more, or
• Turnover of ₹1,000 crore or more, or
• Net profit of ₹5 crore or more.

Once applicable, the company must track ongoing eligibility, compute the average net profit correctly (as defined under the Act and rules), and maintain documentation that can withstand board scrutiny and regulatory review. “CSR applicability” searches often stop at the thresholds — the operational work is in policy, committee governance, project selection, and year-end reporting.

Key compliance obligations

• CSR Committee: Form a committee as required (composition rules depend on company type and board structure; independent director requirements apply where mandated).
• CSR Policy: Formulate and recommend a CSR policy covering approach, activities, and implementation modalities for board approval.
• Spending requirement: Spend at least 2% of average net profits of the three preceding financial years on eligible activities.
• Implementation: Deliver activities directly and/or through eligible implementing agencies (registered trusts, societies, Section 8 companies, and other permitted channels under the rules).
• Annual reporting: Disclose CSR particulars in the Board’s Report and comply with filing / format requirements applicable for the year.

Schedule VII: what counts as eligible CSR?

Schedule VII lists activity areas the statute treats as CSR — including education, healthcare, gender equality, environmental sustainability, rural development, disaster management, and more (as amended from time to time). Companies should map every project to a Schedule VII item and document that mapping.

Healthcare programmes are a frequent focus for Indian corporates because needs are clear and outcomes can be measured. For design lessons from large-scale public health delivery, see how to design impactful healthcare CSR programs.

Unspent CSR and ongoing projects

Unspent amounts are a common compliance pain point. Depending on whether the amount relates to an ongoing project or not, rules prescribe transfer of unspent CSR to specified funds or unspent CSR accounts within defined timelines, with multi-year project tracking for ongoing projects.

In practice, boards should receive a clear year-end view: amount required, amount spent, surplus treatment (if any), unspent classification, transfer deadlines, and project-wise status. Missing a transfer deadline can turn a planning issue into a penalty issue.

Penalties for non-compliance

Non-compliance with CSR provisions can attract penalties on the company and on officers in default (quantum as amended under the Act). Beyond fines, reputational and governance risk is material for listed companies and large private groups. Treating CSR as a year-end accounting exercise — rather than a governed programme portfolio — is the usual root cause of last-minute non-compliance.

Practical checklist for CSR leads

1. Confirm applicability and compute average net profit early in the year.
2. Align the annual action plan with Schedule VII and board-approved policy.
3. Vet implementing partners (registration, track record, geography fit).
4. Define indicators and reporting cadence before projects launch.
5. Track spend monthly; escalate unspent risk before Q4.
6. Close the year with board-ready disclosures and fund-transfer evidence where required.

FAQ: CSR compliance (quick answers)