Anaya Nolan
India's Corporate Social Responsibility (CSR) law, as outlined in Section 135 of the Companies Act, 2013, mandates that companies spend a minimum of 2% of their average net profit over the last three years on CSR activities. This law came into effect on April 1, 2014, and applies to specific companies, requiring them to engage in initiatives that positively impact society and the environment. The rules and regulations surrounding CSR in India are dynamic, with the Ministry of Corporate Affairs (MCA) releasing amendments for clarification. Companies must stay updated and adjust their CSR programs accordingly. The CSR law in India reflects the country's commitment to sustainable development and the well-being of its stakeholders.
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What You'll Learn
Mandatory CSR compliance for certain companies
India's Ministry of Corporate Affairs (MCA) has introduced Corporate Social Responsibility (CSR) as a mandatory compliance requirement for certain companies under Section 135 of the Companies Act, 2013. This law reflects India's commitment to operating in a manner that is economically, socially, and environmentally sustainable.
The mandatory CSR law applies to companies with a specific net worth or turnover, as outlined in Section 135(1) of the Act. These companies are required to spend a minimum of 2% of their average net profit over the last three financial years on CSR activities, as per Section 135(5). This can be done directly or by engaging with an implementing agency. For newly incorporated companies with less than three years of operations, the average net profit of the available years is considered.
The Board of Directors of these companies must ensure that their CSR activities fall within the purview of Schedule VII of the Act. This schedule includes activities such as water conservation, healthcare initiatives, women's empowerment, and green energy projects.
Companies must also comply with reporting requirements related to their CSR initiatives. They must disclose the particulars of their CSR activities independently in their CSR Annual Report, submitted by the Board. Additionally, any surplus resulting from CSR activities must be utilized exclusively for future CSR purposes.
It is important for companies to stay updated with the constantly changing rules and regulations regarding CSR in India and amend their programs accordingly. Non-governmental organizations (NGOs) with a valid CSR Registration Number issued before July 2025 are exempt from re-registration.
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CSR activities and projects
India's Ministry of Corporate Affairs (MCA) introduced Corporate Social Responsibility (CSR) as a mandatory compliance for certain companies under the Companies Act, 2013. This means that companies must engage in CSR activities and projects to help achieve sustainable development goals and positively impact various aspects of society.
The Board of Directors must ensure that the activities included in a company's CSR Policy align with the activities specified in Schedule VII of the Act. These activities may include projects relating to environmental, social, and economic development, such as water conservation, healthcare, and women's empowerment initiatives.
Companies must spend a minimum of 2% of their net profit over the last three years on CSR activities. This can be done directly or by engaging with an implementing agency, which must be registered with the Central Government by filing form CSR-1 electronically. Any surplus resulting from CSR activities must also be used exclusively for future CSR purposes.
The rules and regulations around CSR in India are constantly evolving, with the Ministry of Corporate Affairs releasing new guidance and amendments to clarify the requirements. Companies must stay updated and amend their CSR programs accordingly to ensure compliance with the latest regulations.
Some examples of CSR activities and projects undertaken by Indian companies include:
- Reliance Industries Limited's efforts in water conservation, with an expenditure of Rs. 1,592 crore in 2023-24.
- Apollo Tyres Limited's healthcare programme to support the elimination of Tuberculosis in India and its initiative to empower rural women through microfinancing and skill training.
- Adani Group's commitment to invest $100 billion in green energy projects to align with India's net-zero emissions goal.
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CSR rules and regulations
India's Ministry of Corporate Affairs (MCA) introduced Corporate Social Responsibility (CSR) as a mandatory compliance for certain companies under the Companies Act, 2013. This means that companies must engage in activities that contribute to the social, environmental, and economic development of the country. The rules and regulations around CSR are constantly changing, and companies must keep up with the latest updates and amend their CSR programs accordingly.
The Companies (CSR Policy) Rules, 2014, mandate that companies with a specific net worth or turnover must spend a minimum of 2% of their average net profit over the last three financial years on CSR activities. This can be done directly or by engaging with an implementing agency, which must be registered with the Central Government by filing form CSR-1 electronically. Any surplus resulting from CSR activities must also be used exclusively for CSR purposes.
The Board of Directors must ensure that the activities included in a company's CSR Policy fall within Schedule VII of the Act. This includes activities such as water conservation, healthcare initiatives, and projects to empower rural women.
To maintain compliance, companies must also adhere to reporting requirements. The MCA has separated the CSR-2 form from financial statement filings, and companies are now allowed to file CSR-2 independently. The CSR Annual Report, submitted by the Board, discloses the particulars of CSR activities.
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Implementing agencies
In India, Corporate Social Responsibility (CSR) is a mandatory requirement for certain companies under section 135 of the Companies Act, 2013. This law mandates that companies spend a minimum of 2% of their average net profit over the last three financial years on CSR activities.
Non-governmental organizations (NGOs) or other agencies with a valid CSR Registration Number prior to July 2025 are exempt from re-registration. International organizations, however, are not permitted to act as implementing agencies.
The implementing agency acts on behalf of the company and must utilize the full allocated amount to comply with CSR requirements. Any surplus generated from CSR activities, such as revenue from CSR projects or interest income on CSR funds, must be used exclusively for future CSR purposes.
Companies can engage with implementing agencies to ensure appropriate spending, monitoring, and reporting of their CSR initiatives. This collaboration ensures compliance with the dynamic CSR regulations in India and helps companies navigate the complex landscape of corporate social responsibility.
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CSR spending and reporting requirements
India's Ministry of Corporate Affairs (MCA) introduced Corporate Social Responsibility (CSR) as a mandatory compliance for certain companies under the Companies Act, 2013. This means that companies must engage in activities that contribute to the social, environmental, and economic development of the country.
CSR Spending Requirements
The Companies Act, 2013, mandates that companies with a specific net worth or turnover must spend at least 2% of their average net profits from the last three financial years on CSR activities. This can be done directly or by engaging with an implementing agency, which must be registered with the Central Government by filing form CSR-1 electronically.
For newly incorporated companies with less than three years of operations, the average net profit of the available years is considered. Excess CSR spending can be carried forward for up to three financial years, provided certain conditions are met.
CSR Reporting Requirements
The Board of Directors must ensure that the activities included in the company's CSR Policy align with those listed in Schedule VII of the Act. The CSR Annual Report, submitted by the Board, discloses the particulars of such activities.
Nonprofits acting as implementing agencies should work closely with companies to ensure their CSR spending and reporting requirements are met. Any surplus resulting from CSR activities must be used exclusively for future CSR purposes.
The MCA has also released an annexure of Frequently Asked Questions (FAQs) on CSR to clarify provisions and reduce ambiguity. Companies must keep up to date with these changes and amend their CSR programs accordingly.
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Frequently asked questions
CSR stands for Corporate Social Responsibility. In India, the Ministry of Corporate Affairs (MCA) introduced CSR as a mandatory compliance requirement for certain companies under the Companies Act, 2013. This means that companies must spend a minimum of 2% of their net profit over the last three years on CSR activities.
Examples of CSR activities in India include water conservation, healthcare programmes, and initiatives to empower rural women through microfinancing and skill training.
The purpose of CSR law in India is to promote sustainable development and positively impact various aspects of society. It reflects the country's commitment to operate in a manner that is economically, socially, and environmentally sustainable.
Companies in India must disclose their CSR activities in an annual report submitted by the Board. This report includes particulars of the activities undertaken, such as projects, programs, and any other relevant details.
The rules and regulations regarding CSR in India are constantly evolving. The Ministry of Corporate Affairs has released several amendments to clarify the rules and reduce ambiguity. Implementing agencies and companies must keep up with these changes to ensure compliance with the latest requirements.
