Corporate Social Responsibility (CSR) in India is no longer just a voluntary philanthropic gesture; it is a mandatory statutory obligation for certain large companies under Section 135 of the Companies Act, 2013. This framework compels businesses to actively engage in CSR activities in India that contribute to the social, environmental, and economic development of the country. This guide explains the core requirements, compliance forms, and the types of CSR Activities in India that companies must undertake.
When Does Corporate Social Responsibility in India Apply?
The provisions for corporate social responsibility in India apply to every company—including foreign companies and Section 8 companies—that meets specific financial thresholds during the immediately preceding financial year.
A company must comply if it fulfills any one of the following criteria:
- Net worth of more than Rs. 500 crore (INR 5 billion).
- Turnover of more than Rs. 1000 crore (INR 10 billion).
- Net profit of more than Rs. 5 crore (INR 50 million).
The Mandatory 2% Spending Rule
If a company meets any of the above thresholds, its Board of Directors must ensure the company spends a minimum of at least 2% of its average net profits.
This calculation is based on the net profits made during the immediately preceding three financial years. For newly incorporated companies that have not completed three financial years, the average net profits are calculated for the financial years completed since incorporation. The computation of net profit for this purpose is done as per Section 198 of the Act.
Understanding Legal and Permitted CSR Activities in India
All CSR Activities in India that a company undertakes must fall within the specific list provided in Schedule VII of the Companies Act. The Board must approve the CSR policy and ensure the activities are compliant.
The permitted areas for CSR Activities in India are extensive and include:
- Poverty and Health: Eradicating poverty, hunger, and malnutrition; promoting healthcare, sanitation, and making safe drinking water available. This includes contributing to the Swachh Bharat Kosh.
- Education: Improving education quality, special education, and strengthening vocational skills among various groups, including children, women, and the elderly.
- Environmental Sustainability: Safeguarding environmental sustainability, protecting flora and fauna, conserving natural resources, and maintaining the quality of soil, air, and water. This also includes efforts for the rejuvenation of river Ganga.
- National Heritage: Protecting national heritage, art, and culture, such as restoring historical buildings and promoting traditional arts.
- Welfare for Vulnerable Groups: Promoting gender equality, empowering women, and setting up homes or hostels for women, orphans, and senior citizens.
- Support for Forces: Providing welfare measures for armed forces veterans, war widows, and their dependents.
- Disaster Management: Including relief, rehabilitation, and reconstruction activities during disasters.
- Government Funds: Contributing to government funds such as the Prime Minister’s National Relief Fund or the PM CARES Fund.
Activities That Do Not Qualify as CSR
It is important to know that certain expenditures are not counted as eligible CSR activities in India, including:
- Activities undertaken in the normal course of business.
- Activities undertaken outside India (except for training Indian sports personnel representing India internationally).
- Contributions made directly or indirectly to political parties.
- Activities that solely benefit the employees of the company.
- Sponsorship activities meant primarily for deriving marketing benefits.
- Activities fulfilling statutory obligations under any other law in force in India.
Compliance, Reporting, and Consequences of CSR
The corporate social responsibility in India framework is monitored through mandatory disclosures and reporting. Companies must first establish a CSR Committee consisting of three or more directors to formulate the policy and recommend expenditure.
Reporting Forms (CSR-1 and CSR-2)
Companies and the organizations they fund must use specific forms to ensure transparency:
- Form CSR-1: This registration form is mandatory for NGOs, trusts, or Section 8 companies that undertake CSR activities in India on behalf of a mandating company to receive funds. Filing this form helps ensure effective monitoring of CSR spending.
- Form CSR-2: This is the mandatory annual reporting form for CSR activities, introduced for the financial year 2020-21 onwards. Companies must file this separately (independent of Form AOC-4) and include detailed information on project spending, locations, and reasons for any shortfall in the mandated 2% spending.
Penalties for Non-Compliance
Failure to spend the required 2% amount or failure to properly transfer the unspent amount can result in severe penalties for the company and its officers.
| Non-Compliance Scenario | Penalty for the Company | Penalty for Defaulting Officer |
|---|---|---|
| Failure to comply with CSR spending or transfer provisions | Up to Rs. 1 crore (INR 10 million) OR Twice the unspent amount required to be transferred, whichever is less | Up to Rs. 2 lakh (INR 200,000) OR One-tenth of the unspent amount required to be transferred, whichever is less. |
CSR Activities in India by Numbers
Though the growth rate of CSR spending slowed in FY 2022-23 compared to the rise in net profits, the total amount invested in corporate social responsibility in India remained substantial.
The table below shows the total expenditure on CSR activities in India over recent fiscal years:
| Fiscal Year | Total Number of Companies | Total Amount of CSR Spent (INR) | Total Number of CSR Projects |
|---|---|---|---|
| FY 2022-23 | 24,392 | 299.86 billion | 51,966 |
| FY 2021-22 | 19,888 | 265.79 billion | 44,425 |
| FY 2020-21 | 20,840 | 262.10 billion | 39,324 |
| FY 2019-20 | 22,985 | 249.65 billion | 35,290 |
| FY 2018-19 | 25,181 | 202.17 billion | 32,071 |
Handling Unspent Money from CSR Activities
What happens if a company fails to spend the mandatory 2% amount required for corporate social responsibility in India? The rules depend on whether the unspent funds are earmarked for an ongoing project.
For Ongoing Projects
If the unspent amount relates to an ongoing CSR project, the company must transfer the unspent money to an exclusive bank account, known as the ‘Unspent Corporate Social Responsibility Account,’ within 30 days from the end of the financial year. The company then has three financial years to utilize these funds toward its CSR obligations. If the funds remain unused after the three-year period, they must be transferred to a specified government fund within 30 days upon completion of the third financial year.
For Projects Not Yet Started
If the unspent amount is not related to an ongoing project, the company must transfer that amount to a specified government fund listed under Schedule VII (like the Prime Minister’s National Relief Fund or other funds for socio-economic development) within six months of the end of the financial year.
Furthermore, any surplus (income generated from the CSR activities in India, such as interest or revenue from projects) must be utilized exclusively for CSR purposes.
Conclusion: The Strategic Role of Corporate Social Responsibility in India
The legal mandate for corporate social responsibility in India reflects the evolving expectations that businesses must contribute positively to society. By adhering to the legal framework—including forming a CSR Committee, spending the mandatory 2% on eligible CSR Activities in India, and filing the necessary Forms CSR-1 and CSR-2—companies ensure transparency and compliance.
Successful integration of corporate social responsibility in India builds a positive brand image, attracts socially conscious customers, and creates long-term value, proving that giving back is also good business strategy.