Implementing a CSR Project Under the Companies Act, 2013: A Practitioner’s Roadmap for Boards and Decision-Makers

Corporate Social Responsibility has travelled a long distance over the past decade — from a voluntary gesture buried in the annual report, to one of the more closely scrutinised statutory obligations a company carries under Section 135 of the Companies Act, 2013. Read alongside the Companies (Corporate Social Responsibility Policy) Rules, 2014, and Schedule VII, the framework is now precise, procedural, and unforgiving of shortcuts. Boards that still treat it as an afterthought are the ones that end up explaining themselves to the Registrar.

What follows is not the textbook summary but the operating procedure that holds up under audit and regulatory review — the sequence experienced advisors walk clients through, step by step.

Step 1: Establish Applicability With Certainty

CSR obligations apply if, in the immediately preceding financial year, a company 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

This obligation attaches to Indian companies, foreign companies with a branch or project office in India, and Section 8 companies alike — there is no quiet exit for any of them. One development every finance and legal team should be tracking: the Corporate Laws (Amendment) Bill, 2026, currently before a Joint Parliamentary Committee, proposes lifting the net profit threshold to ₹10 crore. It is not yet law, and prudent companies plan on today’s thresholds rather than tomorrow’s proposals.

Step 2: Constitute the CSR Committee With Real Governance in Mind

Once applicability is triggered, the Board must form a CSR Committee of at least three directors, including one independent director — or two directors where independent directors are not statutorily required, as in certain private companies. Companies whose spend obligation stays under ₹50 lakh for the year may dispense with a separate committee and let the Board absorb its functions directly. This is typically where governance quality first becomes visible to a regulator: a committee in name only, with no real oversight cadence, is usually the first thing an inspection surfaces.

Step 3: Formulate a CSR Policy That Will Survive Scrutiny

The Committee recommends, and the Board approves, a CSR Policy that:

• Lists the activities the company will undertake, drawn from Schedule VII (education, healthcare, poverty eradication, environmental sustainability, rural development, and more)
• Gives preference to the local area where the company operates
• Excludes activities benefiting only employees, political contributions, sponsorships for marketing benefit, and overseas activities (with narrow exceptions like training Indian sports personnel)

A policy is not a one-time document. It should be reviewed on a fixed annual cycle, updated as the company’s footprint changes, and disclosed on the company’s website — not filed away until the next audit forces a look.

Step 4: Size the Budget With Discipline

The statutory floor is 2% of average net profit computed over the three immediately preceding financial years (or the shorter period available to younger companies). Net profit is calculated per Section 198 — a materially different number from taxable profit, since capital receipts, income tax, and set-off of past losses are excluded. Getting this calculation wrong, even in good faith, remains one of the most common sources of under-spending, and it is entirely avoidable with proper technical review.

Step 5: Commit to a Formal Annual Action Plan

The CSR Committee must draw up an annual action plan covering:

• The list of approved projects
• Manner of execution and implementation schedules
• Modalities of fund utilisation and monitoring mechanisms
• Details of any impact assessment planned

Step 6: Select the Right Implementation Mode

There is no single “correct” model — the right choice depends on the company’s internal capacity and risk appetite. Companies can implement CSR projects:

1. Directly, through their own resources
2. Through a registered implementing agency — a Section 8 company, registered trust, or registered society — which must obtain a unique CSR Registration Number by filing Form CSR-1 with the Registrar of Companies
3. In collaboration with other companies, pooling resources for larger, shared projects
4. Through the Social Stock Exchange (SSE) route — since a May 2026 amendment, up to 10% of a year’s CSR expenditure can be routed via zero coupon zero principal instruments issued by eligible not-for-profit organisations listed on the SSE

The point that experienced practitioners stress most: an implementing agency must hold its CSR Registration Number before the project begins. Retrospective registration does not cure a compliance gap — it simply documents one.

Step 7: Monitor With the Same Rigour Applied to Capital Projects

The CSR Committee’s job does not end at fund disbursal. It monitors implementation against the action plan, tracks utilisation, and reports progress to the Board on a defined schedule. Companies with an average CSR obligation of ₹10 crore or more over three years must commission an independent impact assessment for any project with an outlay of ₹1 crore or more that has run for at least a year. This assessment should be treated as a governance instrument, not a compliance formality — it is often the clearest evidence a board has that its CSR spend is achieving anything at all.

Step 8: Manage Unspent Amounts Without Delay

If the budgeted amount is not fully spent in a year, the law gives no room for informal carry-forward:

• Amounts earmarked for an ongoing project must move within 30 days of the financial year-end into a separate Unspent CSR Account at a scheduled bank, to be spent within three financial years.
• Amounts not linked to an ongoing project must be transferred within six months to a fund specified in Schedule VII — the PM National Relief Fund or PM CARES Fund, among others.

Well-run companies still stumble here, most often because the finance function and the CSR function are not working off a shared calendar. This is a coordination failure, not a legal ambiguity, and it is entirely preventable with proper internal handoffs.

Step 9: Report With Precision

Every eligible company must:

• Include a CSR report in the Board’s Report, in the prescribed format
• File Form CSR-2 as an addendum to the annual financial statement filing

Disclosure quality here is increasingly read as a proxy for governance quality more broadly, and boards would do well to treat it that way.

Step 10: Understand the Cost of Getting This Wrong

Non-compliance with the spending-transfer provisions under Section 135(5)/(6) attracts a penalty of twice the unspent amount or ₹1 crore, whichever is less, on the company, with further penalties on officers in default. Other procedural lapses fall under the general penalty provisions of Sections 134(8) and 450. These are not theoretical numbers — enforcement has sharpened materially since the 2021 amendments converted CSR from a “comply or explain” regime into a “comply or pay” one.

A Closing Observation

CSR compliance rewards the same discipline a company applies to any other statutory obligation — clear ownership, a documented calendar, and numbers that are checked before they are filed, not after. Companies that treat CSR as a genuine, multi-year capital allocation decision — rather than a year-end reconciliation exercise — are consistently the ones that face fewer questions from regulators and fewer surprises from their own auditors.

This article reflects general professional practice and does not constitute legal advice. Boards and finance teams should consult a company secretary or legal counsel for project-specific compliance decisions.