Indian CSR: Surprising Facts Every Finance Team Should Know

Corporate Social Responsibility (CSR) in India is not just a line item for the annual report — it is a legal obligation. Many founders and finance teams reduce the rule to “put 2% of profits into charitable contributions.” The reality is more technical, and several compliance surprises frequently trip up companies. Below are key facts about CSR in India, with sources from the Companies Act and reputable compliance guides.

India made CSR a legal duty

India is the first major economy to make CSR mandatory. Section 135 of the Companies Act, 2013 has been effective since April 1, 2014, and places statutory CSR obligations on qualifying companies.

Three thresholds trigger CSR, not just profit

Section 135 applies if a company meets any one of three thresholds in the immediately preceding financial year: net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. That means a company with modest turnover but an unusually profitable year can become liable.

“Net profit” for CSR is a different calculation

CSR liability follows the definition of net profit under Section 198 of the Companies Act, not the income-tax profit reported in tax returns. Several add-backs and exclusions under Section 198 change the base amount; using tax-return profit is a common compliance error.

Foreign entities with India operations can fall under Section 135

International subsidiaries, branch offices or foreign companies with project offices in India are not automatically exempt. If the Indian entity’s financials cross the thresholds, Section 135 applies to them as well.

CSR spending must match Schedule VII activities

Expenditure must conform to Schedule VII of the Companies Act. Acceptable areas include reducing hunger and poverty, healthcare, education, environmental sustainability, and rural development. Routine business activities, exclusive employee benefits, political donations, and marketing sponsorships are excluded.

Strict rules for unspent CSR funds

Unspent amounts for ongoing projects must be moved to a designated Unspent CSR Account within 30 days of the financial year‑end. Funds not tied to ongoing projects should be transferred to a Schedule VII fund (for example, the PM National Relief Fund). Non‑compliance can attract penalties — up to double the unspent amount, capped at ₹1 crore.

Small obligations avoid a separate CSR committee

If a company’s CSR liability is less than ₹50 lakh in a year, it is not required to form a separate CSR committee; the board can discharge CSR functions directly.

Impact assessment required for large CSR programmes

If a company’s average CSR obligation over the last three years is ₹10 crore or more, it must commission an independent impact assessment. The assessment must evaluate outcomes and not just inputs or spending.

CSR spend has risen sharply since 2014

CSR expenditures have grown substantially since the law’s introduction — rising from around ₹10,066 crore in FY 2014–15 to about ₹34,909 crore in FY 2023–24, with participation by firms also increasing significantly over the period.

Thresholds are under review (March 2026 update)

The Corporate Laws (Amendment) Bill, 2026 proposed increasing the net‑profit trigger (reported proposals suggested moving the ₹5 crore threshold higher, for example to ₹10 crore). Any relief would apply only to the net‑profit condition; companies exceeding net‑worth or turnover thresholds would remain liable. A parliamentary committee is reviewing the Bill.

Practical takeaways for finance and compliance teams

• Don’t assume “2% of tax profit” — calculate CSR on Section 198 net profit.
• Monitor all three thresholds across the financial year; a single profitable year can create liability.
• Review foreign subsidiaries and project offices for local applicability.
• Maintain clear records tying CSR spending to Schedule VII categories.
• Track unspent project funds and transfer them on time to avoid penalties.
• Plan for independent impact assessments if your three‑year average CSR obligation approaches ₹10 crore.
• Watch amendments to thresholds and update your CSR governance before year‑end if your numbers are close.