Introduction

Corporate Social Responsibility, commonly known as CSR, is no longer merely a voluntary act of charity in India. For companies meeting the prescribed financial thresholds, CSR is a statutory obligation governed principally by Section 135 of the Companies Act, 2013, Schedule VII and the Companies (Corporate Social Responsibility Policy) Rules, 2014.

Over the years, the CSR framework has undergone a fundamental transformation. The law has moved from a largely “comply or explain” model to a more stringent “spend, transfer and report” regime. Companies must now identify their CSR obligation correctly, approve an annual action plan, spend the prescribed amount, transfer unspent funds within the statutory timelines, monitor projects, make disclosures and file Form CSR-2.

As of 2026, CSR compliance must be treated as a complete governance process rather than a year-end donation exercise.

This article explains the CSR law applicable in India in 2026, including applicability, calculation, CSR committees, eligible activities, implementing agencies, ongoing projects, unspent amounts, impact assessment, reporting, taxation and penalties.

1. Legal Framework Governing CSR in India

The principal CSR provisions are contained in:

1. Section 135 of the Companies Act, 2013;
2. Schedule VII to the Companies Act, 2013;
3. Companies (Corporate Social Responsibility Policy) Rules, 2014;
4. Companies (Accounts) Rules, 2014, particularly Form CSR-2 reporting;
5. Section 198 of the Companies Act for calculating net profit;
6. Schedule III relating to financial statement disclosures; and
7. Relevant provisions of the Income-tax Act governing deductibility of CSR expenditure.

The statutory text of Section 135 of the Companies Act, 2013 and the activities listed in Schedule VII form the foundation of the Indian CSR regime.

2. Which Companies Are Covered Under CSR?

Section 135 applies to every company which, during the immediately preceding financial year, satisfies any one of the following conditions:

Particulars	Statutory threshold
Net worth	₹500 crore or more
Turnover	₹1,000 crore or more
Net profit	₹5 crore or more

Meeting even one of these thresholds is sufficient to trigger CSR applicability.

Companies covered

The provision may apply to:

• Listed companies;
• Unlisted public companies;
• Private limited companies;
• One Person Companies;
• Section 8 companies;
• Holding and subsidiary companies independently satisfying the criteria; and
• Foreign companies having a branch office or project office in India, subject to the applicable computation requirements.

CSR applicability is determined company-wise. A holding company becoming liable does not automatically make every subsidiary liable. Each company must independently examine whether it meets any of the statutory thresholds.

Example

Suppose a private company has:

• Net worth: ₹80 crore;
• Turnover: ₹250 crore; and
• Net profit: ₹20 crore.

The company will be covered under Section 135 because its net profit exceeds ₹5 crore, even though its net worth and turnover are below the other thresholds.

3. When Does a Company Cease to Be Covered?

If a company ceases to satisfy all the prescribed criteria for three consecutive financial years, it is generally not required to constitute a CSR Committee or comply with the corresponding CSR requirements until it again meets the applicability criteria.

Therefore, a company should not conclude that CSR has ceased to apply merely because its profit falls below ₹5 crore in one financial year. Its past applicability and the three-year exit rule must be carefully examined.

4. How Much Must a Company Spend on CSR?

A covered company must spend at least:

Two per cent of the average net profits made during the three immediately preceding financial years.

Where a company has not completed three financial years since incorporation, the average must be calculated for the financial years actually completed since incorporation.

Basic formula

[
text{CSR obligation} = 2% times text{Average net profit of the preceding three financial years}
]

Illustration

Financial year	Net profit under Section 198
FY 2022–23	₹8 crore
FY 2023–24	₹10 crore
FY 2024–25	₹12 crore
Total	₹30 crore
Average net profit	₹10 crore
CSR obligation for FY 2025–26 at 2%	₹20 lakh

The CSR obligation is not necessarily calculated on the “profit after tax” appearing on the face of the Statement of Profit and Loss. Net profit must be determined in accordance with Section 198, after making the prescribed inclusions and exclusions.

5. Important Adjustments in Calculating Net Profit

For CSR purposes, net profit is calculated in accordance with Section 198 of the Companies Act.

The calculation may require adjustments for matters such as:

• Profit on sale of forfeited shares;
• Capital profits of a non-recurring nature;
• Profit from sale of immovable property or fixed assets in specified circumstances;
• Premium received on shares or debentures;
• Income tax and related taxes;
• Certain compensation or damages;
• Usual working charges;
• Directors’ remuneration;
• Bonus or commission paid to employees;
• Interest on debentures and secured loans;
• Repairs, depreciation and other permissible expenses.

For a foreign company, dividend received from Indian companies complying with Section 135 and profits attributable to overseas branches may require exclusion in accordance with the applicable provisions.

A formal Section 198 working paper should be prepared and retained with the CSR records. Relying only on the profit figure appearing in the financial statements can result in an incorrect CSR obligation.

6. CSR Committee: Constitution and Composition

A company covered under Section 135 is ordinarily required to constitute a CSR Committee.

General composition

The CSR Committee must consist of:

• Three or more directors; and
• At least one independent director.

However, where a company is not legally required to appoint an independent director under Section 149(4), its CSR Committee can be constituted without an independent director.

Private company with two directors

A private company having only two directors may constitute its CSR Committee with those two directors.

Foreign company

For a covered foreign company, the CSR Committee must generally consist of at least two persons, including:

• One person authorised to accept service of notices and documents under Section 380(1)(d); and
• One person nominated by the foreign company.

Companies with CSR obligation not exceeding ₹50 lakh

Where the amount required to be spent under Section 135(5) does not exceed ₹50 lakh, constitution of a CSR Committee is not mandatory.

In such cases, the functions of the CSR Committee must be discharged by the Board of Directors.

This exemption relates to the amount of CSR obligation and not to the size or classification of the company.

7. Functions of the CSR Committee

The CSR Committee is expected to:

• Formulate and recommend the CSR Policy;
• Recommend CSR projects and programmes;
• Prepare and recommend the annual action plan;
• Recommend the amount of expenditure;
• Monitor implementation of approved projects;
• Review utilisation of CSR funds;
• Review ongoing projects and implementation schedules;
• Recommend modifications where necessary; and
• Establish a transparent monitoring mechanism.

The Board remains ultimately responsible for ensuring compliance. Constitution of a CSR Committee does not transfer the Board’s statutory accountability to the committee or implementing agency.

8. Annual Action Plan

The CSR Committee must formulate and recommend an annual action plan to the Board.

The annual action plan should ordinarily contain:

1. List of approved CSR projects or programmes;
2. Relevant Schedule VII category;
3. Project location;
4. Manner of execution;
5. Implementation schedule;
6. Amount allocated to each project;
7. Modalities for utilisation of funds;
8. Monitoring and reporting mechanism; and
9. Need and manner of impact assessment, wherever applicable.

The Board may alter the annual action plan during the financial year on the recommendation of the CSR Committee and on the basis of reasonable justification.

A vague resolution stating that the company will “spend on education and healthcare” may not be sufficient. The Board should approve identifiable projects, budgets, timelines, beneficiaries and monitoring responsibilities.

9. Activities Eligible Under Schedule VII

CSR expenditure must relate to the areas or subjects specified in Schedule VII. The entries in Schedule VII are intended to be interpreted liberally, but a reasonable connection with one or more recognised categories must exist.

Major eligible areas include:

9.1 Hunger, poverty, healthcare and sanitation

• Eradicating hunger, poverty and malnutrition;
• Promoting healthcare, including preventive healthcare;
• Sanitation;
• Safe drinking water;
• Contribution to the Swachh Bharat Kosh.

9.2 Education and livelihood

• Promoting education;
• Special education;
• Employment-enhancing vocational skills;
• Education for children, women, elderly persons and differently abled persons;
• Livelihood enhancement projects.

9.3 Gender equality and social welfare

• Promoting gender equality;
• Empowering women;
• Homes and hostels for women and orphans;
• Old-age homes and day-care centres;
• Facilities for senior citizens;
• Reducing inequalities faced by socially and economically backward groups.

9.4 Environmental sustainability

• Ecological balance;
• Protection of flora and fauna;
• Animal welfare;
• Agroforestry;
• Conservation of natural resources;
• Maintaining the quality of soil, air and water;
• Contribution to the Clean Ganga Fund.

9.5 Heritage, art and culture

• Protection of national heritage;
• Restoration of historically important buildings and sites;
• Preservation of works of art;
• Public libraries;
• Traditional arts and handicrafts.

9.6 Armed forces and veterans

Measures benefiting:

• Armed forces veterans;
• War widows and dependants;
• Central Armed Police Forces veterans; and
• Eligible dependants and families.

9.7 Sports

Training to promote:

• Rural sports;
• Nationally recognised sports;
• Paralympic sports; and
• Olympic sports.

9.8 Recognised government funds

Contributions to specified funds, including:

• Prime Minister’s National Relief Fund;
• PM CARES Fund; and
• Other eligible Central Government funds for socio-economic development and welfare of eligible groups.

9.9 Research and development

Eligible contributions may include specified incubators, research and development projects and public-funded universities or recognised institutions engaged in science, technology, engineering and medicine.

9.10 Rural and slum-area development

• Rural development projects;
• Slum-area development; and
• Disaster management, including relief, rehabilitation and reconstruction activities.

The complete statutory categories should always be verified from the latest version of Schedule VII to the Companies Act.

10. Activities That Do Not Qualify as CSR

The following activities are generally excluded:

Normal course of business

Activities undertaken in the company’s normal course of business are not CSR merely because they produce a social benefit.

For example, a hospital cannot ordinarily treat its regular paid medical services as CSR expenditure. It may, however, undertake a separately identifiable free healthcare project for disadvantaged groups.

Activities outside India

CSR activities must generally be undertaken in India.

An exception exists for expenditure on training Indian sports personnel representing a state or union territory at the national level, or India at the international level, where the conditions under the Rules are satisfied.

Employee-exclusive benefits

An activity designed exclusively for employees of the company and their families will not qualify.

However, employees may incidentally form part of a larger class of beneficiaries, provided the activity is not exclusively for them.

Political contributions

Direct or indirect contributions to a political party under Section 182 do not qualify as CSR.

Sponsorship and marketing activities

Sponsorship activities undertaken mainly to obtain marketing benefits for the company’s products or services are excluded.

A company cannot convert an advertising, brand-promotion or customer-acquisition expense into CSR merely by associating it with a social event.

Statutory obligations

Activities carried out to fulfil another statutory obligation under any law in force in India do not qualify as CSR.

Examples may include mandatory pollution-control expenditure, employee welfare legally required under labour legislation or compliance with an environmental direction.

One-off events

Marathons, awards, charitable contributions, advertisements, sponsorships, television programmes and similar one-time events may not independently qualify unless structured as part of an eligible and properly approved CSR project.

11. Direct Implementation and Implementing Agencies

A company may undertake CSR:

• Directly through its own organisational resources; or
• Through an eligible implementing agency.

Eligible implementing agencies may include:

1. A Section 8 company, registered public trust or registered society established by the company;
2. A Section 8 company, registered trust or registered society established by the Central or State Government;
3. An entity established under an Act of Parliament or State Legislature;
4. A Section 8 company, registered public trust or registered society having registrations under Sections 12A and 80G of the Income-tax Act and an established track record of at least three years in undertaking similar activities, subject to the Rules.

CSR-1 registration

An eligible implementing agency intending to undertake CSR activities must generally register with the Central Government by filing Form CSR-1.

Upon successful filing, a unique CSR Registration Number is generated.

Before releasing funds, the company should verify:

• CSR Registration Number;
• Section 8, trust or society registration;
• 12A registration;
• 80G approval, where applicable;
• Three-year track record, wherever required;
• Governing documents;
• PAN and bank details;
• Project experience;
• Financial statements and audit reports;
• Key management personnel;
• Related-party connections;
• Litigation or regulatory action;
• Utilisation and reporting systems.

Filing CSR-1 does not amount to government approval of the agency’s competence. The Board must independently conduct due diligence.

12. Collaboration Between Companies

Two or more companies may collaborate on a CSR project, provided each participating company can separately report:

• Its own contribution;
• Its proportionate expenditure;
• Project progress;
• Beneficiary information; and
• Compliance with its approved annual action plan.

A common project agreement should clearly address fund flow, monitoring, utilisation certificates, ownership of assets, reporting responsibilities and treatment of unspent or surplus amounts.

13. Meaning of an Ongoing Project

An “ongoing project” is generally a multi-year CSR project having timelines not exceeding three years, excluding the financial year in which it commenced.

It also includes a project that was not originally approved as a multi-year project but whose duration is extended beyond one year by the Board on reasonable justification.

A project cannot be labelled “ongoing” merely to retain unspent CSR funds. It must have:

• A defined objective;
• Approved commencement and completion dates;
• Identifiable milestones;
• A project budget;
• A genuine multi-year implementation requirement; and
• Board approval supported by reasonable justification.

The Board must monitor ongoing projects and may modify timelines within the period permitted by law to ensure proper implementation.

14. Treatment of Unspent CSR Amount

The legal treatment depends on whether the unspent amount relates to an ongoing project.

14.1 Unspent amount not relating to an ongoing project

Where the unspent amount does not relate to an ongoing project, it must be transferred to a fund specified in Schedule VII within six months from the end of the financial year.

For a financial year ending on 31 March, the transfer should ordinarily be completed by 30 September.

Merely stating reasons for non-spending in the Board’s Report does not remove the obligation to transfer the amount.

14.2 Unspent amount relating to an ongoing project

Where the amount relates to an ongoing project, it must be transferred to a special bank account titled:

Unspent Corporate Social Responsibility Account

The transfer must be completed within 30 days from the end of the financial year.

The amount must be spent on the ongoing project within three financial years from the date of transfer.

If any amount remains unspent after the permitted period, it must be transferred to a fund specified in Schedule VII within 30 days from the completion of the third financial year.

Practical distinction

Nature of unspent amount	Required action
Not related to an ongoing project	Transfer to a Schedule VII fund within six months from year-end
Related to an ongoing project	Transfer to Unspent CSR Account within 30 days from year-end
Amount still unspent after permitted ongoing-project period	Transfer to Schedule VII fund within 30 days after completion of the third financial year

15. Excess CSR Spending and Set-Off

If a company spends more than its prescribed CSR obligation, the excess may be set off against the CSR requirement of the immediately succeeding three financial years, subject to prescribed conditions.

The excess eligible for set-off must:

• Not include surplus arising from CSR activities;
• Be supported by proper accounting records; and
• Be approved by a Board resolution.

Example

A company has a CSR obligation of ₹25 lakh but spends ₹35 lakh.

The excess ₹10 lakh may potentially be set off against CSR obligations arising during the next three financial years, provided all statutory conditions are satisfied.

Companies should maintain a year-wise set-off register showing:

• Financial year of excess spending;
• Amount spent;
• Prescribed obligation;
• Eligible excess;
• Amount set off in subsequent years; and
• Balance available before expiry.

16. Treatment of Surplus Arising from CSR Activities

Any surplus arising from CSR activities cannot form part of the business profits of the company.

The surplus must be:

1. Ploughed back into the same CSR project;
2. Transferred to the Unspent CSR Account and spent in accordance with the CSR Policy and annual action plan; or
3. Transferred to a fund specified in Schedule VII within six months from the end of the financial year.

Surplus generated from CSR is different from excess CSR expenditure. A surplus cannot be treated as an amount available for set-off against a future CSR obligation.

17. Administrative Overheads

Administrative overheads are expenses incurred by the company for general management and administration of its CSR functions.

They do not ordinarily include expenses directly incurred for the design, implementation, monitoring or evaluation of a particular CSR project.

Administrative overheads must not exceed five per cent of the company’s total CSR expenditure for the financial year.

Illustration

If the company’s total CSR expenditure is ₹1 crore, the administrative overhead component should ordinarily not exceed ₹5 lakh.

Direct project expenses should be properly distinguished from general CSR administration expenses. Artificially classifying central administrative costs as project expenditure may lead to non-compliance.

18. Creation or Acquisition of Capital Assets

CSR expenditure may result in the creation or acquisition of a capital asset. However, such asset should generally be held by:

• A Section 8 company;
• A registered public trust;
• A registered society having charitable objects and CSR Registration Number;
• Beneficiaries of the CSR project in the form of self-help groups, collectives or entities; or
• A public authority.

A company should not ordinarily create a CSR-funded asset for its own commercial ownership or operational benefit.

The project documents should clearly specify:

• Nature and cost of the asset;
• Location;
• Intended beneficiaries;
• Registered owner;
• Restrictions on disposal;
• Maintenance responsibility; and
• Treatment upon closure of the project.

Form CSR-2 also requires reporting of capital assets created or acquired through CSR expenditure.

19. Responsibility of the Chief Financial Officer

The Board must satisfy itself that CSR funds have been utilised for the approved purposes and in the approved manner.

The Chief Financial Officer, or the person responsible for financial management, must certify the utilisation of CSR funds.

The certification should not be treated as a routine signature. It should be supported by:

• Bank statements;
• Ledger extracts;
• Invoices and vouchers;
• Utilisation certificates;
• Implementing-agency reports;
• Confirmation of project milestones;
• Site-verification records;
• Beneficiary data; and
• Asset-creation documents, where applicable.

Where funds are merely advanced to an implementing agency but remain unutilised, treating the entire advance as CSR expenditure may be questionable. Expenditure should be recognised based on actual utilisation and the applicable accounting principles.

20. Impact Assessment

Impact assessment is mandatory for companies having an average CSR obligation of ₹10 crore or more during the three immediately preceding financial years.

Such companies must undertake an impact assessment through an independent agency for CSR projects which:

• Have an outlay of ₹1 crore or more; and
• Were completed at least one year before the impact assessment.

The report must be placed before the Board and annexed to the annual CSR report.

Expenditure on impact assessment

Expenditure incurred on impact assessment may be booked towards CSR for that financial year, subject to the prescribed ceiling. The permissible amount is generally the higher of:

• Two per cent of the total CSR expenditure for that financial year; or
• ₹50 lakh.

Purpose of impact assessment

A meaningful assessment should examine:

• Whether the project achieved its stated objectives;
• Number and profile of actual beneficiaries;
• Change produced by the intervention;
• Sustainability of the outcome;
• Cost-effectiveness;
• Gaps in implementation;
• Unintended consequences; and
• Scope for continuation, correction or replication.

Impact assessment should not be reduced to a collection of photographs, attendance sheets or testimonials.

21. Board’s Report and Website Disclosures

The Board’s Report must contain an annual report on CSR in the prescribed format.

The disclosure generally covers:

• Brief outline of the CSR Policy;
• Composition of the CSR Committee;
• Web links to the CSR Policy and approved projects;
• Average net profit;
• CSR obligation;
• Amount spent;
• Amount unspent;
• Ongoing and other projects;
• Administrative overheads;
• Impact assessment expenditure;
• Set-off of excess expenditure;
• Capital assets created; and
• Responsibility statement.

Where the company has a website, it must disclose the required CSR information, including:

• Composition of the CSR Committee;
• CSR Policy; and
• CSR projects approved by the Board.

The Board’s Report, financial statements, website disclosures and Form CSR-2 must be mutually consistent.

22. Filing of Form CSR-2

Every company covered under Section 135(1) is required to furnish a report on CSR in Form CSR-2.

The form captures detailed information relating to:

• CSR applicability;
• Constitution of the CSR Committee;
• Net profit and CSR obligation;
• Amount spent;
• Unspent amount;
• Ongoing projects;
• Implementing agencies;
• Transfers to the Unspent CSR Account;
• Transfers to Schedule VII funds;
• Impact assessment;
• Excess expenditure and set-off;
• Administrative overheads;
• Capital assets; and
• Website disclosures.

CSR-2 filing procedures and deadlines have undergone repeated operational changes during the migration from MCA21 V2 to V3. For example, separate filing and extended timelines were prescribed for earlier financial years.

For FY 2024–25 and subsequent periods, professionals should verify the specific MCA notification, portal instruction and filing sequence applicable on the actual date of filing. As a matter of practice, the financial statements in the applicable AOC-4 form should be filed first, followed by CSR-2 in the manner enabled on the MCA V3 portal.

CSR-2 figures must be reconciled with:

• Audited financial statements;
• Notes to accounts;
• Board’s Report;
• CSR annexure;
• Section 198 calculation;
• General ledger;
• Bank records;
• Unspent CSR Account; and
• Implementing-agency utilisation certificates.

23. Accounting Treatment of CSR Expenditure

The accounting treatment depends on the nature and timing of the obligation.

Companies should examine:

• Whether a provision is required at year-end;
• Whether the amount spent has actually been utilised;
• Whether an unspent ongoing-project amount has been transferred;
• Whether the liability to transfer a non-ongoing unspent amount exists;
• Whether expenditure creates a qualifying asset;
• Treatment of excess spending and available set-off;
• Treatment of surplus from CSR activities; and
• Schedule III disclosure requirements.

CSR-related figures should be separately identifiable in the books. Maintaining a dedicated CSR ledger with project-wise sub-ledgers is advisable.

The financial statements should disclose the CSR expenditure and related particulars required under Schedule III.

24. Income-Tax Treatment of CSR Expenditure

Explanation 2 to Section 37(1) of the Income-tax Act provides that expenditure incurred by an assessee on activities relating to CSR under Section 135 shall not be deemed to be expenditure incurred for the purposes of business or profession.

Accordingly, CSR expenditure is generally not allowable as a normal business deduction under Section 37(1).

However, depending on the nature of expenditure and satisfaction of specific statutory conditions, a deduction may be examined under other provisions of the Income-tax Act.

A company should not assume that every donation to an entity having 80G approval automatically results in an income-tax deduction. The nature of payment, applicable section, statutory restrictions and judicial position must be separately analysed.

The CSR treatment under company law and the deduction under income-tax law are distinct questions.

25. Penalties for Non-Compliance

Failure to comply with the requirements relating to transfer of unspent CSR amounts attracts monetary penalties under Section 135(7).

Penalty on the company

The company may be liable to a penalty equal to twice the amount required to be transferred to the Unspent CSR Account or a Schedule VII fund, as applicable, or ₹1 crore, whichever is less.

Penalty on officers in default

Every officer in default may be liable to a penalty equal to one-tenth of the amount required to be transferred, or ₹2 lakh, whichever is less.

Other defaults—such as incorrect disclosures, non-filing of CSR-2, absence of the prescribed report or false statements—may attract separate consequences under the Companies Act and the applicable rules.

If false information is knowingly furnished, more serious provisions relating to fraud, false statements or false evidence may also become relevant, depending on the facts.

26. Practical CSR Compliance Calendar

At the beginning of the financial year

• Check CSR applicability;
• Prepare the Section 198 net-profit working;
• Calculate the CSR obligation;
• Verify brought-forward excess spending;
• Constitute or review the CSR Committee;
• Prepare the annual action plan;
• Identify eligible projects;
• Conduct implementing-agency due diligence;
• Obtain CSR-1 details;
• Approve policy, projects and budgets through Board resolutions.

During the financial year

• Execute project agreements;
• Release funds in milestone-based instalments;
• Monitor expenditure and utilisation;
• Obtain utilisation certificates;
• Conduct site visits;
• Maintain beneficiary and progress records;
• Review ongoing projects;
• Identify delays and unspent balances early;
• Place periodic reports before the CSR Committee and Board.

At the end of the financial year

• Reconcile project-wise expenditure;
• Obtain CFO certification;
• Identify ongoing and non-ongoing unspent amounts;
• Transfer ongoing-project funds to the Unspent CSR Account within 30 days;
• Transfer other unspent amounts to a Schedule VII fund within six months;
• Account for surplus and excess spending;
• Complete impact assessment, where applicable;
• Prepare Board’s Report disclosures;
• Update the company’s website;
• File financial statements and Form CSR-2;
• Preserve supporting records.

27. Documents That Every CSR-Compliant Company Should Maintain

A well-maintained CSR compliance file should contain:

1. CSR applicability memorandum;
2. Section 198 net-profit calculation;
3. CSR obligation working;
4. CSR Committee constitution documents;
5. CSR Policy;
6. Annual action plan;
7. Board and committee notices, agendas and minutes;
8. Project proposals and budgets;
9. Schedule VII mapping note;
10. Due-diligence report on implementing agencies;
11. CSR-1 acknowledgement and registration number;
12. Project agreements;
13. Bank statements and ledger extracts;
14. Invoices and supporting vouchers;
15. Utilisation certificates;
16. Progress and monitoring reports;
17. Beneficiary records;
18. Site-visit reports and photographs;
19. CFO certification;
20. Impact assessment report;
21. Unspent CSR Account records;
22. Proof of transfers to Schedule VII funds;
23. Capital-asset ownership documents;
24. Board’s Report CSR annexure;
25. Website disclosure evidence;
26. Form CSR-2 and acknowledgement; and
27. Reconciliation statement between accounts, Board’s Report and CSR-2.
28. Common CSR Compliance Mistakes

Companies frequently make the following mistakes:

• Calculating CSR on profit after tax without preparing a Section 198 working;
• Checking only the ₹5 crore net-profit criterion and ignoring net worth and turnover;
• Assuming CSR immediately stops when profit falls below the threshold for one year;
• Making donations without prior Board approval;
• Selecting activities without proper Schedule VII mapping;
• Treating marketing sponsorship as CSR;
• Treating employee welfare as CSR;
• Using an implementing agency without CSR-1 registration;
• Releasing the entire amount at year-end without a genuine project;
• Treating an advance to an NGO as completed CSR expenditure;
• Not opening the Unspent CSR Account on time;
• Incorrectly classifying a project as ongoing;
• Missing the 30-day or six-month transfer deadlines;
• Failing to obtain CFO certification;
• Exceeding the five per cent administrative-overhead ceiling;
• Ignoring mandatory impact assessment;
• Allowing a CSR-funded capital asset to remain in the company’s name;
• Treating CSR surplus as business income;
• Setting off excess expenditure without a Board resolution;
• Reporting inconsistent amounts in the accounts, Board’s Report and CSR-2;
• Failing to update website disclosures; and
• Considering CSR solely as an annual filing exercise.

29. CSR Priorities for Companies in 2026

By 2026, the expectations from CSR have moved beyond cheque-writing. Companies are increasingly expected to demonstrate measurable social outcomes and stronger fund governance.

Important areas of focus include:

Climate resilience

Projects may address:

• Water conservation;
• Renewable energy access for communities;
• Restoration of ecosystems;
• Climate-resilient agriculture;
• Waste management; and
• Disaster preparedness.

Skill development and employability

Projects focusing on:

• Digital skills;
• Vocational education;
• Entrepreneurship;
• Employment-linked training;
• Financial literacy; and
• Industry-specific skills

are likely to remain highly relevant, provided they fit within Schedule VII and are not designed mainly to recruit employees for the contributing company.

Public health

Preventive healthcare, nutrition, sanitation, mental-health support and rural health infrastructure continue to be significant areas of intervention.

Technology-based monitoring

Companies are increasingly using digital systems for:

• Beneficiary registration;
• Geo-tagged project evidence;
• Fund-utilisation monitoring;
• Project dashboards;
• Outcome measurement; and
• Audit trails.

Technology should support verification and governance, but it cannot replace independent judgement, physical validation and proper documentation.

30. Conclusion

Corporate Social Responsibility under Indian company law has evolved into a structured statutory obligation involving governance, finance, project management, accounting and regulatory reporting.

For 2026, the correct compliance approach can be summarised as follows:

Check applicability, calculate correctly, approve a genuine project, select a compliant implementing agency, monitor actual utilisation, transfer unspent funds on time and maintain consistent disclosures.

The Board cannot discharge its responsibility merely by transferring money to an NGO or making a year-end donation. It must remain satisfied that CSR funds are used for approved purposes, that the project produces an identifiable social benefit and that every statutory requirement is fulfilled.

Companies that integrate CSR into their governance and risk-management systems will be better placed to create genuine social impact while avoiding financial penalties and reputational risk.

Key Statutory References

• Section 135 of the Companies Act, 2013 – Corporate Social Responsibility
• Schedule VII – Eligible CSR Activities
• Companies (Corporate Social Responsibility Policy) Rules, 2014
• Companies Act, 2013 on India Code

Legal position reviewed up to 28 July 2026.

Disclaimer

This article is intended for general professional and educational information. It does not constitute legal, tax or financial advice. CSR applicability, expenditure, taxation and reporting should be examined with reference to the facts of each company and the latest statutory amendments, MCA notifications, circulars and portal instructions.

 

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Thanks & Regards,