Impact assessment under the CSR rules

Under Rule 8(3) of the CSR Rules, a company whose average CSR obligation over the three preceding financial years is ₹10 crore or more must have an independent agency assess the impact of each CSR project with an outlay of ₹1 crore or more, once the project has been completed for at least a year. The reports go to the board and are annexed to the annual report on CSR, and the cost can count as CSR spending up to 2% of the year’s total CSR expenditure or ₹50 lakh, whichever is higher.

The requirement took effect on 22 January 2021, with the rest of the overhaul of the CSR law. The Ministry of Corporate Affairs’ FAQs describe its purpose as helping companies make considered decisions and deepen the impact of their CSR (FAQ 9.1).

This guide is for CSR teams, company secretaries and the NGOs whose projects will be assessed. It explains who is covered, the cost limit and the exemption for Social Stock Exchange funding, then how to commission an assessment that is worth reading.

What Rule 8(3) says

The MCA’s FAQs (General Circular 14/2021) add four points:

• Both tests must be met. If the company test or the project test isn’t met, an assessment is voluntary (FAQ 9.2).
• Projects completed on or after 22 January 2021 are covered (FAQ 9.3). Older ones can be assessed as good practice.
• The board decides how the independent agency is chosen (FAQ 9.4).
• A summary and a link are enough. An executive summary in the annual report on CSR, with a web link to the full report, is sufficient compliance (FAQ 9.6). Companies that collaborate on a project can share one assessment (FAQ 9.7).

Which companies and projects are covered

The company test uses the CSR obligation, the 2% the company had to spend under Section 135(5), not what it actually spent. Average the obligations of the three preceding financial years. Our guide to how much a company must spend shows how each year’s obligation is worked out.

The cost limit

Since 20 September 2022, the cost of an impact assessment can count as CSR spending for that year up to 2% of total CSR expenditure for the year or ₹50 lakh, whichever is higher. Before that, the limit was 5% or ₹50 lakh, whichever was less, so ₹50 lakh was a ceiling. Now it is a floor.

The limit sits outside the 5% cap on administrative overheads (FAQ 9.5), so assessment costs don’t eat into it. A company can spend more than the limit, but the excess doesn’t count towards its CSR obligation.

Social Stock Exchange projects

Since 27 May 2026, a company can spend up to 10% of its total CSR expenditure for the year on zero coupon zero principal (ZCZP) instruments, issued by not-for-profit organisations on a Social Stock Exchange (Rule 4A). Rule 4A(2) exempts the subscribing company from assessing the impact of any project funded this way.

The project isn’t left unmeasured. Under SEBI’s framework, the not-for-profit organisation that raised the money files an annual impact report, assessed by a social impact assessor, by 31 October each year (or by its income-tax return due date, if that is later). The government describes the organisation as responsible for executing and evaluating the project. See the Social Stock Exchange.

When to start: at the beginning

An impact assessment a year after a project ends can only be as good as the data collected along the way. Plan for it on the day the project is approved:

1. Before the project starts: agree the theory of change, the outcome indicators and a baseline, measured in a way an assessor can repeat. Where you can, measure a comparison group too.
2. During the project: keep records an assessor can check, such as registers, test results and utilisation certificates, and measure again at the end.
3. At least a year after completion: commission the assessment, so it can show whether the change lasted.
4. Before the board’s report is approved: place the report before the board, and put its executive summary and web link in the annual report on CSR.

A project that collected no baseline is hard to assess a year after it ends. The assessor will have to reconstruct the starting point from records and memories, and the findings will be weaker for it. Our guide to baselines and evaluation explains the designs an assessor can use.

Choosing an independent agency

The Rules require an independent agency and leave the selection to the board (FAQ 9.4). Independence is the point: the agency that ran the project can’t assess it, and neither can the company’s own CSR foundation for projects it implemented. Rule 4(3) also lets a company engage international organisations for designing, monitoring and evaluating CSR projects.

Terms of reference: a template

The terms of reference (ToR) tell the agency what you want. A vague ToR produces a vague report.

For the questions, the six evaluation criteria in the OECD’s glossary make a useful checklist: relevance, coherence, effectiveness, efficiency, impact and sustainability. You needn’t use all six; choose the ones the board needs answered.

What a good report contains

A good impact assessment report has:

• An executive summary that a board member can read in five minutes, including what didn’t work.
• The project’s logic, its theory of change and what it promised.
• Methods and limits, stated plainly: the design, the sample and what the assessment can’t show.
• Findings by outcome, against the baseline, with the comparison group where there is one, broken down by group and place.
• Costs, including cost per outcome.
• Sustainability: what will continue after the money stops, and who will maintain any assets.
• People’s own voices, gathered with consent and without identifying anyone vulnerable.
• Recommendations that the company and the NGO can act on.

Be wary of reports that count only outputs, rely on a few testimonials, claim impact without any comparison, or contain no negative findings at all.

What it means for NGOs

If your project is large enough to be assessed, you will be asked for access to records, staff and the communities you serve. Prepare from the start: keep your baseline and monitoring data clean, agree in your CSR agreement how data will be shared and protected, and get people’s consent to share personal data with an assessor. When the findings arrive, respond to them openly: a partner that learns from a hard assessment is one a CSR committee will want to keep.