Ten myths about CSR in India

CSR, short for corporate social responsibility, is one of the most discussed parts of Indian company law, and one of the most misunderstood. The same mistaken beliefs turn up in board meetings, NGO proposals, news reports and job interviews: that CSR is 2% of turnover, that every company has to do it, that it is a kind of tax.

Here are ten of the most common, each with what the law actually says and a link to the guide that explains it in full. The law is Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014 (the CSR Rules), as in force in October 2026. If you’re new to the subject, what is CSR is the place to start.

Myth 1: CSR is 2% of a company’s turnover

It is 2% of net profit, and of an average, not a single year. A covered company must spend at least 2% of its average net profit for the three immediately preceding financial years. Net profit here is profit before tax, calculated under Section 198 of the Act, with overseas branch profits and certain dividends left out.

Turnover only matters as one of the three tests that decide whether a company is covered at all. A company with ₹2,000 crore of turnover and an average net profit of ₹10 crore must spend at least ₹20 lakh, not ₹40 crore.

See how much a company must spend on CSR for worked examples.

Myth 2: Every company in India must do CSR

Only companies that cross a threshold must spend. A company is covered for a financial year if, in the year before, it had a net worth of ₹500 crore or more, a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more. Any one test is enough.

That still brings in a lot of companies, because the ₹5 crore profit test is a low bar: 27,188 companies spent on CSR in 2023-24, according to the consultancy Fulcrum’s analysis of government data. But a company below all three thresholds has no CSR obligation, and limited liability partnerships, partnership firms, trusts and societies aren’t covered by Section 135 at all.

See which companies must spend on CSR.

Myth 3: Money paid to an NGO counts as spent

It counts only when the NGO uses it. The Ministry of Corporate Affairs (MCA), which administers the law, is explicit about this in its FAQs on CSR:

So if a company releases ₹50 lakh to an NGO on 25 March and the NGO has used only ₹10 lakh by 31 March, the company can’t count the full ₹50 lakh as spent: only money the agency has actually used counts. That is why CSR money usually comes in tranches tied to milestones, and why CSR teams ask NGOs in February what they will actually use before the year ends.

See how CSR works in India and CSR agreements.

Myth 4: Any charity can receive CSR money

Only eligible organisations can carry out CSR for a company, and they must be registered. An NGO acting as an implementing agency (an organisation that carries out CSR projects for a company) must be a Section 8 company, a registered public trust or a registered society. It must have income-tax registration and approval for donors’ deductions: under the Income-tax Act, 2025, registration under Section 332 and approval under Section 354 (formerly 12A and 80G, the numbers the CSR Rules still use), or, for some institutions, the old section 10(23C) exemption. An independent NGO also needs a three-year track record in similar work.

Every implementing agency must also be registered with the MCA on Form CSR-1, compulsory since 1 April 2021, which gives it a CSR registration number. Bodies set up by the central or a state government, and statutory bodies set up under an Act, can be implementing agencies too.

CSR-1 registration shows that an organisation is eligible. It isn’t a quality mark, so companies still check partners themselves. See Form CSR-1 and how NGOs can get CSR funding.

Myth 5: Employee volunteering counts as CSR spending

The time employees give can’t be counted. The MCA’s FAQs say that “involvement of employees in CSR projects of a company cannot be monetized” (FAQ 3.18): a company can’t put a rupee value on volunteering hours and book it against its obligation.

The FAQs still encourage companies to involve their employees in CSR. Volunteering can build real relationships with communities. It just sits alongside the 2%, not inside it. The same goes for products a company gives away: contributions in kind can’t be valued and counted as CSR spending either (FAQ 3.12).

See employee volunteering.

Myth 6: CSR is a tax

CSR isn’t paid to the government, and the government doesn’t choose the projects. The MCA calls CSR “a Board-driven process”: the company’s CSR committee recommends, and its board approves, the policy and the projects. The FAQs add that the government “has no direct role in the approval and implementation” of a company’s CSR programmes, and the government told Parliament in February 2026 that the law has no provision for allocating CSR funds.

Money reaches government funds mainly in two ways: a company chooses to contribute to a fund named in Schedule VII, such as the PM National Relief Fund, or it must transfer unspent money there.

Nor is CSR a tax break. Under Section 34(2)(b) of the Income-tax Act, 2025 (formerly Explanation 2 to section 37(1) of the 1961 Act), CSR spending isn’t deductible as a business expense. Whether a company can claim a donation deduction for CSR contributions is contested; take tax advice. See CSR and income tax.

Myth 7: CSR can’t pay for buildings

It can. CSR money can build classrooms, clinics, water plants and other capital assets, and buy equipment, as long as the project falls within Schedule VII. What the CSR Rules control is who owns the asset afterwards (Rule 7(4)). It must be held by:

• a Section 8 company, registered public trust or registered society with charitable objects and a CSR registration number;
• the project’s beneficiaries, organised as self-help groups, collectives or entities; or
• a public authority, such as a gram panchayat or a state health department.

The company that paid for it can’t keep it. Stamp duty and registration fees for transferring the asset to its holder count as CSR spending in the year of transfer (FAQ 3.6). See capital assets in CSR.

Myth 8: India was the first to make CSR compulsory

It wasn’t. Mauritius required profitable companies to spend 2% of their profits on CSR, or hand the money over for social and environmental projects, from 2009, according to the Mauritius Revenue Authority. India’s Section 135 came into force on 1 April 2014.

What is true is that India is one of very few countries where CSR spending is a legal duty, with detailed rules on who must spend, how much, on what, through whom, by when and with what penalties. See a short history of CSR in India.

Myth 9: Unspent CSR money just carries forward

Not since 22 January 2021. Before then, a company that underspent only had to explain why in its board’s report. Now the money has to move by fixed deadlines:

• Money for an ongoing project, a multi-year project of up to three years after the year it started, goes into the company’s Unspent CSR Account within 30 days of the year’s end (by 30 April), and must be spent within the next three financial years.
• Everything else goes to a fund named in Schedule VII within six months (by 30 September). It can’t be spent on projects in the meantime.

Missing a deadline makes the company liable to a penalty of twice the amount that should have been transferred or ₹1 crore, whichever is less, and each officer in default to one-tenth of that amount or ₹2 lakh, whichever is less. Spending more than required is a different case: the board can, by resolution, set off the excess against the next three years. See unspent CSR money.

Myth 10: Every covered company needs a CSR committee

Not if its obligation is small. Where the amount a company must spend is ₹50 lakh or less, it doesn’t need a CSR committee, and the board does the committee’s work itself (Section 135(9)).

There is one exception, in force since 20 September 2022: a company with any money in its Unspent CSR Account must have a committee, however small its current obligation. Where a committee is needed, a listed company’s must have at least three directors, one of them independent, while a private company’s can have two.

See the CSR committee for the rules for each kind of company.