Setting up a company CSR foundation

A CSR foundation is a non-profit, a Section 8 company, registered public trust or registered society, that a company sets up, alone or with other companies, to carry out its CSR. Under Rule 4(1)(a) of the Companies (CSR Policy) Rules, 2014 (the CSR Rules), it can implement the parent company’s CSR without the three-year track record that independent NGOs need, once it has its income-tax registrations and a CSR registration number.

A foundation suits a company that wants focus, specialist staff and continuity. It adds cost and governance work, and it never takes the legal duty off the parent’s board. This guide covers when one makes sense, the legal form, the set-up steps, governance, costs, money flows and the tax points to plan for.

When a foundation makes sense, and when it doesn’t

The weak reasons fail on the law: money given to a foundation isn’t spent until it is used (FAQ 7.4 of the Ministry of Corporate Affairs’ CSR FAQs, General Circular 14/2021), the parent’s board stays responsible (Rule 4(5)), CSR can’t serve marketing (Rule 2(1)(d)), and corpus contributions haven’t counted since 22 January 2021 (FAQ 3.5).

The costs are real too: months of set-up, staff, audits and compliance, two boards to coordinate, and a shared name, so the foundation’s mistakes become the company’s headlines. Plenty of companies run good CSR without one: see ways to implement CSR.

Choosing the legal form

Many companies choose a Section 8 company because its governance mirrors their own and their company secretaries know the filings. It must apply its income to its objects, can’t pay dividends, and can lose its licence if it breaks the conditions (Section 8(6)). A trust is often lighter to run; in Maharashtra and Gujarat it registers with the Charity Commissioner, and where a state doesn’t require public trusts to register, a trust registered under the Income-tax Act counts for CSR (FAQ 5.4). A society’s control rests with its members, which suits associations better. See trust, society or Section 8 company.

Setting it up, step by step

1. Form the entity. A Section 8 company applies to the Registrar through SPICe+ (Form INC-32), with its memorandum, articles, declarations and estimated income and expenditure for three years, and receives its licence on Form INC-16 (Rule 19 of the Companies (Incorporation) Rules, 2014): see registering a Section 8 company. A trust signs and registers its deed; a society files its memorandum and rules with the Registrar of Societies.
2. Get a PAN, and a TAN if the foundation will deduct tax at source.
3. Register on NGO Darpan (now also called NPO Darpan), which NITI Aayog says banks need for a non-profit’s account, and open a bank account.
4. Apply for income-tax registration and approval. A new foundation that hasn’t started activities files Form 104 for provisional registration under section 332 and provisional approval under section 354 of the Income-tax Act, 2025 (formerly sections 12A/12AB and 80G). The e-filing portal’s FAQs say the order, on Form 106, is generated automatically seven days after filing. Provisional registration lasts three tax years.
5. File Form CSR-1 under route (a), giving the CIN of each company that set the foundation up. The CSR Rules still describe the tax registrations by their 1961 Act numbers, so confirm with your CA that the provisional orders are enough. See Form CSR-1.
6. Adopt core policies before the first project: safeguarding, conflicts of interest, procurement, whistle-blowing, data protection and anti-fraud.
7. Seek FCRA registration only if foreign contribution is genuinely expected (see below).

The whole sequence usually takes months, so start well before the financial year in which the foundation should run projects, and make sure that year’s annual action plan names it as the manner of execution.

Governance: linking the foundation to the parent

The foundation’s own board answers for the foundation itself. Mix parent nominees with independent members, experts in your focus areas and, where you can, a community voice; a board of the parent’s managers alone tends to run the foundation as a department. See the NGO board. A short relationship charter approved by both boards should cover roles, the approval calendar, fund releases, reporting, secondments, branding and data sharing.

Related parties. Under the Income-tax Act, 2025, the parent is a “related person” of its foundation, as its founder and usually its main donor (section 355(h)), and income applied for a related person’s benefit is taxed at 30%. So no loans of idle cash to the parent and no services to its business, and any arrangement with it, such as renting its office space, should be at market rates, approved and recorded.

Staffing and running costs

A small foundation needs a chief executive, programme leads, monitoring and evaluation, finance and compliance, grants management and a named safeguarding lead. Hire for development experience too. If the parent’s staff work for the foundation, put the terms in writing: who pays them, who manages them and how their time is recorded.

Decide early how running costs will be paid for. Costs incurred directly on a project, such as programme staff and monitoring, are project costs. General running costs are harder: FAQ 3.3 says an implementing agency’s expenses on managing CSR activities “shall not amount to administrative overheads and cannot be claimed by the company”, a line read in different ways. Agree the treatment with the parent’s auditors before the first year, and write it into the annual action plan. See CSR budgets and the 5% overhead cap.

The foundation can’t be the independent agency for a mandatory impact assessment of its own projects (Rule 8(3)). Its job is to make one possible, with baselines and clean records.

Money flows, unspent money and corpus

The parent’s board approves the annual action plan, the parent transfers funds to the foundation for the approved projects, and the foundation spends them or passes them to partners under grant agreements. The hard part is timing.

• Spent means used. The FAQs say “mere disbursal of funds for implementation of a project does not amount to spending unless the implementing agency utilises the whole amount” (FAQ 7.4). Ask for tranches you can use within the year.
• The parent’s deadlines. Unspent money for ongoing projects goes to the parent’s Unspent CSR Account within 30 days of the year-end, and other unspent money to a Schedule VII fund within six months. Send quarterly forecasts and a statement as at 31 March within days of the year-end. See unspent CSR money.
• Surplus. Interest the foundation earns on CSR funds is surplus that must stay within CSR (Rule 7(2)).
• No CSR endowment. If the parent wants to give its foundation a corpus, that money must come from outside its CSR budget (FAQ 3.5).
• Re-granting. CSR money passed on to NGOs is still CSR money, so require each partner to meet the same eligibility tests, including a CSR registration number, unless the parent’s advisers say otherwise.

The foundation’s own tax rules

As a registered non-profit organisation, the foundation runs on its own tax clock alongside the parent’s CSR deadlines:

• The 85% rule. It must generally apply at least 85% of its regular income to its charitable purposes in the tax year, or accumulate it (section 336). Accumulating for a stated purpose, for up to five years, needs Form 109 by the return’s due date (section 342).
• Grants to other NGOs. Only 85% of a donation to another registered non-profit organisation counts as applying the foundation’s income (section 341(1)(b)), so a grant-making foundation should plan this with its CA.
• Books, audit, return and renewal. Above the basic exemption limit it must keep books, get them audited (Form 112) and file a return (sections 347 to 349), and it must renew its registration at least six months before it expires.

See the Income-tax Act, 2025 for NGOs, and work with a CA who knows the new Act.

FCRA and foreign shareholding

A foundation needs registration or prior permission under the Foreign Contribution (Regulation) Act, 2010 (FCRA) only if it will receive foreign contribution. That can include CSR money from its own parent, because some Indian companies with foreign shareholding count as a “foreign source”. If yours might, settle the question with an FCRA expert before the foundation takes any money: foreign contribution must arrive in a designated FCRA account at the State Bank of India’s New Delhi Main Branch, and can’t be passed on to other organisations. See who counts as a foreign source.