What is CSR? Corporate social responsibility in India, explained

Corporate social responsibility, or CSR, is the idea that a company owes something to the society it works in: to the people who live near its factories, the communities its products reach and the environment it draws on. Around the world, CSR is mostly voluntary. In India it is also the law.

Since 1 April 2014, Section 135 of the Companies Act, 2013 has required larger companies to spend part of their profits on social and environmental causes, and to report how they spent it. India is one of very few countries to make CSR spending compulsory. In 2023-24, companies spent ₹34,908.75 crore on CSR, according to government figures published in February 2026, and the rules shape a large share of the money that reaches NGOs, schools, hospitals and community projects across the country.

This guide explains the idea and the law in plain words: who must spend, how much, on what, who decides, how the money reaches people, what happens to money that isn’t spent, and what it all means for companies, NGOs and volunteers.

CSR as an idea, and as a law

As an idea, CSR is broad. It covers how a company treats its workers, whether it pollutes, how it sources materials, whether it pays its taxes and how it gives back. Much of this is now discussed as ESG (environmental, social and governance performance) or sustainability, and listed companies report on it in their Business Responsibility and Sustainability Report.

In Indian law, “CSR” means something narrower and more precise. The CSR Rules define it as the activities a company undertakes in pursuance of its statutory obligation under Section 135, in accordance with the Rules. In practice that means:

• spending a set minimum amount each year;
• on activities listed in Schedule VII of the Act;
• through projects the board has approved;
• and reporting what was spent, and on what, in the annual report and to the government.

So when a CSR head in India talks about “our CSR”, they usually mean this legal programme: the money, the projects and the paperwork that Section 135 requires.

Which companies must spend on CSR

Section 135 applies to a company that, in the immediately preceding financial year, met any one of three tests:

Meeting any one is enough. The tests apply to Indian companies of every kind, public or private, listed or unlisted, and to the Indian branches and project offices of foreign companies. A company that met a test in the year just ended has a CSR obligation for the current year.

The net profit test is the easiest to meet: ₹5 crore of profit is a much lower bar than ₹500 crore of net worth or ₹1,000 crore of turnover. That is why many mid-sized companies, not just household names, have CSR budgets. Our guide to which companies must spend on CSR works through the tests in detail.

How much: the 2% rule

A covered company’s board must ensure that the company spends, in each financial year, at least 2% of its average net profit made during the three immediately preceding financial years. A company that hasn’t yet completed three financial years averages the years it has completed.

Three details matter:

• It is 2% of profit, not of turnover or revenue. A company with ₹2,000 crore of turnover but modest profits may have a small CSR budget.
• Net profit has a special meaning. It is calculated under Section 198 of the Act, which adjusts accounting profit, and it leaves out profits from branches outside India and dividends from other Indian companies that meet their own CSR obligation. See calculating net profit for CSR.
• 2% is a minimum. A company can spend more, and any excess can, with a board resolution, be set off against what it must spend in the next three years.

Our guide to how much a company must spend has more examples, including companies with a loss year and companies younger than three years.

What the money can be spent on

CSR money can only be spent on activities that fall within Schedule VII of the Companies Act. The schedule is a list of broad areas, and the government amends it from time to time. Today it covers:

1. Ending hunger, poverty and malnutrition; health care, including preventive health care; sanitation; and safe drinking water.
2. Education, including special education, and skills that improve people’s employment and livelihoods.
3. Gender equality and women’s empowerment; homes and hostels for women and orphans; care for older people; and reducing the inequalities faced by socially and economically backward groups.
4. Environmental sustainability, ecological balance, protecting plants and animals, animal welfare, agroforestry, conserving natural resources, and the quality of soil, air and water.
5. Protecting national heritage, art and culture, public libraries, and traditional arts and handicrafts.
6. Measures for armed forces veterans, war widows and their dependants, and for veterans of the Central Armed Police Forces and Central Para Military Forces.
7. Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports.
8. Contributions to the Prime Minister’s National Relief Fund, the PM CARES Fund and other central government funds for the development, relief and welfare of Scheduled Castes, Scheduled Tribes, other backward classes, minorities and women.
9. Contributions to incubators and research in science, technology, engineering and medicine, and to certain public research institutions and universities.
10. Rural development projects.
11. Slum area development.
12. Disaster management, including relief, rehabilitation and reconstruction.
13. Subscribing to zero coupon zero principal instruments on a Social Stock Exchange, added in May 2026.

The areas are broad on purpose, and the Ministry of Corporate Affairs has said they should be interpreted liberally, so that companies can respond to real needs. What matters is that an activity is relatable to one of the items. Our guide to Schedule VII at a glance explains each area with examples.

Some things never count, whatever the cause: activities in the company’s normal course of business, activities outside India (except training Indian sports personnel), contributions to political parties, activities that mainly benefit the company’s employees, sponsorships for marketing benefit, and activities a company must carry out under another law anyway.

Who decides: the board and the CSR committee

CSR is a board responsibility. The law sets out a chain of decisions:

1. A CSR committee of the board drafts the company’s CSR policy, recommends the activities and the amount to spend, and monitors the policy. A listed company’s committee has at least three directors, one of them independent, while a private company’s can have two. A company whose CSR obligation is ₹50 lakh or less doesn’t need a committee, and the board does its work, unless the company has money sitting in an Unspent CSR Account.
2. The board approves the policy, discloses it in its report and on the company’s website, and makes sure the activities are actually carried out.
3. An annual action plan, drawn up by the committee and approved by the board, lists the projects for the year, how they will be carried out, how the money will be used and how the projects will be monitored.
4. The chief financial officer, or the person responsible for financial management, certifies that the money has been used for the purposes approved.

Our guide to the CSR committee covers composition, meetings and duties in detail.

How the money reaches people

A company has three main ways to carry out its CSR:

• Directly, with its own CSR team running the projects.
• Through an implementing agency: an NGO set up as a trust, society or Section 8 company with the required income-tax registrations, a foundation the company set up itself, or certain public bodies. Since 1 April 2021 every implementing agency must be registered with the Ministry of Corporate Affairs on Form CSR-1, which gives it a CSR registration number.
• In collaboration with other companies, pooling money for a shared project, as long as each company reports its own share separately.

Whichever route it takes, a company may spend no more than 5% of its total CSR expenditure for the year on administrative overheads: the general costs of running its CSR function, such as the CSR department’s salaries. Money spent directly on designing, running, monitoring and evaluating projects isn’t an overhead.

Money handed to an implementing agency doesn’t count as spent when it leaves the company’s account: the Ministry’s FAQs say that only money the agency has actually used on the project counts. That is why CSR agreements usually release money in tranches against progress. For NGOs, our guide to how NGOs can get CSR funding explains what this means in practice.

What happens to money that isn’t spent

Before 2021, a company that spent less than its obligation only had to explain why in its board’s report. Since 22 January 2021, unspent money has to go somewhere:

• For an ongoing project (a multi-year project that runs for up to three years after the year it starts), the unspent amount must be moved to a special bank account, the Unspent CSR Account, within 30 days of the end of the financial year. The company then has three financial years to spend it. Anything still unspent after that goes to a Schedule VII fund, such as the PM National Relief Fund, within 30 days.
• For anything else, the unspent amount must be transferred to a Schedule VII fund within six months of the end of the financial year.

A company that doesn’t follow these rules faces a penalty of twice the amount it should have transferred, or ₹1 crore, whichever is less. Every officer in default faces a penalty of one-tenth of that amount, or ₹2 lakh, whichever is less. See unspent CSR money and penalties for breaking the CSR rules.

How CSR is reported

CSR is one of the most closely reported areas of a company’s spending:

• The board’s report includes an annual report on CSR in a set format: the policy, the committee, the obligation, the total spent and any unspent amount. Since 20 September 2022 it gives totals, not project-by-project tables.
• The company publishes its CSR policy, committee and approved projects on its website.
• It files Form CSR-2 with the Ministry of Corporate Affairs, giving its spending project by project, with each project’s location and implementing agency. The government publishes the data on the National CSR Portal.
• Companies with an average CSR obligation of ₹10 crore or more over the previous three years must commission an independent impact assessment of every project of ₹1 crore or more, at least a year after it is completed.

Listed companies also report on social and environmental matters in the BRSR, which goes well beyond CSR spending.

What CSR means for you

If you work at a company, CSR is a legal programme with clear rules, but the rules leave room for judgement. The best CSR programmes start from a real need in a community, stay with it for several years, choose partners carefully and measure what changed, rather than spreading money thinly across many causes. Our guides to building a CSR strategy and choosing an NGO partner are a good next step.

If you run an NGO, CSR can be a steady source of funding for well-run projects, but it comes with conditions: the right legal form and registrations, a CSR-1 registration number, clear budgets, reporting against agreed milestones and, increasingly, evidence of outcomes. Start with how NGOs can get CSR funding.

If you are a volunteer or a student, CSR is behind many of the programmes you might join, from tree planting to literacy classes. Understanding it helps you see who pays for the work, what the rules expect and how to make your own contribution count.