Which companies must spend on CSR?

A company must spend on corporate social responsibility (CSR) in a financial year if, in the immediately preceding financial year, 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. Meeting any one of the three tests is enough, whatever its ownership or type.

The tests are in Section 135(1) of the Companies Act, 2013, and the Companies (Corporate Social Responsibility Policy) Rules, 2014 (the CSR Rules) fill in the detail. This guide explains each test, which year counts, how groups, foreign companies and young companies are treated, and what happens when a company moves in or out of the law. It’s for company secretaries, finance teams and CSR heads who must answer one question each April: are we covered this year? The amount is a separate calculation: see how much a company must spend on CSR.

The three tests

Three things follow:

• Any one test is enough. A company with ₹6 crore of net profit is covered even if its net worth and turnover are far below the other two thresholds.
• “Or more” includes the threshold itself. A company with exactly ₹5 crore of net profit is covered.
• Size and type don’t matter otherwise. Private and public, listed and unlisted companies are tested the same way. The ₹5 crore profit test is much the lowest bar, which is why many mid-sized companies have CSR budgets.

Which year counts

Coverage is tested on the immediately preceding financial year: the year that ended on the 31 March before the spending year. The amount uses a longer window, the average net profit of the three preceding years, so the two are easy to mix up.

This has been the test since 19 September 2018, when the Companies (Amendment) Act, 2017 replaced the words “any financial year”; older policies may still use them.

How each test is measured

Net worth

Section 2(57) defines net worth as, broadly, paid-up share capital plus reserves created out of profits, the securities premium account and the profit and loss balance, minus accumulated losses and expenditure not written off, as per the audited balance sheet. It leaves out reserves from revaluing assets, write-back of depreciation and amalgamation, so revaluing land can’t push a company over ₹500 crore.

Turnover

Section 2(91) defines turnover as the gross amount of revenue recognised in the profit and loss account from the sale, supply or distribution of goods, or from services rendered, during the financial year. It is revenue from the company’s goods and services, before any costs.

Net profit

Net profit for CSR is profit before tax calculated under Section 198 of the Act, which adjusts accounting profit (it leaves out capital profits, for example). Rule 2(1)(h) of the CSR Rules then excludes two items:

• profit from the company’s overseas branches, whether run as a separate company or otherwise; and
• dividends from other Indian companies that are themselves covered by, and complying with, Section 135.

The same figure drives both the ₹5 crore test and the 2% calculation. Our guide to calculating net profit for CSR works through Section 198 in detail.

Covered, but with nothing to spend

Tarini Estates, above, is covered through its net worth, but its obligation is 2% of its three-year average net profit. If that average is nil or negative, there is nothing to spend.

The law still treats such a company as covered. Its board must approve a CSR policy and disclose it (Section 135(4)), its board’s report includes the annual report on CSR (Rule 8(1)), and it files Form CSR-2, which every company covered by Section 135(1) must file. Because its obligation is below ₹50 lakh, the board can do the CSR committee’s work (Section 135(9)), unless money sits in an Unspent CSR Account, the special account for unspent ongoing-project money.

Who is covered: every kind of company

• Private and public companies, listed or unlisted. The FAQs of the Ministry of Corporate Affairs (MCA) set committee rules for each.
• Government companies, including public sector undertakings.
• Section 8 companies, the not-for-profit companies many NGOs use. Section 135(1) begins “Every company”, so a Section 8 company that meets a test must comply (FAQ 1.3 of the MCA’s FAQs, General Circular 14/2021).
• Indian subsidiaries of foreign groups. They are Indian companies, tested on their own figures.
• Foreign companies with a branch office or project office in India. Their net worth, turnover and net profit come from the accounts prepared for the Indian business under Section 381(1)(a), read with Section 198 (Rule 3(1)).

Section 135 doesn’t apply to bodies that aren’t companies under the Act, such as limited liability partnerships, partnership firms, trusts, societies and co-operatives. They can still give voluntarily.

Groups: holding and subsidiary companies

Every company is tested on its own. Rule 3(1) mentions holding and subsidiary companies, but the FAQs say compliance “is specific to each company” (FAQ 1.2). A holding company that meets no test itself isn’t covered because its subsidiary is, and a subsidiary isn’t covered because its parent is.

In a group with several covered companies, each one has its own obligation, its own committee (or board doing the committee’s work) and its own reporting. They can fund shared projects, as long as each company’s CSR committee can report on its share separately (Rule 4(4)).

When a company becomes covered, or stops being covered

Newly covered companies

A company that meets a test for the first time must comply from the next financial year: one whose turnover first crossed ₹1,000 crore in 2025-26 must spend on CSR in 2026-27. It then needs a board-approved CSR policy, a committee if its obligation is more than ₹50 lakh, an annual action plan and the website disclosures. See how CSR works in India.

A company that hasn’t completed three financial years is covered in the same way, and its 2% is based on the average of the years it has completed (Section 135(5); FAQ 1.4). One incorporated in 2024-25 that met the net profit test in 2025-26 averages those two years for 2026-27.

Companies that stop qualifying

Coverage is decided afresh each year. A company that meets none of the tests in 2025-26 has no new CSR obligation for 2026-27, even if it was covered the year before. Rule 3(2), which dealt with companies that had been outside the tests for three consecutive years, was omitted on 20 September 2022.

Three things carry on regardless:

• Money in an Unspent CSR Account must still be spent within its three-year window, or moved to a government fund named in Schedule VII. While any remains, the company must have a CSR committee and comply with Section 135(2) to (6) (Rule 3(1), second proviso, since 20 September 2022).
• Last year’s unspent money must still be transferred by its deadline: 30 April for ongoing projects, 30 September for everything else. See unspent CSR money.
• Excess spending available for set-off lapses at the end of its three years, even if the company is no longer covered in between (FAQ 3.8).

The proposed changes

A checklist: is the company covered this year?

1. Is it a company under the Act, or a foreign company with a branch or project office in India, and not an IFSC company in its first five years?
2. Take the audited figures for the immediately preceding financial year.
3. Run the three tests: net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, net profit for CSR of ₹5 crore or more.
4. Any test met: it is covered. Work out how much it must spend and whether it needs a CSR committee.
5. No test met: no new obligation, but check for money in an Unspent CSR Account, last year’s transfers and any set-off.