{"id":16345,"date":"2026-04-23T04:23:00","date_gmt":"2026-04-23T04:23:00","guid":{"rendered":"https:\/\/www.smilefoundationindia.org\/blog\/?p=16345"},"modified":"2026-04-23T16:37:17","modified_gmt":"2026-04-23T16:37:17","slug":"csr-rules-in-india","status":"publish","type":"post","link":"https:\/\/www.smilefoundationindia.org\/blog\/csr-rules-in-india\/","title":{"rendered":"CSR Rules in India Explained: Section 135, the 2% Mandate &amp; 2026 Compliance Guide"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\"><strong>CSR Rules in India <\/strong>\u2014 <strong>Summary<\/strong><\/h2>\n\n\n\n<p>India has one of the most structured corporate social responsibility frameworks in the world. Unlike most countries where CSR is voluntary, CSR rules in India are legally mandated, and for eligible companies, non-compliance carries real consequences.<\/p>\n\n\n\n<p>If you are a CSR head, finance leader or corporate decision-maker trying to understand what the law requires and how to meet it strategically in 2026, this guide is for you.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img fetchpriority=\"high\" decoding=\"async\" width=\"683\" height=\"1024\" src=\"https:\/\/www.smilefoundationindia.org\/blog\/wp-content\/uploads\/2026\/04\/CSR-rules-in-India-One-page-guide-683x1024.png\" alt=\"\" class=\"wp-image-16347\" srcset=\"https:\/\/www.smilefoundationindia.org\/blog\/wp-content\/uploads\/2026\/04\/CSR-rules-in-India-One-page-guide-683x1024.png 683w, https:\/\/www.smilefoundationindia.org\/blog\/wp-content\/uploads\/2026\/04\/CSR-rules-in-India-One-page-guide-200x300.png 200w, https:\/\/www.smilefoundationindia.org\/blog\/wp-content\/uploads\/2026\/04\/CSR-rules-in-India-One-page-guide-768x1152.png 768w, https:\/\/www.smilefoundationindia.org\/blog\/wp-content\/uploads\/2026\/04\/CSR-rules-in-India-One-page-guide.png 1024w\" sizes=\"(max-width: 683px) 100vw, 683px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Are CSR Rules in India?<\/strong><\/h2>\n\n\n\n<p>CSR rules in India are governed primarily by Section 135 of the Companies Act, 2013, read with the Companies (Corporate Social Responsibility Policy) Rules, 2014.<\/p>\n\n\n\n<p>The law requires certain companies to spend a portion of their profits on social development activities every financial year. It also requires them to form a CSR committee, adopt a CSR policy, report their spending publicly and account for any unspent funds.<\/p>\n\n\n\n<p>The intent is straightforward: companies that benefit from India&#8217;s markets and resources should contribute meaningfully to its social and environmental challenges.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Who Needs to Comply?<\/strong><\/h2>\n\n\n\n<p>Not every company falls under the <a href=\"https:\/\/cleartax.in\/s\/corporate-social-responsibility\" rel=\"nofollow noopener\" target=\"_blank\">CSR mandate<\/a>. The threshold is based on three financial criteria. A company must comply if it meets any one of the following in the preceding financial year:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Net worth of \u20b9500 crore or more<\/li>\n\n\n\n<li>annual turnover of \u20b91,000 crore or more<\/li>\n\n\n\n<li>net profit of \u20b95 crore or more<\/li>\n<\/ul>\n\n\n\n<p>This applies to Indian companies as well as foreign companies operating in India that meet these thresholds. Once a company crosses any one of these limits, it is obligated to follow the full CSR framework including spend, committee formation and reporting.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>The 2% CSR Rule: How It Works<\/strong><\/h2>\n\n\n\n<p>The core of India&#8217;s CSR mandate is simple. Eligible companies must spend at least 2% of their average net profit from the preceding three financial years on CSR activities every year.<\/p>\n\n\n\n<p>This is not a tax. It is a directed spend \u2014 money that must go toward qualifying social development activities, not into government coffers. Companies have the freedom to choose which qualifying activities they fund, where they operate and through which partners they implement.<\/p>\n\n\n\n<p>What they cannot do is treat it as optional, carry it forward indefinitely without consequence or spend it on activities that do not qualify under the Schedule VII list.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Section 135: What It Requires from Companies<\/strong><\/h2>\n\n\n\n<p>Section 135 places specific structural obligations on eligible companies beyond just spending.<\/p>\n\n\n\n<p><strong>The CSR Committee<\/strong><\/p>\n\n\n\n<p>Every eligible company must constitute a CSR Committee of the Board. This committee must include at least three directors, one of whom must be an independent director. For smaller companies, those with a CSR obligation below \u20b950 lakh, the committee requirement is waived and the Board itself handles CSR decisions.<\/p>\n\n\n\n<p>The committee is responsible for formulating the CSR policy, recommending the annual CSR spend, and monitoring implementation.<\/p>\n\n\n\n<p><strong>Board Responsibilities<\/strong><\/p>\n\n\n\n<p>The Board must approve the CSR policy, ensure the company spends the required amount and disclose reasons in the annual report if the full amount is not spent. This is not a back-office function. It sits at Board level by design.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Activities Qualify Under CSR rules in India?<\/strong><\/h2>\n\n\n\n<p>Qualifying CSR activities are listed in Schedule VII of the Companies Act. The list is broad but specific. It includes eradicating hunger, poverty and malnutrition, promoting <a class=\"wpil_keyword_link\" href=\"https:\/\/www.smilefoundationindia.org\/education\/\" title=\"Education\" data-wpil-keyword-link=\"linked\" data-wpil-monitor-id=\"3175\">education<\/a> and skilling, advancing gender equality and women&#8217;s empowerment, ensuring environmental sustainability, supporting healthcare and sanitation, promoting rural development, protecting national heritage and art, contributing to PM relief funds and other government funds and supporting sports training and Paralympic development.<\/p>\n\n\n\n<p>Activities that do not qualify include those that benefit only the company&#8217;s employees or their families, political contributions and activities conducted outside India.<\/p>\n\n\n\n<p>The key distinction is that CSR must be directed toward communities, not internal stakeholders. It must also align with the company&#8217;s CSR policy, which is approved by the Board.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How to Calculate Your CSR Spend<\/strong><\/h2>\n\n\n\n<p>The calculation is straightforward once you know the inputs.<\/p>\n\n\n\n<p>Step one: Take the net profit of the company for each of the preceding three financial years. Use net profit as per Section 198 of the Companies Act \u2014 this excludes certain items like capital gains and prior year losses.<\/p>\n\n\n\n<p>Step two: Calculate the average net profit across those three years.<\/p>\n\n\n\n<p>Step three: Calculate 2% of that average. This is your minimum annual CSR obligation.<\/p>\n\n\n\n<p>A simple example: if a company&#8217;s net profits over three years were \u20b980 crore, \u20b9100 crore and \u20b9120 crore, the average is \u20b9100 crore, and the CSR obligation is \u20b92 crore for the current financial year.<\/p>\n\n\n\n<p>Companies that have not completed three years of operations calculate the average based on the years available.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>CSR Reporting and Compliance in 2026<\/strong><\/h2>\n\n\n\n<p>Reporting is not optional, and it has become considerably more structured in recent years.<\/p>\n\n\n\n<p>Every eligible company must file an annual CSR report as part of its Board&#8217;s Report. This includes the composition of the CSR committee, the CSR policy, the amount required to be spent, the amount actually spent, a description of the activities funded and an explanation if the full amount was not spent.<\/p>\n\n\n\n<p>The report must also be submitted on the MCA&#8217;s CSR portal, which has become the central repository for CSR disclosure in India. The portal allows the government, civil society and the public to track what companies are spending and where.<\/p>\n\n\n\n<p>In 2026, the direction of regulatory expectation is clear: companies are increasingly expected to report on outcomes, not just activities. Simply listing what was funded is giving way to demonstrating what changed as a result. Companies that invest in impact measurement \u2014 tracking learning outcomes, <a class=\"wpil_keyword_link\" href=\"https:\/\/www.smilefoundationindia.org\/health\/\" title=\"Health\" data-wpil-keyword-link=\"linked\" data-wpil-monitor-id=\"3174\">health<\/a> indicators or livelihood improvements rather than just rupees spent \u2014 are better positioned both for regulatory scrutiny and for credible stakeholder communication.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Happens If CSR Is Not Spent?<\/strong><\/h2>\n\n\n\n<p>This is where many companies have faced difficulty, and where the rules have tightened considerably since 2021.<\/p>\n\n\n\n<p>If a company does not spend its full CSR obligation in a given financial year, the unspent amount must be transferred to a special account \u2014 the Unspent CSR Account \u2014 within 30 days of the end of the financial year. Funds in this account must be spent on ongoing CSR projects within three years. If they are not, they must be transferred to one of the funds specified in Schedule VII, such as the PM National Relief Fund.<\/p>\n\n\n\n<p>For funds not related to ongoing projects, the transfer to a Schedule VII fund must happen within six months of the financial year end.<\/p>\n\n\n\n<p>Non-compliance \u2014 including failure to transfer unspent funds, failure to report or deliberate avoidance of the obligation \u2014 can result in penalties for both the company and the responsible officers. Penalties can reach up to three times the unspent amount for the company and up to \u20b91 crore for individual officers.<\/p>\n\n\n\n<p>The message from regulators is unambiguous: carrying forward unspent CSR funds indefinitely is no longer permissible.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Key Updates and Shifts to Watch in 2026<\/strong><\/h2>\n\n\n\n<p>The CSR landscape in India is not static. Several important shifts are shaping how the framework operates in practice.<\/p>\n\n\n\n<p>Outcome measurement is becoming a regulatory expectation, not just a best practice. The government has been signalling that future reporting requirements may mandate third-party impact assessments for larger CSR spends, moving decisively from activity reporting to verified outcomes.<\/p>\n\n\n\n<p>Multi-year, ongoing projects are increasingly favoured over one-off grants. The rules create a specific mechanism for ongoing projects \u2014 allowing unspent funds to be carried forward rather than transferred \u2014 which effectively rewards companies that make long-term commitments.<\/p>\n\n\n\n<p>ESG integration is reshaping how companies frame CSR internally. As investors and regulators scrutinise ESG performance, CSR is being pulled into a larger accountability framework \u2014 one that demands strategic alignment, not just compliance.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>The Role of Implementation Partners<\/strong><\/h2>\n\n\n\n<p>Most companies do not implement CSR programmes directly. They work through implementation partners \u2014 registered NGOs, Section 8 companies or government bodies \u2014 that have the ground-level presence, expertise and community relationships to deliver programmes effectively.<\/p>\n\n\n\n<p>Choosing the right implementation partner is one of the most consequential CSR decisions a company makes. A strong partner brings programme design capability, community trust, robust monitoring systems and the institutional credibility to produce results that hold up to scrutiny.<\/p>\n\n\n\n<p>Smile Foundation has been a <a href=\"https:\/\/www.smilefoundationindia.org\/corporate-partnership\/\">CSR implementation partner<\/a> for over 400 companies across 27 states, working across education, healthcare, livelihood and women&#8217;s empowerment. Our programmes are designed for measurable, long-term impact \u2014 and for the kind of transparent reporting that compliance and credibility both require.<\/p>\n\n\n\n<p>For companies looking to move from tick-box CSR to genuine, accountable social investment, the right implementation partnership is where that transition begins.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Compliance Is the Floor, Not the Ceiling<\/strong><\/h2>\n\n\n\n<p>CSR rules in India set a floor \u2014 a minimum legal obligation that every eligible company must meet. But the companies whose CSR programmes produce real, lasting change are not the ones that spend exactly 2% and stop there. They are the ones that treat CSR as a strategic function, invest in partnerships that deliver outcomes and build programmes designed to compound over time.<\/p>\n\n\n\n<p>In 2026, with regulatory expectations rising and ESG scrutiny intensifying, the gap between compliance-focused CSR and impact-focused CSR has never been more visible, or more consequential.<\/p>\n\n\n\n<p>Meeting the law is necessary. What you do with that obligation is the real question.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Frequently Asked Questions (FAQs) \u2014 CSR Rules In India<\/strong><\/h2>\n\n\n\n<p><strong>What are CSR rules in India?<\/strong> <\/p>\n\n\n\n<p>CSR rules in India are legal requirements under Section 135 of the Companies Act, 2013, that mandate eligible companies to spend at least 2% of their average net profit from the preceding three years on qualifying social development activities. The rules also require companies to form a CSR committee, adopt a CSR policy and report publicly on their spending every year.<\/p>\n\n\n\n<p><strong>What is Section 135 of the Companies Act?<\/strong><\/p>\n\n\n\n<p> Section 135 is the provision of the Companies Act, 2013 that establishes India&#8217;s mandatory CSR framework. It defines which companies must comply, requires the formation of a CSR committee at Board level, mandates minimum annual CSR spend and sets out reporting and accountability requirements.<\/p>\n\n\n\n<p><strong>Who is required to spend on CSR in India?<\/strong> <\/p>\n\n\n\n<p>Any company \u2014 Indian or foreign operating in India \u2014 that meets at least one of the following thresholds in the preceding financial year: net worth of \u20b9500 crore or more, annual turnover of \u20b91,000 crore or more or net profit of \u20b95 crore or more.<\/p>\n\n\n\n<p><strong>How is CSR spending calculated?<\/strong> <\/p>\n\n\n\n<p>Take the net profit (as per Section 198 of the Companies Act) for each of the three preceding financial years, calculate the average and then calculate 2% of that average. The result is the minimum CSR obligation for the current financial year.<\/p>\n\n\n\n<p><strong>What happens if a company does not spend its CSR obligation?<\/strong> <\/p>\n\n\n\n<p>Unspent CSR funds must be transferred to a designated Unspent CSR Account within 30 days of the financial year end. Funds must be spent within three years on ongoing projects or transferred to a Schedule VII fund. Non-compliance can result in penalties of up to three times the unspent amount for the company.<\/p>\n\n\n\n<p><strong>What activities qualify under CSR in India?<\/strong> <\/p>\n\n\n\n<p>Qualifying activities are listed in Schedule VII of the Companies Act and include education, healthcare, hunger and poverty alleviation, environmental sustainability, women&#8217;s empowerment, rural development, skilling and contributions to specified government funds. Activities that benefit only company employees or involve political contributions do not qualify.<\/p>\n\n\n\n<p><strong>How do companies report their CSR in India?<\/strong> <\/p>\n\n\n\n<p>Companies must include a CSR report in their annual Board&#8217;s Report, covering committee composition, policy, amount required to be spent, amount actually spent and activity descriptions. This must also be filed on the MCA&#8217;s CSR portal, which is publicly accessible.<\/p>\n\n\n\n<p><strong>What has changed in CSR rules in India in recent years?<\/strong> <\/p>\n\n\n\n<p>The most significant change in CSR rules in India since 2021 is the tightening of rules around unspent funds \u2014 companies can no longer carry forward unspent amounts indefinitely without consequence. There is also a growing regulatory expectation around outcome measurement and third-party impact assessment, moving beyond activity reporting toward verified results.<\/p>\n\n\n\n<p><strong>Can CSR funds be carried forward?<\/strong> <\/p>\n\n\n\n<p>Only in specific circumstances. Funds allocated to ongoing multi-year projects can be held in the Unspent CSR Account and spent over up to three years. Funds not linked to ongoing projects must be transferred to a Schedule VII fund within six months of the financial year end.<\/p>\n\n\n\n<p><strong>How can companies partner with NGOs for CSR implementation?<\/strong> <\/p>\n\n\n\n<p>Companies can work with registered NGOs, Section 8 companies or other eligible implementing agencies that have a proven track record, transparent governance and strong programme delivery. The implementing agency must be registered on the CSR portal and companies must ensure that funds are used for qualifying activities and that outcomes are documented and reported accurately.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>CSR Rules in India \u2014 Summary India has one of the most structured corporate social responsibility frameworks in the world. Unlike most countries where CSR is voluntary, CSR rules in India are legally mandated, and for eligible companies, non-compliance carries real consequences. If you are a CSR head, finance leader or corporate decision-maker trying to [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":16439,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[581,9],"tags":[],"class_list":["post-16345","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-csr","category-partners-in-change"],"_links":{"self":[{"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/posts\/16345","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/comments?post=16345"}],"version-history":[{"count":0,"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/posts\/16345\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/media\/16439"}],"wp:attachment":[{"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/media?parent=16345"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/categories?post=16345"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.smilefoundationindia.org\/blog\/wp-json\/wp\/v2\/tags?post=16345"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}