CSR Rules in India: Who Must Spend 2% and How (2026)

Under the CSR rules in India, section 135 of the Companies Act, 2013 applies to every company that, in the immediately preceding financial year, had a net worth of ₹500 crore or more, or turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. Such a company must spend at least 2% of its average net profits of the three immediately preceding financial years on activities listed in Schedule VII. Unspent money must be moved to a special account within 30 days (ongoing projects) or to a Schedule VII fund within six months, or a penalty applies under section 135(7).

Who must spend under the CSR rules in India

Under the CSR rules in India, the three thresholds are alternatives. Crossing any one of them in the preceding financial year brings the company in.

Example: Vasudha Polymers Private Limited, Vadodara, had turnover of ₹320 crore and net profit of ₹6.2 crore last year. The finance manager assumed CSR did not apply because turnover was far below ₹1,000 crore. The company secretary pointed out that net profit of ₹5 crore or more alone triggers section 135. With average net profits of ₹5.5 crore over the last three years, the obligation was ₹11 lakh. Because that is below ₹50 lakh, the board itself could act as the CSR committee.

Private companies, subsidiaries and small companies are not exempt as a class. The CSR rules in India look at the numbers, not the company type.

How to calculate the 2% CSR obligation

1. Take the net profit for each of the three immediately preceding financial years, computed as section 198 provides.
2. Add them and divide by three to get the average.
3. The minimum spend for the current year is 2% of that average.
4. If the company spent more than required in a year, the excess can be set off against the requirement for up to the three immediately succeeding financial years, under the CSR Rules, with a board resolution.

A company with an average CSR obligation of ₹10 crore or more over the three preceding years must also get an impact assessment done for projects with outlays of ₹1 crore or more that were completed at least a year before the study.

What counts as CSR: Schedule VII

Schedule VII lists the permitted areas. In summary they include:

• Eradicating hunger, poverty and malnutrition; preventive health care and sanitation; safe drinking water.
• Promoting education, including special education and vocational skills.
• Gender equality and empowerment of women; homes for orphans, women and senior citizens.
• Environmental sustainability, ecological balance, animal welfare and conservation of natural resources.
• Protection of national heritage, art and culture.
• Training to promote sports.
• Contributions to specified funds, such as the PM CARES Fund and the Prime Minister’s National Relief Fund.
• Rural and slum area development, disaster management, and certain incubators and research.

What usually does not count: activities in the normal course of the company’s business, activities that benefit only the company’s employees and their families, contributions to political parties, and sponsorships aimed at marketing benefit for the company’s products or services.

CSR committee, unspent amounts and penalties

• Committee: a CSR Committee of the board formulates the CSR policy and recommends spending. Where the amount to be spent does not exceed ₹50 lakh, the board can discharge these functions itself (s.135(9)).
• Implementing agencies: a company can spend directly or through eligible agencies, which must register with the MCA in Form CSR-1.
• Ongoing projects: any unspent amount goes to a special Unspent CSR Account within 30 days of the end of the financial year and must be spent within the next three financial years.
• Other unspent amounts: transfer to a fund in Schedule VII within six months of the end of the financial year.
• Penalty (s.135(7)): the company is liable to twice the amount required to be transferred, or ₹1 crore, whichever is less. Each officer in default is liable to one-tenth of that amount or ₹2 lakh, whichever is less.
• Reporting: the board’s report includes an annual report on CSR in the format the CSR rules in India prescribe.

Watch this space: the Corporate Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on 23 March 2026 and a Joint Parliamentary Committee reported on 3 August 2026. It proposes raising the net profit trigger from ₹5 crore to ₹10 crore. Until it is passed and notified, the ₹5 crore threshold applies.

Frequently asked questions

What are the CSR rules in India for companies?

A company with net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the preceding financial year must spend at least 2% of its three-year average net profit on Schedule VII activities. It must have a CSR policy and committee, and handle unspent money within set deadlines.

Is CSR mandatory for private limited companies?

Yes, if the company crosses any one of the three thresholds in section 135(1). Being private or small does not exempt it.

Has the CSR net profit threshold been raised to ₹10 crore?

Not yet. The Corporate Laws (Amendment) Bill, 2026 proposes ₹10 crore, but as on 31 October 2026 it has not become law, so the ₹5 crore threshold still applies.

What happens if a company does not spend its CSR amount?

It must transfer the unspent amount to the Unspent CSR Account within 30 days (ongoing projects) or to a Schedule VII fund within six months. Failure attracts a penalty of twice the amount or ₹1 crore, whichever is less, plus penalties on officers in default.

Quick quiz

To apply the CSR rules in India alongside other board-level compliance, see the Business Law for Managers certificate course.

Sources

• Companies Act, 2013: s.135 (including sub-sections (1), (5), (6), (7) and (9)), s.198 and Schedule VII
• Companies (Corporate Social Responsibility Policy) Rules, 2014, as amended in 2021
• Corporate Laws (Amendment) Bill, 2026 (introduced 23 March 2026; JPC report 3 August 2026)

This page is for education and general information, not legal advice for a specific case. Law as on 31 October 2026.