Corporate Social Responsibility Under Section 135 of Companies Act 2013

Corporate Social Responsibility (CSR) means the voluntary contributions made by companies to a better society and a cleaner environment. It refers to the responsibility of companies to contribute to social, environmental, and economic development while carrying out business activities. 

Key Highlights

• CSR is mandatory for eligible companies under Section 135 of the Companies Act, 2013.
• Companies must spend at least 2% of average net profits on approved CSR activities.
• CSR activities are governed by Schedule VII of the Companies Act.

Types of Corporate Social Responsibility

Corporate social responsibility initiatives are generally classified into the following types:

• Environmental responsibility: Sustainability, climate action, waste management, and conservation
• Ethical responsibility: Fair business practices, transparency, and governance
• Philanthropic responsibility: Donations, education, healthcare, and community welfare
• Economic responsibility: Long-term value creation while supporting social objectives

Corporate Social Responsibility Under Section 135

Section 135 of the Companies Act, 2013 ("Act") provides that certain companies must mandatorily contribute a certain amount towards CSR activities. As per the Act, 'Corporate Social Responsibility' means and includes but is not limited to:

• Projects or programmes relating to activities specified in Schedule VII to The Act.
• Projects or programmes relating to those activities which are undertaken by the Board of Directors of a company in ensuring the recommendation of the CSR Committee of the Board as per declared CSR Policy along with the conditions that such policy will cover subjects specified in Schedule VII of the Act.

CSR Applicability in India

The provisions of CSR applies to every company fulfiing any of the following conditions in the preceding financial year:

• Net worth of more than ₹500 crore
• Turnover of more than ₹1000 crore
• Net profit of more than ₹5 crore

The Board of Directors of every company for which the CSR provisions apply must ensure that the company spends in every financial year at least 2% of its average net profits made during the immediately preceding three financial years as per its CSR policy. 

If the company has not completed three financial years since its incorporation, it must spend 2% of its average net profits made during the immediately preceding financial years as per its CSR policy.

Why is Corporate Social Responsibility Important?

Corporate social responsibility plays a critical role in balancing profit-making with social accountability. It ensures that businesses contribute positively to society while pursuing economic goals.

CSR helps:

• Address social and environmental challenges
• Promote sustainable development
• Improve corporate reputation and trust
• Strengthen stakeholder relationships

Benefits of Corporate Social Responsibility

CSR is an immense term that is used to explain the efforts of a company in order to improve society in a significant manner. Below are the benefits of CSR for a business:

• Reduces compliance risks and helps prevent penalties.
• Improves corporate image and goodwill.
• Boosts employee morale, engagement, and retention.
• Increases customer loyalty and retention.
• Attracts socially conscious investors and partners.
• Provides a competitive advantage in the market.
• Supports risk management and regulatory compliance.
• Creates new market and business opportunities.
• Builds long-term value and business resilience.

Role of Board of Directors

The role of the Board of Directors in implementing CSR is as follows:

• After considering the recommendations made by the CSR Committee, approve the CSR policy for the Company and disclose the contents of the Policy on its website.
• The Board must ensure only those activities must be undertaken which are mentioned in the policy.
• The Board of Directors shall make sure that the company spends in every financial year, a minimum of 2% of the average net profits made during the three immediately preceding financial years as per CSR policy.
• In case a company has not completed three financial years since its incorporation, the average net profits shall be calculated for the financial years since its incorporation.
• The Board’s Report shall disclose:
  • CSR Committee’s composition
  • The contents of CSR Policy
  • In case CSR spending does not meet 2% as per CSR Policy, the reasons for the unspent amount, and details of the transfer of unspent amount relating to an ongoing project to a specified fund (transfer within a period of six months from the expiry of the financial year). 

List of Permitted CSR Activities Under Schedule VII 

The Board of Directors shall ensure that the activities included by a company in its CSR Policy fall within the purview of the activities included is schedule VII of the Act. The activities specified in Schedule VII which may be included by companies in their Corporate Social Responsibility Policies are as follows:

Examples of CSR

In FY 2023-2024, 27,188 companies contributed to CSR through 59,633 projects, spending around ₹34,908.75 crore in 14 development sectors, as per the National CSR portal. 

The top 5 companies undertaking CSR activities and projects in India for FY24 include: 

• HDFC Bank Limited
• Reliance Industries Limited
• Tata Consultancy Services Limited
• ONGC Limited
• Tata Steel Limited

Examples of CSR in 2024-25 in India are as follows:

• NTPC Limited: Spent ₹362.94 crore, benefiting around 18.4 lakh people, primarily residing in remote areas across the country. Its major CSR activities focus on girl empowerment and hygiene, skill development, education, health, sports, and the environment.
• Hero MotoCorp: Spent ₹80.54 crores, impacting the lives of more than 8.47 lakh people in India. Its top CSR initiatives focus on road safety programmes, sports, honouring Indian Army veterans, healthcare, education, skill development, and protecting biodiversity.
• ACC Limited: Spent ₹42 crores, benefiting 7.38 lakh people across 15 Indian states. Its top CSR activities focus on healthcare, TB eradication, rural development, education, skill development and women empowerment.

Note: The CSR data provided in the examples above for FY 2024-25 are taken from ‘CSR Journal’. 

Transfer and Use of Unspent Amount

If a company fails to spend 2% of its net average profits for CSR, it must transfer unspent CSR amount to the following specified funds within six months from the end of the financial year:

• A contribution made to the Prime Minister’s National Relief Fund.
• Any other fund is initiated by the central government concerning socio-economic development, relief and welfare of the scheduled caste, minorities, tribes, women and other backward classes.
• A contribution made to an incubator is funded either by the central government, the state government, public sector undertaking of the state or central government, or any other agency.
• Contributions made to:
  • Public-funded universities
  • Indian Institute of Technology (IITs)
  • National Laboratories and Autonomous Bodies established under:
    • Indian Council of Agricultural Research (ICAR)
    • Council of Scientific and Industrial Research (CSIR)
    • Department of Atomic Energy (DAE)
    • Department of Biotechnology (DBT)
    • Department of Pharmaceuticals
    • Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH)
    • Ministry of Electronics and Information Technology 
    • Indian Council of Medical Research (ICMR)
    • Defence Research and Development Organisation (DRDO) 
    • Department of Science and Technology (DST) engaged in conducting research in technology, science, medicine, and engineering aimed at encouraging Sustainable Development Goals (SDGs).

In case of the unspent amount relating to an ongoing project under the company’s CSR policy, the company will transfer the unspent amount to an exclusive account to be opened by a company, known as ‘Unspent Corporate Social Responsibility Account’, in any scheduled bank within 30 days from the end of the financial year.

The company must use the funds in the ‘Unspent Corporate Social Responsibility Account’ towards its obligations under the CSR policy within a period of three financial years from the date of the transfer.

In a case where the company fails to utilise the funds at the end of the three financial years, the funds should be transferred to the specified fund mentioned above within a period of 30 days upon completion of the third financial year.

Net Profit for CSR Applicability

Every company which needs to comply with the CSR provisions have to spend 2% of the average net profits made during the preceding three years as per the CSR policy. The computation of net profit for CSR is as per Section 198 of the Companies Act, 2013.

Section 198 provides that while computing the net profits of a company, a credit should be given for the subsidies and bounties received from any government or public authority constituted or authorised on this behalf.

For computing net profits, credit cannot be given for the following sums:

• Profits, by way of premium on shares, unless the company is an investment company.
• Profits on sales of forfeited shares.
• Profits of a capital nature, including profits from the sale of the undertaking or any part thereof.
• Profits from the sale of any fixed assets or immovable property of a capital nature comprised in the undertaking, unless the company business consists of buying and selling any assets or property.
• Any change in the carrying amount of an asset or of a liability recognised in equity reserves, including surplus in profit and loss accounts for the measurement of the asset or the liability at fair value.
• Any amount representing notional gains, unrealised gains or revaluation of assets

In making the computation of net profits, the following sums should be deducted:

• Every usual working charge.
• Directors’ remuneration.
• Bonus or commission payable or paid to any member of the company’s staff, technician, engineer or person engaged or employed by the company, whether on a part-time or whole-time basis.
• Any tax notified by the Central Government as a tax on abnormal or excess profits.
• Any tax on business profits imposed for special reasons or special circumstances and notified by the Central Government.
• Interest on debenture issued by the company.
• Interest on mortgages executed by the company and on advances and loans secured by a charge on its floating or fixed assets.
• Interest on unsecured advances and loans.
• Expenses on repairs, whether to movable or immovable property, provided the repairs are not of a capital nature.
• Outgoings inclusive of contributions made under section 181.
• Depreciation to the extent specified in section 123.
• Excess of expenditure over income.
• Damages or compensation to be paid for any legal liability and any sum paid by way of insurance against the risk of meeting the such liability.
• Debts considered bad and adjusted or written off during the year of account.

In making the computation of net profits, the following sums cannot be deducted:

• Income-tax and super-tax payable by the company under the Income-tax Act, 1961.
• Any damages, compensation or payments made voluntarily.
• Loss of capital nature including loss on sale of the undertaking or of any part thereof not including any excess of the written-down value of any asset which is discarded, sold, discarded, destroyed or demolished over its sale proceeds or its scrap value.
• Any change in carrying amount of an asset or of a liability recognised in equity reserves, including surplus in profit and loss accounts for the measurement of the asset or the liability at fair value.

CSR Committee 

Every company to which CSR provision are applicable must constitute a Corporate Social Responsibility (CSR) Committee.

• The CSR Committee should consist of three or more directors, out of which at least one director must be an independent director.
• An unlisted public company or a private company shall have its CSR Committee without any independent director if an independent director is not required.
• A private company having only two directors on its Board shall constitute its CSR Committee with two directors.
• In the case of a foreign company, the CSR Committee shall comprise of at least two persons of which one person shall be a person resident in India authorised to accept on behalf of the foreign company – the services of notices and other documents. Also, the other person shall be nominated by the foreign company.
• A company having any amount in its Unspent Corporate Social Responsibility Account shall constitute a CSR Committee and comply with the CSR provisions.

Duties of the CSR Committee

The CSR Committee has multiple duties:

• The CSR Committee will formulate and recommend a CSR policy to the Board. CSR policy shall point out the activities to be undertaken by the company as enumerated in Schedule VII of the Act.
• CSR Committee will recommend the amount of expenditure to be incurred on the CSR activities to be undertaken by the company.
• CSR Committee will monitor the CSR policy of the Company from time to time.
• The CSR Committee will establish a transparent controlling mechanism for the implementation of the CSR projects or programs or activities undertaken by the company.

CSR Policy

CSR Policy elaborates the activities to be undertaken by the Company as named in Schedule VII of the Act. The activities should not be the same which are done by the company in its normal course of business. Additionally, the Act provides the following in relation to CSR Policy:

• Contents of CSR Policy should be placed on the company’s website by the Board.
• The activities mentioned in the policy must be undertaken by the company.
• The company can join hands with other companies for undertaking projects or programs or CSR activities and report separately on such programs or projects.
• The CSR policy shall monitor the projects or programs.

CSR Reporting

With respect to CSR Reporting, the provisions are as follows :

• The Board’s Report referring to any financial year initiating on or after the 1st day of April 2014 shall include an annual report on CSR.
• In the case of a foreign company, the balance sheet filed shall contain an Annexure regarding a report on CSR.

CSR-1 and CSR-2 Forms

The Ministry of Corporate Affairs (MCA) has introduced two important forms for CSR compliance.

CSR-1 Form

CSR-1 is a mandatory CSR registration form for entities for prior approval of CSR projects and activities. It is to be filed before starting any CSR activity.

The MCA revised the CSR-1 registration form, with effective changes from 14 July 2025. The changes made to Form CSR-1 are:

• The form cannot be downloaded as a PDF; it must be submitted in a fully web-based format on the MCA21 portal.
• Indian entities such as trusts, societies, and Section 8 companies must register through Form CSR-1 to undertake CSR projects on behalf of the company.
• All entities must disclose these organisational details, such as PAN, valid 12A and 80G registrations, and track record of previous CSR projects.
• Entities must provide the NGO Darpan ID if it is registered on the NGO Darpan portal of NITI Aayog.
• Entities must provide a digital signature from an authorised signatory and submit certification by a practising CA, CS, or Cost Accountant.

CSR-2 Form

CSR 2 is the form to be filed by companies to report the CSR activities undertaken by them and the funds spent in a financial year. It is an annual CSR compliance reporting form.

Under the Companies (Accounts) Third Amendment Rules, 2025, notified on May 19, companies can file the CSR-2 form independently on the MCA21 portal. They do not have to attach this form to Form AOC-4 as was previously required. 

MCA introduced a one-time filing window for CSR-2. Thus, companies must file Form CSR-2 for FY24 separately on or before 30 June 2025, after filing Form AOC-4 or Form AOC-4-NBFC (Ind AS).

Fines and Penalties for Non-Compliance

Non-compliance with CSR provisions attracts penalties:

• In case a company fails to comply with the provisions relating to CSR spending, transferring and utilising the unspent amount, the company will be punishable with a penalty of ₹1 crore or twice the amount required to be transferred by the company to the CSR fund specified in Schedule VII of the Act or the Unspent Corporate Social Responsibility Account, whichever is less.
• Further, every officer of such company who defaults in compliance will be liable to pay ₹2 lakh or one-tenth of the amount required to be transferred by the company to CSR fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, whichever is less.

The concept of Corporate Social Responsibility (CSR), introduced through Companies Act, 2013 puts a greater responsibility on companies in India to set out a clear CSR framework. The Act introduces the culture of corporate social responsibility (CSR) in Indian corporate requiring companies to formulate a CSR policy and spend on social upliftment activities. CSR is all about corporate giving back to society. 

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