CSR in India: Regulatory Framework and Corporate Practices

Corporate social responsibility used to mean whatever a company felt like doing with its spare change. In India, that changed in 2014. CSR stopped being a goodwill gesture and became a legal line item, with a specific percentage, a specific list of eligible activities, and a government portal tracking who spent what. If you are studying business organisation and management, this shift from voluntary charity to statutory obligation is one of the most distinctive features of Indian corporate law, and it is worth understanding in detail.

Why CSR became law, not just goodwill 🔗

Before 2013, CSR in India was largely discretionary. Companies ran philanthropic programmes if they chose to, often tied to a founder’s personal interests or a public relations strategy. The Companies Act, 2013 changed this by introducing Section 135, which made CSR spending mandatory for companies that cross certain financial thresholds. This was a global first: no other major economy had legislated a minimum CSR spend for private companies at the time.

The logic behind the law was straightforward. As Indian companies grew larger and more profitable, policymakers wanted a formal mechanism that channelled a share of that growth back into social development, rather than leaving it entirely to individual corporate discretion.

Which companies must comply 🔗

Section 135 does not apply to every company. It applies to any company that meets at least one of three financial thresholds during the immediately preceding financial year:

Once a company crosses any of these limits, it must constitute a CSR Committee of the board, frame a CSR policy, and ensure the mandated spending actually happens. Interestingly, even a Section 8 company (a not-for-profit entity registered under the Companies Act) is required to comply if it meets these thresholds, since the law applies to “every company” without carving out an exception.

The 2% rule explained 🔗

The headline requirement is simple to state: eligible companies must spend at least 2% of their average net profit from the three immediately preceding financial years on CSR activities. The devil, as usual, is in how “net profit” is calculated. It is not simply the profit figure from the profit and loss account. Under Section 198 of the Companies Act, certain items are added back or excluded, such as capital profits, profits from the sale of assets, and unrealised notional gains from asset revaluation. This ensures companies calculate CSR obligations on genuine operating profit rather than one-off accounting gains.

Who decides where the money goes 🔗

The CSR Committee does the groundwork: it drafts the CSR policy, recommends specific projects, and monitors implementation. The final responsibility, however, sits with the board of directors, who must ensure the company actually spends what it is required to. This is a deliberate design choice. CSR in India is not framed as a discretionary donation the board may or may not make; the law uses the word “shall,” making the obligation binding rather than aspirational.

What happens to unspent CSR money 🔗

Companies cannot simply carry forward unspent CSR funds indefinitely as they please. If the money was earmarked for an ongoing multi-year project, it must be transferred to a separate Unspent CSR Account and spent within three financial years. If it was not linked to any ongoing project, the unspent amount must be transferred within six months to a specified fund, such as the Prime Minister’s National Relief Fund. This structure closes an obvious loophole: a company cannot simply announce a CSR budget and quietly let it lapse.

Where the money must go: Schedule VII 🔗

The law does not let companies spend their CSR budget on just anything that sounds charitable. Schedule VII of the Companies Act lists the categories of activities that qualify as CSR. Some of the most commonly used categories include:

This is a deliberately broad menu, and companies often design projects that touch multiple categories at once. A rural skilling programme for women, for instance, can simultaneously serve the education and gender equality categories. In practice, spending patterns vary widely by company: some, like ACC Limited, have directed CSR spending toward healthcare, rural development and women’s empowerment across multiple states, illustrating how one company’s CSR budget can be spread across several Schedule VII heads.

The National Voluntary Guidelines: the ethical backbone behind the law 🔗

Section 135 tells companies how much to spend and on what. It does not tell them how to conduct business ethically in the first place. That gap is filled by a separate, non-binding framework: the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, released by the Ministry of Corporate Affairs in 2011. Unlike Section 135, the NVGs are not law. No company is fined for ignoring them. But they set out the philosophy that responsible business conduct in India is meant to follow.

The guidelines rest on nine principles covering, among other things:

• Ethics and accountability in business governance
• Safe and sustainable goods and services across their entire lifecycle
• Employee wellbeing, including workers across the value chain
• Stakeholder responsiveness, especially toward vulnerable or marginalised groups
• Human rights, grounded in the Constitution and international human rights principles
• Environmental responsibility and resource efficiency
• Responsible engagement with public policy
• Inclusive growth that benefits society broadly, not just shareholders
• Fair, transparent engagement with customers and consumers

Notice how much wider this scope is compared to Section 135. The Companies Act cares about a spending percentage. The NVGs care about how a company treats its workers, suppliers, customers, and the environment in the ordinary course of business, not just through a separate CSR budget line.

From voluntary guidelines to mandatory disclosure 🔗

The NVGs did not stay static. In March 2019, the Ministry of Corporate Affairs updated them and released them as the National Guidelines on Responsible Business Conduct (NGRBC), aligning the nine principles more closely with the UN Sustainable Development Goals and the UN Guiding Principles on Business and Human Rights. This revised framework then became the foundation for something with real teeth: SEBI’s Business Responsibility and Sustainability Report (BRSR), which requires the top 1,000 listed companies by market capitalisation to report annually on how they measure up against each of the nine NGRBC principles. What started as a voluntary ethical framework has, over less than a decade, become the backbone of mandatory sustainability disclosure for India’s largest listed companies.

How CSR spending has actually grown 🔗

Numbers help make the scale of this law concrete. According to data shared in the Lok Sabha, total CSR expenditure by Indian companies rose from roughly ₹24,966 crore in FY 2019-20 to about ₹34,909 crore in FY 2023-24, a steady upward trend even through the pandemic years. This data is compiled from company filings and made publicly searchable by state, district, sector and company on the government’s dedicated CSR portal, which is worth exploring if you want to see exactly how much a specific company spends and where.

This transparency matters. It means CSR in India is not just a compliance checkbox buried in an annual report; it is publicly auditable data that researchers, journalists, and students can access directly.

Putting the two frameworks together 🔗

It helps to think of Indian CSR regulation as operating on two levels. Section 135 of the Companies Act is the hard law: a specific percentage, a specific list of eligible activities, and financial penalties for non-compliance. The National Voluntary Guidelines, now evolved into the NGRBC, are the soft law: a broader ethical vision of how a responsible business should conduct itself day to day, which increasingly gets translated into mandatory disclosure through frameworks like BRSR. Together, they represent India’s attempt to make businesses accountable not just for a slice of their profits, but for how they generate those profits in the first place.

What do you think? Should the 2% CSR rule apply to a wider set of companies, or would that dilute its impact on the businesses currently covered? And as more of the NGRBC principles get folded into mandatory disclosure like BRSR, do you think “voluntary” guidelines in India are gradually becoming law in all but name?

References

1. https://ebizfiling.com/blog/section-135-of-companies-act/
2. https://www.dpncindia.com/corporate-social-responsibility-under-section-135-of-companies-act-2013-2
3. https://cleartax.in/s/corporate-social-responsibility
4. https://www.aubsp.com/schedule-vii-csr-activities/
5. https://www.greenfinanceplatform.org/policies-and-regulations/national-guidelines-responsible-business-conduct
6. https://www.mca.gov.in/Ministry/pdf/BRR_11082020.pdf
7. https://taxguru.in/company-law/csr-spending-details-data-access.html
8. https://www.csr.gov.in/content/csr/global/master/home/home.html