--- title: "Is CSR Mandatory for Private Limited Companies in India?" url: https://ksandk.com/corporate/csr-compliance-for-private-limited-companies-in-india-legal-requirements-csr-policy-and-reporting-obligations/ type: archive --- # CSR Compliance for Private Limited Companies in India: Legal Requirements, CSR Policy and Reporting Obligations Posted On - 9 October, 2026 • By - Nivedita Bhardwaj ![](https://ksandk.com/wp-content/uploads/Sustainable-Future-with-Community-and-ESG.jpg) ## Introduction Corporate Social Responsibility (“CSR”) has become an integral component of corporate governance in India. What was historically regarded as a voluntary philanthropic activity has, for companies satisfying prescribed financial thresholds, evolved into a statutory obligation governed by a detailed framework under the Companies Act, 2013 (“Companies Act”), the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”), and Schedule VII to the Companies Act. The Indian CSR framework places responsibility on the Board of Directors of qualifying companies to ensure that prescribed amounts are spent on eligible social development activities. It also establishes requirements concerning the formulation of a CSR Policy, approval of projects, selection of implementing agencies, monitoring of expenditure, treatment of unspent amounts, impact assessment, financial reporting and regulatory disclosures. For private limited companies, CSR compliance is particularly relevant as businesses grow, undertake acquisitions, attract private equity investment, expand their operations or establish Indian subsidiaries of multinational corporations. The fact that a company is privately held, unlisted or controlled by a small group of shareholders does not, by itself, exempt it from the CSR provisions. Equally, CSR compliance cannot be reduced to making a donation equivalent to a prescribed percentage of profits. The law requires a structured approach to identifying eligible activities, approving projects, administering funds, monitoring implementation and complying with statutory reporting and transfer obligations. Businesses must therefore consider CSR as part of their wider company law compliance and corporate governance framework. The regulatory framework has also continued to evolve. Among the more recent developments is the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026, notified through G.S.R. 415(E) dated 27 May 2026. These amendments introduced Rule 4A, permitting a qualifying portion of CSR expenditure to be channelled through zero coupon zero principal instruments issued by eligible not-for-profit organisations registered with the Social Stock Exchange segment of a recognised stock exchange. The amendment introduces a specific implementation mechanism and associated safeguards. This article examines CSR from the perspectives of company law, corporate governance, financial management, regulatory compliance and company secretarial practice. It explains the CSR compliance requirements for private limited companies in India, including CSR applicability, expenditure calculations, CSR Policy drafting, implementation, statutory reporting, unspent CSR amounts and the latest regulatory developments. It is intended to assist directors, company secretaries, chief financial officers, general counsel, compliance officers, finance teams and businesses seeking to establish or review a legally compliant CSR framework. ## The Legal Framework Governing CSR in India ### 1. Section 135 of the Companies Act, 2013 Section 135 is the principal statutory provision governing CSR obligations in India. It establishes the financial thresholds determining applicability, the framework for constituting a CSR Committee, the minimum expenditure requirement, and the responsibilities of the Board. Section 135 must be read together with Schedule VII and the CSR Rules. These provisions operate collectively to determine which companies are covered, which activities qualify, how CSR projects may be implemented, how funds must be administered and how compliance must be reported. The framework is Board-centric. The CSR Committee, where required, recommends the CSR Policy and expenditure and monitors implementation. The Board approves the policy, oversees implementation and remains responsible for ensuring that the company complies with its statutory obligations. ### 2. The CSR Rules, 2014 The CSR Rules provide the detailed operational framework under Section 135. Among other matters, they address the definition of CSR, the constitution and functions of the CSR Committee, the annual action plan, implementation through eligible agencies, ongoing projects, administrative overheads, surplus, capital assets, impact assessment and annual reporting. The Rules have been amended several times, including significant changes introduced in 2021 and subsequent amendments. Companies should therefore consult the Rules as amended, rather than relying exclusively on the original 2014 text. The Ministry of Corporate Affairs (“MCA”) General Circular No. 14/2021, dated 25 August 2021, containing FAQs on CSR, remains an important interpretative reference for several implementation questions. However, it should be read alongside later amendments and any subsequent clarifications. ### 3. Schedule VII Schedule VII identifies the categories of activities that may be included in a company’s CSR Policy. It covers, among other matters, education, healthcare, sanitation, environmental sustainability, gender equality, rural development, specified funds, sports, disaster management and certain research and development activities. The schedule provides the substantive basis for deciding whether a project qualifies as CSR. A payment cannot be treated as CSR merely because it is charitable, socially beneficial or described as a donation in the company’s accounts. The activity must fall within the applicable statutory framework and must not be excluded by the CSR Rules. ### 4. The Companies (Accounts) Rules, 2014 The CSR framework also interacts with the Companies (Accounts) Rules, 2014. These Rules govern relevant reporting and filing requirements, including the prescribed reporting of CSR information through Form CSR-2 under Rule 12(1B), subject to the applicable filing instructions and amendments. CSR reporting must be coordinated with the preparation and filing of the company’s financial statements and Board’s report. In practice, this requires cooperation between the company secretary, finance team, CFO, directors and statutory auditor. ### 5. The 2026 amendment concerning Social Stock Exchanges The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026, notified through G.S.R. 415(E) dated 27 May 2026, introduced Rule 4A into the CSR Rules. The amendment permits a company to undertake CSR activities through a zero coupon zero principal instrument issued by a not-for-profit organisation registered with the Social Stock Exchange segment of a recognised stock exchange in accordance with applicable SEBI regulations. The expenditure incurred through this mechanism cannot exceed 10% of the company’s total CSR expenditure for the relevant financial year. A subscribing company is exempt from undertaking impact assessment of a project funded through such an instrument. The issuing not-for-profit organisation must comply with prescribed project-duration and treatment-of-unspent-funds requirements, including transferring unspent amounts to a fund specified in Schedule VII when the instrument’s listing terminates and submitting the relevant compliance report to SEBI. This amendment creates an additional route for CSR implementation. It does not displace the ordinary CSR framework or remove the need for a company to assess the eligibility of the instrument, verify the issuer’s status and document the expenditure. ## Applicability of CSR to Private Limited Companies ### 1. The statutory financial thresholds Under Section 135(1), CSR provisions apply to a company that satisfies any one of the following criteria during the immediately preceding financial year: | Criterion | Statutory threshold | | --- | --- | | Net worth | ₹500 crore or more | | Turnover | ₹1,000 crore or more | | Net profit | ₹5 crore or more | The thresholds are alternative, not cumulative. A company need not satisfy all three conditions. Meeting even one of them is sufficient to bring the company within the scope of Section 135, subject to the applicable statutory provisions. Accordingly, a private limited company with turnover below ₹1,000 crore and net worth below ₹500 crore may still be covered if its relevant net profit meets the prescribed threshold. ### 2. Meaning of net worth Net worth must be determined in accordance with Section 2(57) of the Companies Act. Broadly, it comprises paid-up share capital, reserves created out of profits and the securities premium account, after taking account of the statutory exclusions. The calculation should not be based merely on the company’s cash reserves, market valuation or the amount invested by its shareholders. ### 3. Meaning of turnover Section 2(91) defines turnover by reference to the gross amount of revenue recognised in the profit and loss account from the sale, supply or distribution of goods or services, or both, during a financial year. A company should use the legally relevant financial information and accounting records when assessing whether the turnover threshold has been met. ### 4. Calculation of net profit for applicability For CSR purposes, net profit must be calculated in accordance with Section 198 and the relevant CSR Rules. It should not automatically be equated with profit after tax or another headline figure appearing in the financial statements. Section 198 contains specific provisions governing the calculation of profits, including the treatment of specified credits, deductions and exclusions. Rule 2(1)(f) of the CSR Rules also addresses the relevant net-profit calculation for CSR purposes. The company should prepare a documented calculation demonstrating how the statutory figure has been derived. Where the calculation involves adjustments or questions concerning the treatment of particular income or expenditure, the company should obtain appropriate accounting and legal advice. ### 5. Assessment of applicability every year CSR applicability should be reviewed as part of the annual financial and company secretarial compliance process. A company that was not covered in the preceding financial year may become covered in a subsequent year because of increased profits, turnover or net worth. Conversely, a decline in financial performance does not necessarily mean that CSR obligations can immediately be discontinued. The applicability test and the expenditure calculation serve different purposes. The former determines whether Section 135 applies by reference to the immediately preceding financial year. The latter determines the minimum amount to be spent under Section 135(5), based on average net profits over the prescribed period. ### 6. Companies that cease to meet the thresholds Rule 3(2) of the CSR Rules provides a specific cessation mechanism. A company that ceases to meet all three criteria for three consecutive financial years is not required to constitute a CSR Committee or comply with the relevant CSR provisions until it again meets any of the criteria under Section 135(1). The company must therefore evaluate the statutory three-year condition before discontinuing its CSR governance arrangements. Further, cessation of future applicability does not automatically extinguish an outstanding obligation to deal with unspent CSR amounts or complete a transfer required under the law. ### 7. Newly incorporated companies A newly incorporated company should not assume that CSR is inapplicable merely because it has not completed three financial years. Section 135(5) addresses companies that have not completed three financial years since incorporation. The calculation must be made using the immediately preceding financial years for which the statutory provision applies. The company’s incorporation date, available financial information, applicability criteria and relevant profits should therefore be examined before determining its expenditure obligation. ## The CSR Committee and the Board of Directors ### 1. When is a CSR Committee required? Section 135 generally requires a covered company to constitute a CSR Committee of the Board. However, Section 135(9) provides that where the amount a company is required to spend under Section 135(5) does not exceed ₹50 lakh, the requirement to constitute a CSR Committee does not apply. In such cases, the Board discharges the functions otherwise assigned to the Committee. This exception concerns the CSR Committee requirement. It does not exempt the company from CSR applicability or from its expenditure, reporting and other relevant statutory obligations. ### 2. Composition of the CSR Committee Section 135 and Rule 5 prescribe the framework for committee composition. The ordinary statutory structure contemplates three or more directors, including an independent director where the company is required to appoint one under the applicable provisions. The legislation also provides specific treatment for companies that are not required to appoint independent directors. In particular, a private company with only two directors may constitute its CSR Committee with those two directors. The company’s constitution and statutory position should be examined before deciding the appropriate composition. The company secretary should ensure that the committee is properly constituted, its members are identified in the relevant Board records, and the applicable requirements are reflected in the company’s statutory documentation. ### 3. Functions of the CSR Committee The CSR Committee’s principal functions include: 1. Formulating and recommending a CSR Policy to the Board. 2. Recommending the amount of expenditure to be incurred on CSR activities. 3. Monitoring the CSR Policy from time to time. 4. Formulating and recommending the annual action plan in accordance with Rule 5(2). The Committee should examine the proposed activities, the legal eligibility of projects, the suitability of implementing agencies, the project budgets and the monitoring framework. Its role should not be limited to approving a list of charitable donations at the end of the financial year. Effective oversight requires periodic review of implementation, expenditure, project milestones and material deviations. ### 4. Role and responsibilities of the Board The Board retains ultimate responsibility for CSR compliance. Its responsibilities include approving the CSR Policy, ensuring that the approved activities are undertaken, satisfying itself regarding the utilisation of CSR funds and making the prescribed disclosures. Where the company is not required to constitute a CSR Committee, the Board performs the relevant functions directly. The Board should also examine whether the company has spent the prescribed amount or complied with the statutory treatment of unspent amounts. Where a shortfall arises, the Board must ensure that the required explanation and transfers are dealt with appropriately. Delegating the implementation of a project to management or an external agency does not eliminate the Board’s statutory responsibilities. ### 5. Board meetings, committee records and resolutions From a company secretarial perspective, CSR decisions should be supported by appropriate records. These may include the Board resolution approving the CSR Policy, the resolution constituting the CSR Committee where required, the Committee’s recommendations, the Board’s approval of the annual action plan, project approvals, material changes to approved projects and the decisions concerning unspent amounts. The company secretary should ensure that minutes accurately record the matters considered and decisions taken. The records should be consistent with the CSR disclosures subsequently included in the Board’s report and applicable statutory filings. ## Formulation and Approval of a CSR Policy ### 1. Purpose of the CSR Policy A CSR Policy is the company’s overarching governance document for selecting, implementing and monitoring eligible CSR activities. It should identify the company’s social development priorities and establish the framework for approving projects, allocating funds, appointing implementing agencies and monitoring results. For companies seeking CSR policy drafting and corporate governance support, the policy should be tailored to their business circumstances, statutory obligations and implementation capacity rather than copied mechanically from another organisation. ### 2. Identifying CSR objectives The company should identify appropriate CSR objectives by reference to Schedule VII, the needs of intended beneficiaries, the company’s operational footprint, available resources and the anticipated duration of proposed projects. For example, a manufacturing company may prioritise environmental sustainability, vocational training and community healthcare. A technology company may focus on digital literacy, education and employment-enhancing skills. These priorities must, however, be translated into activities that fall within the applicable statutory framework. ### 3. Needs assessment and project selection A needs assessment helps establish why a proposed intervention is appropriate and what it is intended to achieve. Depending on the project, the assessment may involve consultation with community organisations, review of available development data, engagement with local institutions or an assessment of existing infrastructure and beneficiary requirements. Although a formal needs assessment is not universally mandatory for every project, it is a useful governance measure. It can help demonstrate that expenditure is directed towards identifiable social needs rather than being selected solely for convenience or publicity. ### 4. Essential contents of a CSR Policy A well-drafted CSR Policy should ordinarily address: - The company’s CSR objectives and guiding principles. - The activities and categories selected under Schedule VII. - The criteria and process for selecting projects. - The respective roles of the Board, CSR Committee and management. - The arrangements for direct implementation and use of eligible implementing agencies. - The method of approving project budgets and disbursing funds. - Monitoring, evaluation and reporting arrangements. - Treatment of CSR surplus and capital assets. - The procedures for dealing with ongoing projects and unspent amounts. - Statutory disclosure and review requirements. The policy should also establish how changes in legal requirements, company circumstances or project priorities will be considered. ### 5. Board approval and website disclosure The CSR Policy must be approved by the Board. Where a CSR Committee is required, the Board should consider its recommendations before approving the policy. The contents of the policy must be disclosed in the Board’s report and on the company’s website, if any, in accordance with Section 135 and the CSR Rules. The company should retain the approved policy and relevant Board records and ensure that the version published on its website corresponds to the policy actually approved. Adopting a policy does not, by itself, establish compliance. The company must also implement its CSR programme and satisfy the applicable expenditure, monitoring, transfer and reporting requirements. ## Permissible CSR Activities under Schedule VII ### 1. Education and vocational skills Schedule VII recognises the promotion of education, including special education and employment-enhancing vocational skills, particularly among children, women, elderly persons and persons with disabilities. Qualifying programmes may include educational infrastructure, scholarships, digital literacy, vocational training and other appropriate educational initiatives. The company must distinguish eligible community-oriented programmes from ordinary business expenditure. Training undertaken exclusively for the company’s employees in the normal course of business does not automatically qualify as CSR. ### 2. Healthcare, sanitation and safe drinking water Schedule VII includes healthcare, preventive healthcare, sanitation and making safe drinking water available. Companies may support eligible healthcare infrastructure, medical assistance, preventive health programmes, sanitation facilities and community drinking-water initiatives. The project documentation should identify the beneficiaries, objectives, approved expenditure, implementation arrangements and evidence of delivery. ### 3. Environmental sustainability Environmental sustainability is an important CSR category. Depending on their design, eligible initiatives may include conservation of natural resources, biodiversity protection, ecological restoration, water conservation, waste management and other activities falling within Schedule VII. The company should distinguish qualifying community or environmental projects from routine operating expenses and expenditure required to comply with environmental laws applicable to its own business. An expenditure does not become CSR merely because it has an environmental benefit. ### 4. Gender equality and support for vulnerable groups Schedule VII recognises activities relating to gender equality, empowerment of women, homes and hostels for women and orphans, old-age homes, and measures to reduce inequalities faced by socially and economically disadvantaged groups. A company may implement qualifying initiatives directly or through eligible agencies, subject to the applicable statutory requirements. The company should establish clear beneficiary criteria, appropriate safeguards and reliable reporting arrangements. ### 5. Rural development, sports and disaster management Schedule VII also recognises rural development projects, specified sports-related activities and disaster management, including relief, rehabilitation and reconstruction where covered by the statutory framework. Companies may consider qualifying community infrastructure, livelihood, disaster-relief or sports initiatives, provided the project satisfies the relevant category and the applicable CSR Rules. ### 6. Contributions to specified funds Certain contributions to funds specifically recognised under Schedule VII may qualify as CSR expenditure. A company should verify that the proposed fund is expressly covered by the statutory framework or has been duly recognised through an applicable notification. A contribution to an unrelated charitable fund does not qualify merely because the fund undertakes socially beneficial work. The MCA’s CSR FAQs explain that contributions to funds not recognised under Schedule VII are not admissible merely because they support activities resembling those listed in the schedule. ### 7. Research and development and other activities Schedule VII covers specified research and development activities, including certain research and development projects in science, technology, engineering and medicine funded by the Central Government or State Governments, public sector undertakings or agencies, as well as specified research activities undertaken by public-funded institutions and other recognised categories. The precise statutory category should be identified before the company approves funding. ### 8. Zero coupon zero principal instruments Following the May 2026 amendment, companies may also undertake CSR activities through eligible zero coupon zero principal instruments, subject to Rule 4A. This mechanism is subject to a 10% ceiling on the company’s total CSR expenditure for the financial year. The issuer must qualify as a not-for-profit organisation registered with the Social Stock Exchange segment of a recognised stock exchange and comply with the applicable SEBI regulations. The company should document the issuer’s eligibility, the instrument’s regulatory status, the subscription, the project purpose and the treatment of the expenditure in its CSR records. ### 9. Activities excluded from CSR The CSR Rules exclude specified activities even where they may have a social benefit. These include: - Activities undertaken in the normal course of business, subject to any applicable statutory exception. - Activities undertaken outside India, except for the permitted category relating to training Indian sports personnel representing a State or Union Territory at national or international level. - Contributions to political parties under Section 182 of the Companies Act. - Activities that benefit the company’s employees exclusively or their families. - Sponsorship activities undertaken to derive marketing benefits for products or services. - Activities undertaken to fulfil statutory obligations under other laws in force in India. These exclusions require careful application. A company should not classify an expense as CSR merely because it has been approved by management or appears under a charitable expenditure heading in its accounts. ## Calculation of the Minimum CSR Expenditure ### 1. The two per cent requirement Section 135(5) requires the Board of every covered company to ensure that it spends, in every financial year, at least 2% of the average net profits made during the three immediately preceding financial years. Where the company has not completed three financial years since incorporation, the statutory calculation applies by reference to the immediately preceding financial years for which the relevant provision operates. The net profits must be determined in accordance with Section 198 and the applicable CSR Rules. ### 2. Illustrative calculation Assume a private limited company has the following net profits, determined in accordance with the applicable statutory methodology: | Financial year | Net profit | | --- | --- | | FY 2023–24 | ₹8 crore | | FY 2024–25 | ₹10 crore | | FY 2025–26 | ₹12 crore | | Total | ₹30 crore | | Average net profit | ₹10 crore | | Minimum CSR expenditure at 2% | ₹20 lakh | On these assumptions, the company’s minimum CSR expenditure obligation for the relevant financial year would be ₹20 lakh. This example is illustrative. The company must use the relevant financial years and the net-profit figure calculated in accordance with Section 198. Profit after tax should not automatically be substituted for the statutory figure. ### 3. Local-area preference Section 135(5) provides that the company should give preference to the local area and areas around it where it operates when spending its CSR amount. This is a statutory preference, not an absolute requirement that every rupee must be spent locally. A company may undertake eligible projects elsewhere in India, subject to the applicable law and its approved CSR framework. Companies operating in several locations should consider the needs of communities around their facilities when selecting projects. ### 4. Excess CSR expenditure and set-off Rule 7(3) of the CSR Rules provides a mechanism for setting off qualifying excess CSR expenditure against the CSR obligation for subsequent financial years. The company may set off excess expenditure against its CSR obligation for the immediately succeeding three financial years, subject to the prescribed conditions, including a Board resolution. The amount available for set-off must be calculated and documented appropriately. The rule excludes surplus arising from CSR activities from the excess-expenditure mechanism. A company should therefore distinguish between qualifying excess expenditure and surplus generated from a CSR project. The Board and finance team should maintain a year-wise record of the amount spent, the minimum obligation, any excess expenditure claimed for set-off and the remaining balance available in subsequent years. ### 5. CSR expenditure and budget allocation A budget allocation or Board approval does not necessarily establish that the company has spent the required amount. The company must determine whether the expenditure qualifies as CSR, whether the applicable implementation requirements have been satisfied, and whether adequate supporting evidence exists. The treatment of advances, unutilised funds and payments to implementing agencies must be examined carefully. A payment to an implementing agency should not automatically be assumed to establish proper utilisation of the funds without the supporting records required by the applicable framework. ## Annual Action Plan and Ongoing Projects ### 1. The annual action plan The CSR Committee, where constituted, must formulate and recommend an annual action plan to the Board under Rule 5(2). Where the company is not required to constitute a CSR Committee under Section 135(9), the Board performs the relevant functions. The annual action plan should identify the approved projects, manner of execution, utilisation of funds, implementation schedules, monitoring and reporting mechanisms, and details of need and impact assessments where applicable. The Board may alter the annual action plan during the financial year on the recommendation of the CSR Committee and for reasonable justification, in accordance with the applicable Rules. ### 2. Multi-year and ongoing projects The CSR Rules permit projects to be implemented over more than one financial year. An ongoing project must satisfy the applicable definition and conditions under Rule 2(1)(i). Broadly, the framework recognises a multi-year project undertaken by a company in fulfilment of its CSR obligation, with a timeline not exceeding three years excluding the financial year in which it was commenced, subject to the applicable conditions. A project originally not approved as a multi-year project may also qualify where the prescribed conditions are met. The company should identify the project, its approved duration, milestones, annual expenditure and monitoring arrangements in its records. A recurring donation or a series of unrelated activities should not be classified as an ongoing project merely to obtain the benefit of the rules governing unspent amounts. ### 3. Changes to an ongoing project If the implementation schedule, budget or scope changes materially, the company should record the reasons and obtain the appropriate approvals under its governance framework. The change should also be examined to ensure that it does not affect the project’s eligibility under Schedule VII or its status as an ongoing project. ## Implementation of CSR Activities ### 1. Direct implementation A company may undertake CSR activities itself, subject to the CSR Rules. Direct implementation may be appropriate where the company has the personnel, expertise, infrastructure and internal controls required to administer the project. The company should identify the persons responsible for project execution, procurement, beneficiary selection, expenditure approvals, monitoring and reporting. ### 2. Implementation through eligible agencies Rule 4 permits companies to implement CSR projects through eligible implementing agencies, subject to the prescribed conditions. Depending on the relevant category, eligible agencies may include: - A Section 8 company established by the company, individually or jointly, or a Section 8 company established by the Central Government or State Government. - A registered public trust or registered society established by the company, individually or jointly, or established by the Central Government or State Government. - A Section 8 company, registered public trust or registered society established by an Act of Parliament or a State Legislature. - Other eligible Section 8 companies, registered public trusts or registered societies satisfying the prescribed establishment, registration and experience requirements. - Specified entities established by the Central Government or State Government. The exact eligibility conditions depend on the category under which the agency operates. The company should verify the applicable provisions of Rule 4 rather than assume that every charitable trust, foundation or non-governmental organisation is eligible. ### 3. CSR-1 registration and due diligence Eligible implementing agencies are generally required to register with the MCA by filing Form CSR-1, subject to the applicable statutory provisions and exceptions. Before appointing an agency, the company should verify its legal constitution, governing documents, relevant registrations, tax registrations or approvals where required, CSR-1 status where applicable, experience, financial controls and capacity to implement the proposed project. Due diligence should also examine the agency’s directors, trustees, office-bearers and key personnel for potential conflicts of interest or reputational concerns. Where a promoter, director, shareholder or group entity has an association with the proposed implementing agency, the company should review the relationship carefully and document the legal and governance basis for proceeding. ### 4. Implementation agreements A written implementation agreement is an important risk-management measure. The agreement should identify the project, its objectives, beneficiaries, approved budget, implementation period, disbursement conditions and reporting requirements. It should also provide for monitoring rights, access to records, utilisation reporting, treatment of unutilised funds and procedures for addressing delays or deviations. The company should establish a process for reviewing the implementing agency’s reports and supporting documents before recording the expenditure as properly utilised. ### 5. Collaborative projects Companies may collaborate with other companies on CSR projects or programmes, subject to the applicable Rules. The participating companies should document their respective contributions, project responsibilities, reporting obligations and the manner in which each company will demonstrate its own compliance. Collaboration should not obscure the expenditure attributable to an individual company or prevent its Board from satisfying itself that the relevant expenditure qualifies under Section 135. ## Administrative Overheads, Surplus and Capital Assets ### 1. Administrative overheads Rule 7 limits administrative overheads to 5% of the company’s total CSR expenditure for the financial year. Administrative overheads concern expenses incurred for the general management and administration of the company’s CSR functions. They do not include expenses directly incurred in designing, implementing, monitoring or evaluating a particular CSR project or programme. The classification should be based on the nature of the expenditure rather than the accounting label used. ### 2. Surplus arising from CSR activities Any surplus arising out of CSR activities must not form part of the company’s business profits. Under Rule 7, the surplus must be dealt with through the prescribed mechanisms, including being ploughed back into the same project, transferred to the Unspent CSR Account and spent in pursuance of the CSR Policy and annual action plan, or transferred to a fund specified in Schedule VII within the applicable period. The company should maintain records that identify the surplus, its origin and the manner in which it has been treated. ### 3. Capital assets created through CSR expenditure Rule 7 prescribes the categories of persons or entities in whose hands a capital asset created or acquired through CSR expenditure may be held. These include specified Section 8 companies, registered public trusts or societies with the relevant charitable registrations or approvals, beneficiaries in the form of self-help groups or collectives, and public authorities. The company should determine the proposed ownership and use of the asset before approving the project. It should not assume that an asset acquired using CSR funds may automatically be retained as an ordinary corporate asset. The project documentation should identify the intended owner, beneficiaries, purpose, operation and maintenance arrangements, and compliance with the applicable statutory conditions. ## Unspent CSR Amounts and Statutory Transfer Obligations ### 1. Distinction between ongoing and other projects Section 135 distinguishes between unspent CSR amounts relating to ongoing projects and other unspent CSR amounts. The procedures and deadlines differ. The company must identify the correct category before deciding how the amount should be dealt with. A reason for non-expenditure does not eliminate a statutory transfer obligation. ### 2. Unspent amounts relating to ongoing projects Where an unspent amount relates to an ongoing project, Section 135(6) requires the company to transfer the amount to a separate bank account called the Unspent Corporate Social Responsibility Account within 30 days from the end of the financial year. The amount must be spent in pursuance of the company’s CSR obligations within the next three financial years. If the amount remains unspent at the end of that period, the company must transfer it to a fund specified in Schedule VII within 30 days after the end of the third financial year. The company should maintain project-wise records of the approved ongoing project, annual allocation, expenditure, amount transferred, subsequent utilisation and any final transfer. ### 3. Other unspent CSR amounts Where the unspent amount does not relate to an ongoing project, Section 135(5) requires the company to transfer the amount to a fund specified in Schedule VII within six months from the end of the financial year. The amount should not be retained indefinitely in an ordinary corporate bank account for future charitable purposes. The company should maintain evidence of the transfer, including the date, amount, recipient fund and the relevant statutory basis. ### 4. Board reporting and reasons for non-expenditure Where the company fails to spend the prescribed amount, the Board’s report must contain the prescribed details, including the reasons for non-expenditure. The explanation should be factual and supported by the company’s records. For example, where a project has been delayed because of an approval issue or the failure of an implementing agency, the relevant correspondence and project records should be retained. Disclosure of the reasons does not replace a statutory obligation to transfer unspent amounts. ### 5. Penalties for failure to transfer unspent amounts Section 135(7) provides for monetary penalties for default in complying with the transfer requirements under Section 135(5) or Section 135(6). The company may be liable to a penalty of twice the amount required to be transferred or ₹1 crore, whichever is less. Every officer in default may be liable to a penalty of one-tenth of the amount required to be transferred by the company or ₹2 lakh, whichever is less. The applicable statutory provisions and the precise nature of the default should be examined when determining liability. ## CSR Accounting, Financial Controls and Audit ### 1. Maintaining a reliable audit trail A company should be able to demonstrate the legal basis of each CSR project, its approval, the amount spent, the purpose for which funds were used and the manner in which the project was implemented. The records should ordinarily include: - The approved CSR Policy and annual action plan. - Relevant Board resolutions and CSR Committee recommendations. - Implementing-agency due diligence documents. - Project agreements and approved budgets. - Invoices, payment records and expenditure statements. - Utilisation reports and evidence of project implementation. - Records of unspent amounts and statutory transfers. - Impact assessment reports, where applicable. - Annual CSR disclosures and relevant filing acknowledgements. The nature of the supporting evidence will depend on the project. A vocational training programme may require attendance records, course details and evidence of completion. An infrastructure project may require procurement records, progress reports, completion certificates and evidence concerning the asset’s ownership. ### 2. Accounting and reconciliation The finance team should ensure that CSR expenditure is correctly identified and recorded in the company’s books. Qualifying CSR expenditure should be distinguished from ordinary business expenses, employee welfare costs, sponsorships and other payments that may not qualify under Schedule VII. The company should also maintain records of amounts approved, disbursed, utilised and remaining unspent, together with any amount transferred to the Unspent CSR Account or a fund specified in Schedule VII. ### 3. CFO or person responsible for financial management The CSR Rules require the CFO or the person responsible for financial management to certify the utilisation of CSR funds for the purposes and in the manner approved by the Board. The certification should be supported by adequate financial records, project-level evidence and appropriate reconciliations. It should not be treated as a routine formality undertaken without verification. ### 4. Statutory auditor and CARO reporting CSR information may be relevant to the statutory auditor’s examination of the financial statements and other applicable reporting obligations. Paragraph 3(xx) of the Companies (Auditor’s Report) Order, 2020 (“CARO 2020”), where applicable to the company, requires the auditor to report on specified CSR matters, including whether the company has transferred unspent CSR amounts in respect of ongoing and other projects to the relevant accounts or funds within the prescribed timelines. The applicability of CARO 2020 should be assessed under the applicable exemptions and thresholds. A company should not assume that every private limited company is automatically subject to every CARO reporting requirement. ### 5. Internal controls and fraud prevention CSR expenditure may expose companies to risks involving false invoices, unsupported utilisation statements, diversion of funds, inflated project costs and conflicts of interest. Appropriate controls may include segregation of duties, approval limits, independent verification of expenditure, periodic project reviews and escalation procedures for suspected irregularities. Where a project or implementing agency presents higher risk, enhanced due diligence and verification may be justified. ## CSR Reporting and Company Secretarial Compliance ### 1. Annual CSR report in the Board’s report Rule 8 prescribes the framework for reporting CSR activities in the company’s Board’s report. The report should contain the applicable particulars concerning the CSR Policy, the CSR Committee where relevant, the amount required to be spent, the amount actually spent, unspent amounts and other prescribed details. The disclosures should be consistent with the financial records, approved annual action plan, Board decisions and project documentation. ### 2. Form CSR-2 Rule 12(1B) of the Companies (Accounts) Rules, 2014 provides for reporting CSR information through Form CSR-2, subject to the applicable filing requirements and amendments. The company secretary should verify the current MCA filing instructions for the relevant financial year, including the required sequence of filing with Form AOC-4, AOC-4 XBRL or AOC-4 NBFC (Ind AS), as applicable. The company should not assume that a historical extension of a filing deadline applies to subsequent financial years. The applicable form, filing sequence and due date must be checked against the current Rules and MCA notifications. ### 3. Financial statement disclosures CSR-related information may also need to be disclosed in the financial statements in accordance with the applicable requirements under Schedule III and the relevant accounting framework. The company should ensure consistency between the Board’s report, CSR-2, the financial statements and the underlying accounting records. ### 4. Website disclosure Where the company has a website, it must disclose the contents of its CSR Policy in the manner prescribed by Section 135 and the CSR Rules. The company should ensure that the website contains the policy approved by the Board and that amendments are reflected appropriately. ### 5. Secretarial compliance calendar The company secretary should maintain a CSR compliance calendar that identifies the applicable financial-year obligations, the responsible personnel, the relevant Board or Committee approvals, filing deadlines and supporting records. The calendar should cover applicability assessment, approval of the CSR Policy and annual action plan, project monitoring, year-end expenditure reconciliation, treatment of unspent amounts, annual reporting and the relevant MCA filing requirements. It should also identify the deadlines for transfers under Section 135(5) and Section 135(6), which are calculated by reference to the end of the relevant financial year and, where applicable, the end of the third financial year. ## Impact Assessment of CSR Projects ### 1. When is impact assessment mandatory? Rule 8(3) prescribes mandatory impact assessment for specified companies and projects. The requirement applies where the company has an average CSR obligation of ₹10 crore or more during the three immediately preceding financial years and the relevant CSR project has an outlay of ₹1 crore or more and has been completed not less than one year before the impact assessment is undertaken. The assessment must be carried out through an independent agency. The prescribed conditions should be considered together; the project-outlay threshold alone does not make impact assessment mandatory for every company. ### 2. Scope of impact assessment Impact assessment evaluates whether a CSR project has achieved its intended social, environmental or developmental outcomes. It is distinct from a financial audit and from routine monitoring of expenditure. For example, completion of a vocational training facility does not, by itself, establish that the programme has improved employability or generated sustainable benefits. The assessment should be proportionate to the project and may examine beneficiary outcomes, access to services, changes in skills or livelihoods, environmental indicators and the sustainability of the intervention. ### 3. Expenditure on impact assessment Rule 8 contains specific provisions concerning the treatment of impact assessment expenditure as CSR expenditure, including a ceiling of 2% of the total CSR expenditure for the financial year or ₹50 lakh, whichever is higher. The company should verify the applicable requirements and ensure that impact assessment expenditure is properly supported and disclosed. ### 4. Impact assessment for Social Stock Exchange instruments Under Rule 4A, a company subscribing to an eligible zero coupon zero principal instrument is exempt from undertaking impact assessment of a project funded by that instrument. This exemption is specific to the mechanism introduced by the 2026 amendment and should not be treated as a general exemption from impact assessment for other CSR projects. ## Tax Treatment of CSR Expenditure ### 1. Treatment under the Income-tax Act, 2025 For tax years governed by the Income-tax Act, 2025, which came into effect on 1 April 2026, the relevant provision concerning general business expenditure is Section 34. Section 34(2) excludes expenditure incurred on CSR activities referred to in Section 135 of the Companies Act from being treated as expenditure for the purposes of business or profession. For earlier tax years governed by the Income-tax Act, 1961, the corresponding provision is Section 37(1), including the applicable explanation concerning CSR expenditure. Accordingly, a company should not assume that expenditure incurred to meet its statutory CSR obligation is automatically deductible as an ordinary business expense. ### 2. Donations and other deductions A company should separately examine the tax treatment of payments to eligible charitable institutions or funds under any other applicable provision. The fact that a payment qualifies as CSR does not automatically establish that it qualifies for a separate income-tax deduction. Equally, eligibility for a tax deduction does not automatically make a payment qualifying CSR expenditure. The company should obtain appropriate tax advice before claiming a deduction and should consider the conditions and exclusions under the applicable provision and tax year. ### 3. Accounting and tax coordination The finance team should coordinate the CSR accounting treatment with the company’s tax computations and supporting documentation. Where the company operates across financial years governed by different income-tax legislation, the applicable statutory reference should be determined by reference to the relevant tax year and transitional provisions. ## CSR Compliance Risks and Legal Consequences ### 1. Failure to implement a compliant CSR framework A covered company must comply with the applicable statutory requirements. Deficiencies in policy approval, project selection, expenditure, record-keeping, reporting or transfer of unspent amounts may expose the company and its officers to regulatory scrutiny. The legal consequences depend on the nature of the default and the applicable statutory provision. ### 2. Failure to spend the prescribed amount Where a company fails to spend the prescribed amount, it must disclose the relevant reasons and comply with the applicable provisions concerning unspent amounts. The mere disclosure of a shortfall in the Board’s report does not resolve the matter where a statutory transfer is also required. ### 3. Misclassification of expenditure A company may face compliance risk if it treats ordinary business expenses, employee benefits, promotional sponsorships, political contributions or other excluded expenditure as CSR. The classification should be determined before the expense is included in the CSR statement. An accounting description or management approval cannot convert an ineligible expense into qualifying CSR expenditure. ### 4. Inadequate implementing-agency supervision Where CSR activities are undertaken through an external agency, inadequate supervision may expose the company to risks involving diversion of funds, incomplete projects, unsupported utilisation statements and failure to deliver intended benefits. The company should retain appropriate oversight and verify that funds are used for the approved purpose. ### 5. Regulatory scrutiny and reputation CSR compliance is substantially disclosure-driven. The MCA may examine company disclosures and initiate appropriate action where non-compliance is identified, subject to the applicable law and due process. Inadequate CSR governance may also affect stakeholder confidence, particularly for businesses with institutional investors, international customers, lenders or group-wide sustainability commitments. ## Special Considerations for Different Types of Private Companies ### 1. Indian subsidiaries of foreign corporations An Indian subsidiary must assess its CSR obligations under Indian law, even where its foreign parent has a global CSR or sustainability policy. The parent’s charitable contributions overseas do not automatically discharge the Indian subsidiary’s obligations. The subsidiary should assess its own applicability, approve the relevant policy and projects, and comply with the Indian expenditure and reporting framework. The subsidiary may align its priorities with the group’s global sustainability objectives, provided the selected activities satisfy Indian law. ### 2. Private equity-backed and venture capital-funded companies Investment, acquisitions and business expansion may change a company’s financial position and trigger CSR applicability. The company should include CSR in its annual legal and financial compliance review and ensure that its governance arrangements are capable of supporting the required approvals, expenditure controls and reporting. ### 3. Family-owned businesses Family-owned companies may prefer to support charities, educational institutions, community projects or organisations associated with their promoters. The company’s statutory CSR obligation must be distinguished from the personal philanthropy of its shareholders and directors. The company should verify the eligibility of the recipient and activity and document any relevant conflict-of-interest considerations. ### 4. Companies with multiple locations Companies with several offices or manufacturing facilities should consider the statutory preference for local areas and areas around their operations. Where projects are implemented across multiple locations, the company should maintain project-wise records identifying expenditure, beneficiaries, implementing agencies and monitoring arrangements. ### 5. Companies with smaller CSR obligations Companies with relatively small CSR obligations may adopt proportionate internal procedures, particularly where the Board is permitted to discharge the functions of a CSR Committee under Section 135(9). However, the smaller scale of the obligation does not eliminate the need for correct applicability assessment, qualifying expenditure, appropriate approvals, supporting records and statutory disclosures. ## Practical CSR Compliance Checklist The following checklist may be used by a company’s Board, company secretary, legal team, CFO or finance team when reviewing annual CSR compliance. | Stage | Required action | Key evidence | | --- | --- | --- | | Applicability | Assess net worth, turnover and statutory net profit | Financial calculations and applicability note | | Budgeting | Calculate the prescribed CSR expenditure | Section 198 calculation and budget | | Governance | Determine whether a CSR Committee is required | Board resolution and committee records | | Policy | Review and approve the CSR Policy | Approved policy and minutes | | Planning | Approve the annual action plan | Project list, budgets and timelines | | Project selection | Verify eligibility under Schedule VII | Project assessment and approval records | | Agency appointment | Conduct due diligence and verify CSR-1 status where applicable | Due diligence file and registration evidence | | Implementation | Execute agreements and establish controls | Agreements, approvals and payment records | | Monitoring | Review project progress and utilisation | Progress reports and utilisation evidence | | Year-end review | Reconcile expenditure and identify shortfalls | CSR expenditure statement | | Unspent amounts | Complete required statutory transfers | Bank statements and transfer proofs | | Impact assessment | Assess whether the prescribed criteria apply | Assessment report and supporting records | | Reporting | Prepare the annual CSR disclosures | Board’s report and relevant financial disclosures | | MCA filing | Complete applicable CSR-2 and other filings | Filing acknowledgements | | Website | Publish the approved CSR Policy where required | Website copy and publication record | | Regulatory review | Check amendments and notifications | Updated compliance calendar | ## Recommended Structure of a CSR Policy A CSR Policy prepared for a private limited company should ordinarily include the following provisions: 1. Introduction, purpose and objectives. 2. Applicable statutory framework. 3. Scope and applicability. 4. CSR objectives and permissible activities. 5. Governance structure and responsibilities. 6. Project selection and approval. 7. Direct implementation and implementing-agency arrangements. 8. Annual action plan and project budgets. 9. Monitoring, reporting and evaluation. 10. Administrative overheads and financial controls. 11. Treatment of surplus and capital assets. 12. Ongoing projects and unspent CSR amounts. 13. Impact assessment, where applicable. 14. Statutory disclosures and filings. 15. Review and amendment of the policy. The policy should be supported by suitable operational documents, including project approval formats, implementing-agency due diligence checklists, implementation agreements, utilisation reporting formats and a CSR compliance calendar. ## Conclusion Corporate Social Responsibility under the Companies Act, 2013, is a statutory governance obligation for companies satisfying the prescribed financial thresholds. Private limited companies are not exempt merely because they are privately owned or unlisted. Effective CSR compliance for private limited companies in India requires an accurate applicability assessment, calculation of the prescribed expenditure, selection of eligible activities, appropriate Board oversight, lawful implementation arrangements, reliable financial controls and compliance with reporting and unspent-fund requirements. The CSR Policy should be supported by an annual action plan, appropriate project documentation and monitoring arrangements. Where implementing agencies are involved, due diligence, written agreements and verification of utilisation are particularly important. Companies should also distinguish statutory CSR expenditure from ordinary business expenditure and evaluate its tax treatment separately. The 2026 amendment permitting a limited portion of CSR expenditure to be channelled through zero coupon zero principal instruments on a Social Stock Exchange adds another implementation option, but it does not replace the need for careful legal and financial compliance. For private limited companies, the most effective approach is to integrate CSR into the annual corporate compliance process. This enables the Board to demonstrate compliance with the law while ensuring that CSR expenditure is directed towards legitimate public-interest objectives and produces meaningful outcomes. *King Stubb & Kasiva, Advocates & Attorneys advises businesses on corporate and commercial law, company law compliance, corporate governance, regulatory obligations and related legal matters. Companies reviewing their CSR obligations may seek CSR legal advisory, CSR Policy review, implementing-agency due diligence and company law compliance support based on their financial position, corporate structure, proposed activities and the law applicable to the relevant financial year.* *Last Updated on 9 October, 2026* Get King Stubb & Kasiva’s legal updates in your Google feed[![Add King Stubb & Kasiva as a preferred source on Google](https://ksandk.com/wp-content/uploads/google_preferred_source_badge_light_en@2x.png)](https://www.google.com/preferences/source?q=https://ksandk.com/) --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)