Corporate Social Responsibility (CSR) is a statutory obligation under Indian law requiring eligible companies to spend a prescribed percentage of their net profits on social welfare activities specified in Schedule VII of the Companies Act, 2013. Under Section 135, companies meeting certain financial thresholds must constitute a CSR Committee and spend at least 2% of their average net profits of the three preceding financial years on approved CSR activities.
Legal definition
Section 135(1) of the Companies Act, 2013 provides:
Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
Section 135(5), as amended by the Companies (Amendment) Act, 2019, provides:
The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
Schedule VII enumerates eligible CSR activities including: eradicating hunger and poverty; promoting education, gender equality, and women's empowerment; ensuring environmental sustainability; protection of national heritage and art; measures for the benefit of armed forces veterans; rural development projects; slum area development; disaster management; and contributions to incubators or research bodies.
How courts have interpreted this term
Nandini Sundar v. State of Chhattisgarh (2011) 7 SCC 547
While predating the CSR provisions of the 2013 Act, the Supreme Court recognised the responsibility of corporations operating in conflict-affected areas to respect human rights and contribute to the welfare of local communities. The Court's observations on corporate responsibility in the context of mining operations in tribal areas laid conceptual groundwork for the mandatory CSR framework subsequently enacted.
Indian Institute of Corporate Affairs v. Registrar of Companies (MCA Circulars and NCLT Orders)
The NCLT and MCA have addressed CSR compliance in multiple orders, clarifying that CSR expenditure is not a voluntary charity but a statutory obligation with penal consequences for non-compliance. The 2021 amendments made CSR spending effectively mandatory by requiring unspent amounts to be transferred to a specified fund within six months.
Why this matters
India became one of the first countries in the world to mandate corporate social responsibility through legislation when Section 135 came into effect on 1 April 2014. The provision represents a paradigm shift from voluntary philanthropy to legally enforceable social obligation, affecting thousands of companies across India.
For practitioners, the compliance landscape has become significantly more stringent since the 2021 amendments. Companies must now transfer any unspent CSR amount (for ongoing projects) to a special account called the Unspent CSR Account within 30 days from the end of the financial year, and spend it within three financial years. Any amount that remains unspent after three years must be transferred to a fund specified in Schedule VII — such as the Prime Minister's National Relief Fund or the Clean Ganga Fund. For amounts relating to non-ongoing projects, the unspent amount must be transferred to a Schedule VII fund within six months from the end of the financial year.
A common misconception is that CSR spending is the same as corporate philanthropy or charitable donations. CSR under Section 135 is narrower — the expenditure must relate to activities specified in Schedule VII, must be implemented through registered trusts, societies, or Section 8 companies, and must be reported in the company's board report. Activities undertaken in the normal course of business or benefiting only the company's employees and their families do not qualify as CSR expenditure.
Related terms
Related governance concepts:
Broader concepts:
Frequently asked questions
Which companies are required to undertake CSR?
Any company having net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or net profit of Rs. 5 crore or more during the immediately preceding financial year must comply with CSR provisions. The threshold is met if any one of these three criteria is satisfied.
What happens if a company does not spend 2% on CSR?
Following the 2021 amendments, non-compliance with CSR spending obligations attracts penalties. Under Section 135(7), the company shall be liable to a penalty of twice the unspent amount or one crore rupees, whichever is less. Every officer in default shall be liable to a penalty of one-tenth of the unspent amount or two lakh rupees, whichever is less.
Can CSR funds be spent on employee welfare?
No. Activities exclusively benefiting the employees of the company and their families do not qualify as CSR expenditure. CSR activities must benefit the community at large and must fall within the categories specified in Schedule VII of the Companies Act, 2013.
Is CSR expenditure tax-deductible?
CSR expenditure per se is not eligible for deduction under Section 37(1) of the Income Tax Act, 1961, as clarified by Explanation 2. However, if the CSR expenditure is in the nature of a contribution to eligible funds (such as the PM's National Relief Fund), a deduction may be available under specific sections like Section 80G.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.