Mandatory CSR in India: Compliance Rules, Eligibility & Guidelines Explained

Introduction

Corporate Social Responsibility (CSR) has progressed from being a voluntary activity to a very integral aspect for corporates. This has been more pronounced in India, where CSR spending has been mandatory since 2014. As other nations embrace comparable measures, it is becoming more critical to grasp who is required to comply, which channels can they adopt, thematics they can spend in, and what it means to corporations.

 Here, we deal with India’s regulatory CSR compliance requirements, compare global trends, and detail how companies—not only NGOs—need to mainstream CSR in their strategy, organizational setup, and reporting systems.

What is Mandatory CSR?

CSR or Corporate Social Responsibility is the responsibility of the company towards society and environment. While it was earlier voluntary, compulsory CSR law requires some companies to:

• Invest part of fixed earnings or revenues in social causes
• Oversee and report their CSR operations
• Connect CSR operations with government-permitted industries.

 India was the first country to enact legislation for Corporate Social Responsibility (CSR) spending under the Companies Act of 2013, which came into effect on April 1, 2014.

Who must comply in India?

Under Section 135 of the Companies Act, 2013, CSR applies to companies that meet any of the following conditions in the previous financial year:

These companies are required to:

• Spend a minimum of 2% of their average net incomes (over the past 3 years) on CSR
• Establish a CSR Committee of directors Develop and enact a CSR Policy Reveal CSR activities in the Board’s Report and on the company’s website
• Transfer excess CSR amounts (in some cases) to a specific government fund

Fact: By FY 2022–23, over 18,000 Indian businesses were required to adhere to mandatory CSR. (Source: MCA India CSR Portal)

How much are Indian companies investing in Corporate Social Responsibility (CSR)?

 India’s corporates, as a group, have incurred over ₹1.58 lakh crore (~USD 19 billion) in CSR spend from FY 2014–2023. Annual spends have progressively increased: FY 2022–23: ₹26,210 crore FY 2021–22: ₹25,715 crore FY 2020–21: ₹24,865 crore

Key sectors funded:

• Education constitutes 29%
• Healthcare constitutes 22%
• Environment – 13%
• Rural Development – 11%

Source: KPMG India CSR Reporting Survey 2023

What Kind of Corporate Social Responsibility Activities Are Allowed?

India’s CSR has to be aligned with Schedule VII of the Companies Act. Typical examples of activities qualifying are:

• Encouraging learning and skill acquisition
• Improving healthcare and nutrition access.
• Women empowerment and gender equality
• Environmental sustainability and renewable energy
• Rural development, water and sanitation
• Disaster assistance and pandemic assistance
• Heritage conservation and arts & culture
• Excluded Corporate Social Responsibility activities are:
• Things that only serve the corporation’s employees
• Political donations
• Disguised marketing as CSR Corporate Strategy.

How Companies Are Adapting:

1. Establishing CSR Subsidiaries or Foundations

Large corporations like Tata, Reliance, and Infosys conduct CSR through independent foundations that handle implementation, partnerships, and reporting. Example: Tata Trusts and Tata Sons align their business strategies with the goals of national development. Reliance Foundation is interested in rural development, health, and women empowerment.

2. Combining CSR with ESG Strategy

With norm-setting of ESG reporting, corporates are now harmonizing CSR activities with international ESG frameworks such as GRI, SASB, and BRSR.

3. Applying CSR to Reduce Business Risks

Firms are now seeing CSR as less of a compliance factor and more of a reputation and operational strategy, building trust with stakeholders, mitigating climate risk, and earning license to operate.

Mandatory CSR: What’s Happening Globally?

 Though India leads in mandated CSR, the others are catching up—through tax benefits, public disclosure, or ESG-led compliance.

• France Grenelle II Act mandates firms with >500 employees to report ESG performance in the annual report.
• United Kingdom Companies are mandated to report non-financial reports such as social and environmental performance under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.
• South African CSR is not obligatory but is facilitated by Black Economic Empowerment (BEE) codes and legislation.
• EU More than 50,000 companies will need to report on sustainability data such as social responsibility under the 2024 Corporate Sustainability Reporting Directive (CSRD). Source: European Commission – CSRD Policy

What is the consequence if it’s not done?

In India (after 2021 CSR amendment): Unused CSR funds must be transferred to earmarked funds (e.g., PM CARES) within a period of 6 months, failing to do so can cause:

• The firm may be fined up to ₹1 crore.
• Penalties of up to ₹2 lakh on each defaulting official

Source: Companies (Amendment) Act, 2019 and Corporate Social Responsibility Rules, 2021.

Future Perspective:

• CSR Meets Innovation- Tech-First, Insight-Led: Companies are utilizing AI, data, and GIS to track CSR performance.
• Employee-led CSR: Volunteering is becoming an HR-led KPI.
• Sustainability + CSR integration: ESG and CSR functions are merging in the majority of MNCs.
• CSR is no longer a compliance issue, but a strategic force behind corporate sustainability, stakeholder engagement, and brand equity by 2025.

Chrysalis Services Offerings:

 As a CSR consulting firm, Chrysalis Services can offer the following services to corporates:

• Compliance Reporting Advisory – CSR requires discussion, CSR policy development, and compliance reporting
• Strategy Design – Integrating CSR with ESG, SDGs, business purpose Impact Measurement: Meaningful measurement framework design for Corporate Social Responsibility impact and long-term CSR plans.
• Partner Mapping – Linking organizations with reliable implementation partners and local impact initiatives, Due Diligence & NGO screening.
• Monitoring, Evaluation & Reporting– M&E framework and dashboard design, Qualitative and quantitative impact metrics capture, Monthly/quarterly progress reports
• Storytelling & Communication – Case studies, success stories, impact videos, CSR annual reports and donor presentations, social media-ready content (carousels, reels, blogs) and thought leadership pieces for CSR visibility.

 Are you ready to shift CSR from compliance to competitive advantage?

Contact us today!

 References

1. Ministry of Corporate Affairs CSR Portal: https://csr.gov.in/
2. KPMG India CSR Survey 2023: https://home.kpmg/in/en/home/insights/2023/10/kpmg-india-csr-survey-2023.html
3. Companies (Amendment) Act 2019 & CSR Rules 2021
4. European Commission CSRD Directive: https://ec.europa.eu/info/publications/corporate-sustainability-reporting_en
5. India CSR Outlook Report – NGOBox, 2023
6. Tata Trusts and Reliance Foundation official websites