CSR Legal Requirements in India: From Compliance to Impact

Chrysalis@_admin

Table of Contents

  • Introduction: Increasing Significance of Business Human Rights Acts
  • Understanding the Legal Framework for CSR in India
  • Who Is Required to Undertake CSR?
  • How Much Do Companies Need to Spend?
  • What Activities Qualify as CSR?
  • The Role of CSR Monitoring and Evaluation in Legal Compliance
  • CSR Impact Assessment: A Mandate for Transparency
  • Reporting, Auditing, and Disclosure Requirements
  • Common Mistakes Corporates Make in CSR Compliance
  • The Role of CSR Consulting Firms in Navigating Legal Complexity
  • Recent Trends and Updates in CSR Regulation
  • FAQs on CSR Legal Requirements
  • How Chrysalis Services Can Help
  • Sources

Increasing Significance of Business Human Rights Acts

Company social responsibility in India was no longer altruism, today, it is the law.

 Since April 2014, the Companies Act, 2013, Section 135 has made India the world’s first jurisdiction legally to mandate CSR spending by qualifying companies. But the fly in the ointment is this: mere compliance is not enough. Being strategic, transparent, and impactful is the real challenge with CSR spending. Most businesses fulfill the legal requirement, but very few can achieve quantifiable, lasting effects.

 That is why recognizing the CSR legal obligations along with aligning them with effective CSR monitoring and evaluation and CSR impact measurement has become the need of the hour for all responsible corporate in India.

Decoding the Law Framework under CSR in India

The foundation of CSR rulemaking in India is the Companies Act, 2013, section 135, supported by:

  • Companies (CSR Policy) Rules, 2014
  • 2021 & 2022 amendments introduced with the purpose of growing accountability
  • Ministry of Corporate Affairs (MCA) Notifications & Circulars

The law specifies who must comply, how much to pay, what constitutes CSR, and how to disclose.

Who Is Required to Undertake CSR?

 As per Section 135(1) of the Act, the companies that meet any one of the following criteria in the last financial year shall be required to carry out CSR:

  • A net worth of ₹500 crore or greater, or
  • Turnover of ₹1,000 crore or more, or
  • Minimum net profit of ₹5 crore

Such organizations have the duty to:

  • Establish a CSR Committee at the board level.
  • Keep aside at least 2% of the average net profits of the last three years for the purpose of CSR.
  • Spending must be incurred on allowable CSR activity under Schedule VII.

How Much Do Companies Need to Spend?

The 2% rule is the foundation of CSR law. It is compulsory that the companies have at least 2% of the average net profits, which have been earned in the three previous financial years.

Unless the board fails to utilize the prescribed money, the board must:

  • Explain the reasons why it avoids spending in its yearly report, and
  • Transfer the amount that is unspent into a special account, that is, the Unspent CSR Account, within 30 days of the closing of the financial year.

 Amounts unspent on work in progress should be utilized within three financial years; else, such amounts should be sent to a fund earmarked under Schedule VII (e.g., the PM National Relief Fund).

What Programs Qualify as CSR?

Schedule VII of the Companies Act specifies the areas that qualify as permissible CSR activities. These are designed to ensure that CSR investments create social, economic, and environmental value across diverse development priorities.

Eligible CSR areas include:

  • Elimination of hunger, poverty, and malnutrition
  • Promotion of education and gender equality
  • Ensuring ecological balance and environmental sustainability
  • Rural development and livelihood enhancement programs
  • Augmenting healthcare, sanitation, and access to clean water
  • Promotion of national heritage, art, and culture, including protection of historical monuments and traditional arts
  • Sports promotion, including training and infrastructure development for rural and national-level athletes
  • Contributions to incubators or research and development projects in science, technology, engineering, and medicine (STEM) aligned with national priorities
  • Support for armed forces veterans, war widows, and their dependents
  • Contributions to the Prime Minister’s National Relief Fund or other central and state government relief funds for socio-economic development and welfare
  • Disaster management and rehabilitation initiatives, including capacity building for emergency response

These categories allow corporates to align CSR spending with both community needs and national development goals, ensuring that compliance leads to measurable, meaningful impact.

The Role of CSR Monitoring and Evaluation in Law Compliance

Whilst the legislation provides spending limits, the law never indicates the modalities for efficiency achievement. This is precisely the corporate social responsibility monitoring and evaluation (M&E) mandate.

Monitoring verifies that:

  • Projects stay aligned with the approved CSR policy.
  • The finances are spent openly and transparently.
  • Corporates can demonstrate measurable progress towards specific goals.

For Instance, an education campaign running by a company should monitor indicators such as:

  • Attendance at school and drop-out rates
  • Teacher performance and learning outcomes
  • Beneficiary response

Is CSR monitoring a kind of compliance burden?

No it is, when properly designed, a compliance facilitator. It helps companies accurately report, reduce sanctions, and enhance credibility among regulators and stakeholders.

CSR Impact Assessment: A Requirement for Accountability

The Companies (CSR Policy) Amendment Rules, 2021, prescribed the obligation for conducting impact assessments.

This is relevant to organizations that:

  • Maintain an average Corporate Social Responsibility duty of ₹10 crore or greater during the last three fiscal years, and
  • Have taken up CSR activities costing ₹1 crore or more.

Such companies will need to get independent CSR consulting firms/agencies to evaluate project outcomes. Findings will be taken before the board and included in the annual CSR report.

Why It Matters:

Impact evaluation fills the gap between spending and impact. It transforms compliance into a narrative of change supported by evidence.

Reporting, Auditing, and Disclosure Requirements

Transparency is one fundamentum of CSR compliance. All companies that are eligible must:

  • Publicize the CSR policy and initiatives on the corporate website.
  • File CSR-2 forms every year with the Ministry of Corporate Affairs.
  • Devote detailed CSR disclosures in the board’s annual report, such as:
  • The money spent and left over.
  • Project description and partners.
  • Summaries of impact assessments, where relevant.
  • Failure to comply triggers sanctions:
  • Companies can be penalised up to ₹50 lakh.
  • The officers who are in default may be fined ₹5 lakh.

Typical Errors Corporates Commit under CSR Compliance

  1. Treating CSR as charity, not strategy – ignoring alignment with the core business or the SDGs.
  2. Without monitoring – no monitoring of partner activity or KPIs.
  3. Delayed reporting – omitting CSR-2 filing deadlines.
  4. Poor NGO due diligence – financing partners without checking compliance capability.
  5. Lack of impact assessment – non-performance of legally required assessments for major projects.

All of these issues can lead not just to legal penalties, but also to loss of reputation.

The Role of CSR Consulting Businesses in the Administration of Legal Complexity

The CSR law is intimidating for the majority of businesses. CSR consultancies have thus emerged as the preferred partner.

They assist by:

  • Development of Schedule VII compliant CSR strategy.
  • Executing CSR monitoring and evaluation towards transparent reporting.
  • Independent assessments of effects for large projects.
  • Preparing CSR-2 documentation and annual reports.
  • Vetting our civil society partner organizations on legal and fiscal viability.

By closing the gap between creativity and compliance, consultant firms can move beyond duty and achieve actual, tangible impact.

New Trends and Developments in CSR Regulation

  • Digital governance: MCA’s CSR-2 e-filing ensures data transparency.
  • Mandatory Impact assessments: Improving high-spend project accountability.
  • Shift towards ESG integration: CSR reports are becoming more integrated into ESG disclosures.
  • Technology-based monitoring: Use of dashboards, geo-tagging, and AI analytics for M&E.
  • Skill-based volunteering

They reflect CSR moving from paper-based CSR to performance-based CSR.

FAQs on CSR Legal Requirements

Q1. Is administrative cost eligible under CSR spends?

Yes, but no more than 5% on total CSR expenditures, including such things as salaries, monitoring, and evaluative costs.

Q2. Can CSR money be carried forward? 

Funds that remain unutilized for current projects may be carried over for a duration of three years; however, they must be allocated to an Unspent CSR Account.

Q3. Can CSR funds be given to foreign NGOs?

Usually no, unless specially approved and in accordance with Schedule VII activities in India.

Q4. Is the impact assessment a prerequisite in every CSR project?

Only for companies whose CSR spending is ₹10 crore+ and whose projects are greater than ₹1 crore.

How Chrysalis Services Can Help

We at Chrysalis Services ensure CSR compliance simplification as well as impact maximization. We offer the following professional services:

  • Regulatory advisory on aligning projects with CSR law.
  • Systems that monitor and evaluate CSR and offer accountability and compliance.
  • CSR impact assessments to credibly communicate and assess outcomes.
  • NGO due diligence and brokering partnerships.
  • Utilizing strategic narratives to transform adherence into brand confidence.

CSR Compliance into the Future

 India’s CSR law is one of the most visionary frameworks the world has ever seen. But the act of compliance is not merely a checklist, it is an opportunity to align profit with purpose. Investment in CSR monitoring and evaluation and CSR impact studies will ensure that every spent rupee is supported by accountability, transparency, and attributable change.

The real question is this: Will your corporation frame CSR as a legal obligation, or as a path towards the future of transformation?

Sources

  • Ministry of Corporate Affairs – Companies Act 2013 & CSR Policy Rules (latest amendments 2022–23)
  • KPMG India CSR Reporting Survey 2022
  • EY India CSR Trends & ESG Integration Report 2023
  • NITI Aayog SDG India Index 2023