CSR Legal Requirements
A Guide on the CSR Legal Requirements in India
Corporate Social Responsibility (CSR) in India is not just a moral obligation but a legal mandate for companies meeting certain criteria. Since the introduction of Section 135 of the Companies Act, 2013, along with the CSR Rules, 2014 (amended in 2021), businesses must contribute a portion of their profits towards social development.
Navigating these legal requirements can be complex, but compliance is non-negotiable. At Chrysalis Services, we help organizations understand CSR laws, ensure seamless compliance, and design impactful initiatives that align with regulatory expectations.
Overview of CSR Laws & Regulations in India
India is among the few countries where CSR spending is legally binding for eligible companies. The key provisions include the following-
- Companies that meet any one of the 3 criteria are applicable for CSR spending:
- A) Net worth of ₹500 crores or more
- B) Turnover of ₹1,000 crores or more
- C) Net profit of ₹5 crore or more during a given financial year
Eligible companies must spend at least 2% of their average net profits (of the last three years) on CSR activities.
The CSR Activities that can be undertaken by a company is mentioned in the Schedule VII of the Companies Act which lists permissible areas, such as:
- Eradicating hunger, poverty, and malnutrition, including support for preventive healthcare and sanitation.
- Promoting education, including special education and employment-enhancing vocational skills, particularly among children, women, elderly, and the differently-abled.
- Ensuring environmental sustainability, ecological balance, and the protection of flora and fauna, along with conservation of natural resources.
- Providing access to safe drinking water and improved sanitation facilities.
- Advancing gender equality and empowering women through livelihood, safety, and skill development initiatives.
- Promoting rural development and reducing poverty through holistic, community-based interventions.
- Preserving and promoting India’s national heritage, art, and culture, including restoration of buildings, promotion of traditional arts, and support for artists.
- Encouraging sports, including training for rural sports, nationally recognized games, Paralympic and Olympic sports.
- Supporting armed forces veterans, war widows, and their dependents through welfare programs.
- Contributing to government relief and welfare funds, such as the Prime Minister’s National Relief Fund and others notified by the government.
- Funding incubators and research initiatives in science, technology, engineering, and medicine, in association with recognized academic or governmental institutions.
- Disaster response and management, including relief, rehabilitation, and reconstruction activities in the aftermath of natural or manmade disasters.
Companies meeting the threshold must form a CSR Committee (with at least 3 directors, including one independent director) to oversee policy formulation and implementation.
Non-compliance can lead to penalties, including fines and potential imprisonment for company officers.
Compliance Requirements for Companies
To stay compliant, companies must adhere to the following:
- CSR Policy & Board Approval
- Draft a CSR Policy outlining focus areas, implementation mechanisms, and monitoring processes.
- The policy must be approved by the Board and disclosed in the company’s annual report.
- Spending & Utilization
- Ensure the mandatory 2% spending is met within the financial year.
- If funds remain unspent, they must be transferred to an Unspent CSR Account and utilized within 3 years—or moved to a specified government fund.
- Implementation & Reporting
Companies can execute CSR projects:
- Independently (through their own teams)
- Via NGOs/Trusts (registered under Section 8 companies, trusts, or societies)
- In collaboration with other businesses
Annual CSR Reporting is mandatory, including details of expenditure, projects undertaken, and reasons for any shortfall in spending.
Aligning CSR Initiatives with Legal Mandates
Many companies find it difficult to manage compliance and still make a real difference. Here’s how to keep CSR work aligned with the law and maintain a straight path toward doing good:
Strategic CSR Planning
Identify focus areas from Schedule VII that resonate with the core functions and values of your business. Assess needs to ensure that projects address and provide solutions to real social deficits.
Partnering with the Right NGOs
Collaborate with credible non-governmental organizations to ensure effective implementation. These organizations must have registration under Section 8 or 12A of the relevant statutes. Make sure to perform due diligence on all partners to ensure compliance and avoid any risks.
Monitoring & Impact Measurement
Establish quantifiable objectives (e.g., number of beneficiaries, eco-friendly outcomes). Track progress and ensure transparency by using audits conducted by independent third parties.
Leveraging Technology & Innovation
CSR is becoming increasingly complex as companies become larger and their operations more global. Digital platforms can help getting a handle on —understanding the current state of an organization’s CSR work, maintaining visibility to relevant stakeholders, and ensuring that the company continues on a desired future trajectory etc.
Moreover, innovative models (e.g., sustainable farming, skill development programs) can maximize social return on investment.
Conclusion: Turning Compliance into Impact
Corporate social responsibility in India is more than just a regulatory requirement; it is a chance to bring about lasting, sustainable change. At Chrysalis Services, we assist companies and NGOs in not only meeting the legal obligations of CSR but also in creating true, lasting social impact through their projects. We help design, implement, and monitor those projects so that compliance is a given and social impact isn’t just a hope, but a likely outcome.
Require expert oversight for CSR compliance? We can steer you through the legal thicket so you can be a good corporate citizen.
You will stay right on course and do exceedingly well in all your CSR efforts—not to mention having the chance to design and put into operation some truly significant programs that will leave behind you a legacy.