Understanding India’s CSR Law: Section 135 of the Companies Act

What is the effect when altruistic actions are legislated?

Imagine a nation where companies are forced by law to care. Not merely in advertising slogans or token gestures—but in real, quantifiable action that changes lives.

The underlying principle of Section 135 of Companies Act, 2013 is corporate social responsibility (CSR), the provision which made India the first country in the world to legally mandate such practices. On the surface, this would seem to be just another regulation. but examine it closer and you can see a vision: using corporate profits to build a more equitable, more secure nation.

But what does this act mean for businesses?

 How can they look beyond mere compliance and use Corporate Social Responsibility as a force for good and progress?

Let’s break it down. What is Section 135 of the Companies Act?

Section 135 requires the companies to fulfill at least one of the below-mentioned criteria to adopt Corporate Social Responsibility (CSR):

• Possessing a net worth of ₹500 crore or more.
• A turnover of ₹1,000 crore and above
• A net worth of ₹5 crore or above in any financial year.

 If your company fits any of the above-mentioned criteria, then you are statutorily bound to:

• Set up a CSR Committee at the board level
• Create and publish a CSR Policy Spend at least 2% of your average net profit over three years on approved CSR activities
• Report your CSR performance in your annual report
• If the funds are not utilized within time, they must be transferred to a specific government fund or held for current projects.

This isn’t about giving to charity—it’s about planning, responsibility, and investing in India’s future in the long term.

What qualifies as CSR?

The Act prescribes a vast range of activities allowed as provided in Schedule VII. They are:

• Eradicating hunger and poverty.
• Promoting education, specifically among poor children.
• Gender equity and women’s empowerment
• Environmental sustainability and biodiversity
• Rural growth and slum area development
• Assistance to war veterans and victims of disasters
• Contributions to public welfare funds.

What is not considered CSR?

Purely philanthropic activities that only benefit employees or political contributions do not come under the purview of CSR and thus aren’t considered corporate social responsibility.

 In reality, CSR must benefit society, not just corporate goals.

An Analysis of the Numbers:

What Is Our Spending?

Ever since the law came into force, CSR expenditure has increased substantially:

In FY 2014–15, businesses incurred ₹10,065 crore on CSR. As of the financial year 2022–23, this amount was ₹29,986 crore. More than 24,000 businesses have declared CSR expenditure in 2022–23 alone. Although those numbers sound great, there is a caveat— not all companies are meeting their requirements.

In fact, the mean spend is more like 1.9%, and it still lags the 2% requirement. More telling is the fact that a few hundred of the largest firms are responsible for the majority of CSR expenditure. Reliance Industries, ONGC, Tata Steel, and TCS are some of the ones which are regularly surpassing their targets. Therefore, as it grows, CSR is also uneven.

Where is CSR money spent?

Predictably, education is the most funded by CSR. It is closely followed by Healthcare Rural development, Environmental projects, Skill development and improvement in livelihood but the catch is geographic concentration.

Maharashtra, Gujarat, Karnataka, and Tamil Nadu are the biggest beneficiaries of Corporate Social Responsibility (CSR) funds. But the North-East, tribal regions, and remote aspirational districts tend to get a disproportionately low rate of these funds.

Why?

Primarily it is a question of convenience—companies prefer to fund projects near their locations of operations. This then raises the essential question:

How do we ensure that CSR reaches where it is needed the most?

Do CSR initiatives bring about significant change?

If done properly, definitely. Rural schools in Karnataka have been provided with digital classrooms through corporate social responsibility. Urban forests have also been established in industrial areas. Women in Jharkhand have also been given financial literacy programs and small enterprise training. But there’s a catch: Most CSR programs don’t deliver. Some simply allocate the money without long-term planning or a good assessment.

Challenges are:

• Short-termism: Projects last a year and disappear. The transparency deficiency in reporting.
• Poor partnerships with local non-governmental organizations.
• Challenges in impact measurement
• To move forward, companies must move from output (“We constructed 10 toilets”) to outcome (“Did the toilets enhance the public health of the region?”).
• From Compliance to Purpose: A Strategic Opportunity

 CSR is not just about ticking a legal box. Forward-thinking businesses are starting to see that it is a differentiation factor

• Customers value businesses that have an impact
• A talent magnet: Gen Z and Millennials favor employers with a cause
• A risk reducer: Investing in the communities you serve creates long-term stability
• An inspiration source: CSR activities tend to unveil new markets, ideas, and partnerships

For instance, an FMCG company investing in rural water sanitation not only completes its CSR mandate—but also generates goodwill and market trust in villages.

Common mistakes corporations should avoid If you are auditing or budgeting your CSR operations, consider the following to watch out for:

• Last-minute spending: Postponing CSR to Q4 results in hurried, wasteful projects Copy-paste strategies: There are special needs in each community—don’t copy the same template everywhere
• Lack of metrics: If you can’t measure them, you can’t improve them.
• Lack of community participation: Projects work best when co-developed with the beneficiaries
• Neglecting stewardship: CSR boards shouldn’t just exist on paper—they need to be meaningfully involved in shaping and steering the company’s CSR vision and outcomes.
• Limited funding stability
• Short notice periods for project execution.

Mismatch between indigenous potential and firm expectations?

 The answer is co-creation. Companies and citizens’ groups need to move away from the client-vendor paradigm to that of partnership with mutual learning and shared accountability. Let’s pause and inquire:

•  Are we using Corporate Social Responsibility as a tool to learn more about India’s social framework?
• Is this the way we are leveraging our influence—not just our money—toward change?
•  How will success for our CSR program look in five years?

These are not simply metaphysical questions. The responses drive how we operate our budget, choose partners, and calculate impact.

The Bigger Picture: CSR and ESG

Throughout the world, the distinction between CSR and ESG (Environmental, Social, and Governance) is increasingly becoming blurred. Investors, regulators, and consumers alike are calling on companies to be accountable not just for what they make—but how they make it.

India’s CSR legislation, while distinctive, is a part of this larger trend. And Indian businesses that equate CSR with ESG thinking stand to benefit significantly: More access to international capital. Stronger reputations A future-ready workforce and culture

Where are we going from here?

India’s Corporate Social Responsibility (CSR) legislation has now been over a decade since its inception. It has evolved, changed, and provoked discourse over corporate accountability as never before seen. But for this legislation to truly have lasting effect, we require more than compliance—we require dedication.

The future requires the following:

• Improved data to inform decision-making.
• The addition of underrepresented geographies and communities.
• Strong leadership comfortable with investing in long-term social value.
• Cross-sectoral coordination among government, business, and civil society

Ready to Make Your CSR Count?

 If you’re an entrepreneur, business leader, or CSR director trying to navigate India’s new CSR landscape—you’re not alone. The path to effective CSR can seem daunting: budgets, committees, compliance reports, partner screening, metrics for impact. Yet, it should not necessarily be so.

That is where Chrysalis Services steps in.

We guide companies from uncertainty to clarity—from obligation to possibility. No matter if you’re just beginning or ready to expand your CSR initiative, we’re your trusted partner every step of the way:

• Creating customized CSR programs that appeal to your brand and values
• Enabling your access to sound, community-based implementation partners
• Designing governance, reporting, and real-time impact measurement
• Helping you communicate your impact to stakeholders, employees, and the public

 Let’s turn CSR into more than a duty. Let’s turn it into a movement—one company, one community at a time. 

References

• Ministry of Corporate Affairs (Companies Act, CSR FAQs & Schedule VII) – https://www.mca.gov.in

• India CSR Outlook Report 2024 – https://csrboximpact.in

• Protean Insights on CSR trends – https://proteantech.in/articles/

• Times of India (CSR coverage) – https://timesofindia.indiatimes.com

• Mission Sustainability Blog – https://missionsustainability.org/blog/csr-in-india/

• CAF America – https://cafamerica.org/blog/unpacking-indias-csr-law/

• Conventus Law – https://conventuslaw.com/report/india-allocation-of-csr-funds-need-for-more-equitable-distribution

• London School of Economics – https://www.lse.ac.uk/marshall-institute/assets/Documents/ESS-2017-papers/Khanna-Dharmapala-ImpactofMandatedCorporateSocialResponsibility.pdf