Corporate Social Responsibility (CSR) is now a regular part of how businesses operate. Not just a “good-to-have” idea. It is more like, if you are making money, you also show up for society. You do it bit by bit, with some intent and accountability.
In India, Section 135 of the Companies Act, 2013, requires eligible companies to implement CSR. So, it is for eligible companies and not all companies. This section changed the tone of corporate responsibility in a big way by linking CSR to governance, spending, and disclosure.
This article examines Section 135 and why it matters, particularly through the lens of how corporate lawyers explain compliance, risk, and practical implementation.
What is Corporate Social Responsibility (CSR)?
CSR is a company’s ethical and social responsibility towards people and the environment. Under Section 135, CSR becomes mandatory only for companies that meet the prescribed thresholds, whether public or private. It does not apply to all companies; it applies only to those that qualify.
Companies often talk about CSR as if it were a universal rule. Rather, CSR is an idea that is broad, encompassing social responsibility, ethics, and community work. That part is voluntary, culturally expected. But legal CSR under Section 135 kicks in only when the company crosses the notified financial thresholds.
So, small companies, start-ups, and most family-run private limited firms may do CSR, but they are not forced under Section 135.
Some of the examples of CSR initiatives are as follows:
- Reducing carbon footprint and energy use
- Taking part in wildlife conservation programmes
- Encouraging charity and volunteerism
- Assisting local communities
- Improving labour laws
- Ensuring diversity and equality at work
- Investing in nonprofit organisations
Is CSR mandatory for all companies in India?
No. CSR applies only to companies that meet the Section 135 thresholds for either the following criteria:
- Net worth
- Turnover
- Profit.
Does CSR cover only environmental activities?
No. CSR includes the following areas as per Schedule VII:
- Education
- Healthcare
- Equality
- Community welfare
- Environmental protection, and more.
What is Section 135 of the Companies Act, 2013?
Section 135 of the Companies Act, 2013, sets forth the legal framework for CSR in India. The section applies to companies meeting specific criteria during any financial year, which includes the following:
- Net worth of INR 500 crore or more; OR
- Turnover of INR 1,000 crore or more; OR
- A Net profit of INR 5 crore or more
One more thing people miss. The thresholds are checked with reference to the immediately preceding financial year for applicability in the current year. So, eligibility is not a lifetime tag. It can switch on or off depending on the numbers and how the year went.
Such companies must establish a CSR Committee and devote 2% or more of their average net income over the previous three fiscal years to CSR initiatives.
However, “Net profit” here is not casual profit. It follows the Companies Act method, in line with the Section 198 computation principles. CSR rules also carve out exclusions. Overseas branch profits do not get counted. Certain dividends from CSR-compliant companies are excluded, too. So, the CSR base number can look different from what finance teams show in normal board decks.
What is CSR under the Companies Act 2013?
CSR is essentially a company's moral and ethical behaviour towards society at large. CSR is compulsory for all companies, whether public or private, under section 135 of the Companies Act of 2013.
Which companies must form a CSR Committee?
To form a CSR committee, a company must include at least three directors. One of these three must be an independent director.
What happens if a company fails to meet CSR obligations?
Unspent CSR amounts must be transferred to approved funds or ongoing project accounts as specified by law.
Key Provisions and Requirements of Corporate Social Responsibility
The following are some of the key provisions and requirements of Corporate Social Responsibility;
Identification of CSR Projects
Section 135 stipulates that companies should undertake CSR activities in areas such as eradicating poverty, promoting education, gender equality, environmental sustainability, and healthcare. They are given flexibility to select and implement CSR projects based on their sector-specific needs and potential impact.
CSR Committee
Companies covered by Section 135 are required to constitute a CSR Committee comprising at least three directors, including one independent director. The committee's role is to formulate and recommend CSR policies, monitor their implementation, and ensure effective utilisation of CSR funds.
CSR Committee composition is not one-size-fits-all. In fact, if the company is not required to appoint an independent director, then the CSR committee can be formed without one.
A private company with just two directors can keep the CSR committee to those two directors. Foreign companies have a different structure too, usually two persons, with specific representation.
CSR Expenditure
Section 135 requires eligible companies to spend at least 2% of their average net profits made during the three immediately preceding financial years on CSR activities. This ensures that companies contribute a reasonable proportion of their profits towards societal and environmental well-being.
Unspent CSR is where companies slip up. If the unspent amount is tied to an ongoing project, it typically moves to an Unspent CSR Account within prescribed timelines, and then must be utilised within the allowed period.
However, if it is not an ongoing project, the amount is transferred to a fund in Schedule VII within the stated time window.
In general, CSR admin overheads are not unlimited. There is a cap on CSR spending in CSR rules, commonly set at 5% of total CSR spend for the year.
Also, surplus from CSR activities is not treated as business profit. It must be ploughed back, moved to the Unspent CSR Account, or otherwise handled in accordance with the rules.
CSR Policy
Companies are required to formulate a CSR policy that outlines the activities to be undertaken, the manner of implementation, and the reasons for selecting specific projects or initiatives. The policy must be approved by the board and made available on the company's website.
In practice, some companies do not keep a full CSR committee when the CSR obligation is small. Also, there are compliance pathways in which the Board handles CSR functions directly in low-CSR-spend situations, depending on the applicable thresholds and rules.
This saves paperwork, but board accountability becomes more direct. Therefore, no hiding behind “committee said so”.
Reporting and Disclosure
Companies must disclose their CSR initiatives, policies, and expenditures in their annual reports, ensuring transparency and accountability. Detailed information regarding the CSR projects undertaken, the amount spent, and the impact achieved should be provided to stakeholders.
Impact assessment is now a serious expectation for bigger CSR spenders. Where the average CSR obligation is ₹10 crore or more, an independent impact assessment is expected for projects of ₹1 Crore+ and with reporting linkages.
Also, the report goes to the Board and is attached to CSR reporting. This pushes CSR from “spent money” to “did it work”.
What is the minimum percentage of profit that companies must spend on CSR?
At least 2% of the average net profits of the previous three financial years must be spent on CSR.
Is the CSR policy publicly available?
Yes. CSR policy must be board‑approved and published on the company’s website.
How to Apply for CSR under the Companies Act 2013?
Applying or setting up CSR under the Companies Act involves a few clear steps. Here’s a friendly walkthrough:
- Determine Whether CSR Applies: Check if the company meets CSR thresholds. Even if a company becomes eligible for just one year, CSR requirements apply for that year.
- Form the CSR Committee once the company qualifies. You should form the CSR Committee, appoint the required directors, establish roles and responsibilities
- Draft and Approve the CSR Policy: The CSR Committee prepares the policy. The Board must review and approve it.
- Register Implementing Agencies: If the company wants to partner with an NGO/Trust, ensure that the agency files Form CSR‑1. You must also ensure that it receives a CSR Registration Number and is eligible under the CSR Rules 2021
- Plan the CSR Budget: Allocate at least 2% of the average net profits of the last three financial years.
- Execute CSR Projects: CSR activities can be implemented directly, through registered NGOs, or carried out in collaboration with other companies.
- Monitor and Record Progress: The CSR Committee should track fund utilisation, project timelines, and implementation challenges.
- Report in the Board Report: Mandatory disclosures must include total CSR budget, actual amount spent, & details of projects.
Ongoing Projects
In general, an ongoing project means multi-year CSR work. However, it is not endless, though. Usually, it is capped at three years, excluding the year it started. In fact, projects that began as one-year work can sometimes be extended beyond a year if the Board records a reasonable justification. This is helpful for education, skilling, and health infrastructure, as real projects take time.
Can companies collaborate on CSR projects?
Yes. Companies may jointly implement CSR projects if each reports its share of expenditure separately.
Is NGO registration mandatory for CSR partnerships?
Yes. NGOs must register and obtain CSR‑1 certification to be eligible to implement CSR.
Types of CSR Activities under the Companies Act, 2013
According to Schedule VII of the Companies Act of 2013, the following CSR initiatives are permissible in India for eligible listed companies to support:
- Eradicating malnutrition, poverty, and hunger
- Promoting Gender Equality
- Promoting Education
- CSR Environment-Related Initiatives
- Preservation Of National Art, Culture, and Heritage
- Actions Can Be Taken To Help And Support Veterans, War Widows, And Families Of The Armed Forces.
- Donations to the Prime Minister's National Relief Fund or any other Central Government Fund established for the welfare, development, and relief of Scheduled Caste, Tribes, Other Backwards Classes, Women, and Minorities.
- Financial support or contributions made to the advancement of technology in institutions of higher learning recognised by the central government.
- Donations made for Slum Area Development and Rural Development Projects.
Not everything “good” counts as CSR. In fact, normal business activities are typically not CSR. Also, political contributions are out. Moreover, employee-only welfare usually does not qualify. Essentially, sponsorships done mainly for branding or marketing benefits also get excluded.
Are all donations treated as CSR activities?
No. Only activities listed in Schedule VII qualify. Also, routine business expenses do not count.
Can CSR funds be used for employee benefits?
No. CSR activities must benefit society at large, not only company employees or their families.
Major Case Studies To Understand Section 135 of the Companies Act, 2013
To understand how CSR works in real life, here are some simplified case examples:
Tata Group – Education & Skill Development
Tata has implemented large-scale literacy programmes, digital learning initiatives, and rural skilling projects, demonstrating long-term CSR impact.
Reliance Foundation – Rural Transformation
Reliance Foundation’s rural support programmes, healthcare camps, and disaster response initiatives highlight strategic CSR at scale.
Infosys Foundation – Public Welfare
Infosys invests heavily in healthcare infrastructure, heritage conservation, and education for underprivileged communities.
HUL – Health & Hygiene Awareness
Hindustan Unilever’s WASH (Water, Sanitation, Hygiene) campaigns showcase behaviour-change-based CSR.
ITC – Sustainability and Farmer Empowerment
ITC’s watershed management and social forestry projects are often cited as examples of CSR that combine environmental and economic upliftment.
Why are case studies important in understanding CSR compliance?
They show how companies execute long‑term CSR strategies and demonstrate measurable social impact.
Do different industries adopt different CSR priorities?
Yes. CSR focus areas vary depending on industry needs, geographic presence, and community impact.
Benefits and Impact of Section 135 of the Companies Act, 2013
Section 135 has nudged many companies to pursue CSR with greater intent and structure. Now, it is less random and more planned. The effects show up in how boards think, how budgets get ring-fenced, and how projects are tracked over time.
Focused Social Investment
Companies must earmark a defined share of profits for social and environmental work. That changes behaviour. Then, CSR stops being an afterthought and becomes a strategy, even if it is compliance-led at first. As a result, better targeting happens with more measurable outcomes in many cases.
Stakeholder Engagement
The law indirectly pushes companies to engage with communities, NGOs, and, sometimes, local bodies. Also, needs get clearer when people actually listen on the ground. Moreover, collaboration also reduces guesswork. It is not always smooth, but it usually improves execution quality.
Enhanced Accountability
Reporting requirements create a paper trail. Moreover, boards cannot casually claim impact without disclosures. In fact, stakeholders can read, compare, and question. That pressure works as it is basic transparency.
Social and Economic Development
CSR spend has supported skilling, education, healthcare, sanitation, and environmental projects. Not every project is great, honestly. Yet the overall contribution adds up and helps fill gaps where public systems are stretched.
One practical upside is that excess CSR spend can be set off against the CSR obligation for the next three financial years, subject to conditions and a board resolution. This reduces year-end panic spending. Also, it reduces those rushed donations in March that nobody tracks later.
Does CSR improve corporate transparency?
Yes. With the implementation of CSR, mandatory reporting has been effective. In fact, it has increased transparency and accountability in CSR spending and project outcomes.
Does CSR help companies build stronger community relations?
Yes. CSR helps a company to gain trust and improve stakeholder engagement. Also, it helps to strengthen community partnerships.
Key Limitations of Section 135 of the Companies Act, 2013
While Section 135 has brought many benefits, it also has certain limitations:
- Mandatory CSR may reduce genuine intent: Some companies focus on meeting legal requirements rather than long‑term impact.
- Compliance burden on smaller eligible companies: Documentation, reporting, and committee formation may feel overwhelming for companies just meeting the eligibility threshold.
- Limited freedom due to Schedule VII restrictions: Companies may want to support causes outside Schedule VII, but cannot classify them as CSR.
- Short-term vs. long-term project pressure: The annual spending requirement sometimes pushes companies toward quick, visible results instead of sustainable, multi-year projects.
- Quality of implementation partners varies: Not all NGOs have the infrastructure for effective reporting or impact assessment, making compliance tricky.
Do CSR rules restrict innovative social projects?
Sometimes. Schedule VII limitations may prevent companies from supporting causes outside the approved list.
Is CSR compliance costly for smaller eligible companies?
Yes. Reporting, committee formation, and documentation can burden smaller companies newly meeting thresholds.
The Bottom Line
Section 135 of the Companies Act 2013 has played a pivotal role in institutionalising corporate social responsibility in India. By making CSR a legal obligation for eligible companies, the provision has driven positive change, empowered communities, and fostered sustainable development.
While challenges remain, the integration of CSR into company law has set the stage for responsible and ethical business practices, positioning India as a global leader in corporate social responsibility.
To know more about corporate social responsibility, you must contact an experienced corporation lawyer or a corporate law firm in the relevant jurisdiction. For example, if you are located in Kolkata, you must contact a corporation lawyer or a corporate law firms in Kolkata.
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