Corporate Social Responsibility (CSR) is more than just a statutory obligation in India—it is a reflection of a company’s values, accountability, and commitment to inclusive growth. With growing public and regulatory scrutiny, CSR compliance is not just a tick-box exercise—it is an essential component of sustainable corporate governance.
This blog outlines the importance of CSR compliance and reporting, and how companies can ensure they meet their legal duties while making a meaningful social impact.
What is CSR Under Indian Law?
The Companies Act, 2013 made India the first country to mandate CSR for certain companies. Under the law, qualifying companies must spend a portion of their profits on approved social development activities and report their efforts transparently.
Applicability of CSR Provisions
CSR provisions apply to companies (including foreign companies with Indian operations) that meet any one of the following criteria in the immediately preceding financial year:
- Net worth of ₹500 crore or more, or
- Turnover of ₹1,000 crore or more, or
- Net profit of ₹5 crore or more
Once a company meets any of these thresholds, CSR becomes applicable for that financial year—even if it later falls below the limits.
Key CSR Compliance Requirements
- Formation of CSR Committee:
Companies (except small companies and those with CSR obligation below ₹50 lakh) must constitute a CSR Committee of the Board to formulate and monitor CSR policies and activities.
- Spending Requirement:
The company must spend at least 2% of the average net profits of the preceding three financial years on eligible CSR activities.
- Permitted Activities:
CSR funds must be directed toward causes listed in Schedule VII of the Act, such as education, healthcare, gender equality, environment, rural development, and more.
- Unspent Amounts:
- Unspent on ongoing projects: To be transferred to a special CSR Unspent Account and used within 3 years.
- Unspent on non-ongoing projects: To be transferred to a notified fund within 6 months of the financial year-end.
- Reporting and Disclosure:
- CSR report must be included in the Board’s Report
- Companies must file Form CSR-2 (mandated from FY 2020–21 onwards) with the MCA
- Disclosure of CSR policy, projects, and expenditure must also be made on the company’s website (if any)
Why CSR Compliance Matters
- Legal Consequences of Non-Compliance:
Failure to spend the mandated CSR amount or to transfer unspent funds can attract penalties—including monetary fines on the company and officers in default. - Reputation and Public Image:
CSR performance is closely watched by stakeholders, investors, and the public. Non-compliance may damage trust and goodwill. - Investor and ESG Ratings:
Companies with transparent and impactful CSR practices fare better in ESG (Environmental, Social, and Governance) evaluations—especially important for listed companies and those seeking foreign investment. - Social License to Operate:
CSR builds a bridge between the company and the community, reinforcing its legitimacy and long-term presence in the market.
Best Practices for Effective CSR Reporting
- Define a clear CSR policy aligned with business values and local needs.
- Partner with credible implementation agencies that are registered with MCA.
- Maintain detailed documentation of CSR planning, approvals, budgets, and execution.
- Ensure timely board review and reporting of CSR progress and outcomes.
- Use quantitative and qualitative metrics to evaluate impact—not just financial spend.
Final Note
CSR compliance is not just about meeting legal obligations—it’s about driving meaningful impact, enhancing corporate accountability, and aligning business success with societal welfare.
For Company Secretaries and compliance professionals, CSR offers an opportunity to shape how the company contributes to nation-building, while also safeguarding it from legal and reputational risks.Is your company’s CSR strategy both compliant and impactful? Now is the time to align purpose with performance.
