INDIA’S CSR EQUATION

ABSTRACT

 This article reviews the development of Corporate Social Responsibility (CSR) in India, with a focus on its introduction as a requirement under Section 135 of the Companies Act, 2013. It discusses the growth of CSR in India, the legalities guiding CSR, several compliance requirements, penalties that the business has to face for non-compliance, and the future of CSR in India. Using real-world examples and data from several verified sources, the article presents a balanced analysis of how CSR law in India impacts both business and efforts toward social development.

INTRODUCTION

According to the United Nations Industrial Development Organization (UNIDO), Corporate Social Responsibility (CSR) is a management concept whereby companies integrate social and environmental concerns into their business operations and interactions with stakeholders. CSR is generally understood as the way a company achieves a balance of economic, ecological, and social imperatives while addressing the expectations of shareholders and stakeholders. In this sense, it is vital to distinguish CSR, which can be a strategic business management concept, from charity, sponsorships, or philanthropy. Even though the latter can also make a valuable contribution to poverty reduction, it will directly enhance a company’s reputation and strengthen its brand; the concept of CSR goes beyond that.[1]

CSR is a social responsibility that businesses are expected to fulfil. It adds value to both the business and society. It helps companies establish a more substantial brand presence in the market, drive customer loyalty, increase investor confidence, and potentially lead to higher stock value.

India is among the few countries that have legally mandated CSR through legislative actions. This concept is governed by Section 135 of the Companies Act, 2013.[2]  Over the years, the prevailing notion has been that large companies can have a positive impact on society. It is no longer seen as a matter of charity, but as a responsibility that comes with the power and resources that companies possess. It is becoming increasingly evident that companies ought to address urgent problems, whether related to the environment, healthcare, or any other such concerns. This indicates that businesses are beginning to prioritize purpose alongside profit. This article aims to examine the legal aspects of CSR in India, assess its practical effects on business and society, and explore the opportunities and challenges it presents. It also takes into account how CSR is changing in terms of both policy and practice, as well as potential future developments that could influence its place in India’s business and social environment.

HISTORY AND EVOLUTION OF CSR IN INDIA 

The concept of corporate social responsibility dates back as early as 300 BC, during the Mauryan period, when philosophers like Kautilya emphasized the importance of following ethical practices in business. Several places in the Indian scriptures mention the need and importance of giving to the needy section of society. Religion further nurtured this sense of responsibility.  According to Islamic traditions, a portion of one’s earnings must be shared with people experiencing poverty in the form of donations. This was known as Zakkat. Wealthy merchants belonging to the Hindu religion gave night shelters for the poor. Hindus followed Dharmada, where the manufacturer or seller charged a specific amount from the purchaser, which was used for charity. The amount was known as a charity amount.[3]

In the modern era, a more formal approach to CSR began taking shape in 2009 when the Ministry of Corporate Affairs issued voluntary guidelines for CSR to incorporate the concept of business responsibility, which was further refined as National Voluntary Guidelines (NVGs) on Social, Environmental and Economic Responsibilities of Business, 2011. The National Voluntary Guidelines (NVG) are a set of nine principles that provide Indian business owners with a clear understanding of what and how they should incorporate various practices into their business conduct. In 2019, the NVG was updated to align with the United Nations Guiding Principles on Business & Human Rights (UNGPs) and the UN Sustainable Development Goals (SDGs), marking India’s effort to align its CSR policy with the global policy framework.[4]

LEGAL ASPECTS OF CSR

According to Section 135(1) of the Companies Act, certain companies are mandatorily required to contribute a specified amount towards CSR activities. The criteria for such companies (including foreign companies with a branch or project office in India) are as follows –
 (a) Net worth of more than ₹500 crore, or
 (b) Turnover of more than ₹1,000 crore, or
 (c) Net profit of more than ₹5 crore.

These thresholds are evaluated annually, and if a company meets any of the above criteria in a given financial year, it must comply with the CSR provisions for that year.

The Board of Directors of such companies must ensure that the company spends, in every financial year, at least 2% of the average net profit made during the three immediately preceding financial years, through its CSR policy, which is a mandatory CSR spending.[5]

IMPORTANT COMPLIANCE REQUIREMENTS

1. Implementing Agency –

• The company shall spend the CSR amount either by itself or through an implementing agency. (The implementing agency shall be registered under section 12A and shall be approved under 80G of the Income Tax Act, 1961. This agency shall have an established track record of 3 years in undertaking CSR activities, and it should have CSR-1 registration.)
• The implementing agency can be a registered society or a registered public trust.
• Any entity established by the central or state government or by legislation shall not be required to register itself under Section 12A or 80G.

2. Unspent amount of the ongoing project under the company’s CSR policy –

• The company shall open an ‘Unspent CSR Account’ and these funds shall be used towards its obligations under the CSR policy within three financial years from the date of the transfer of the amount[6].

3. Specified Funds –

• If the company fails to utilise the funds at the end of three financial years, the funds should be transferred to the specified funds within 30 days. (These specified funds include – PM CARES Fund, Clean Ganga fund, public-funded universities, IITs, CSIR, AYUSH, DRDO, etc)

4. CSR Committee –

(a)  If the company spends 50 Lakh or more, it should create a CSR committee. The committee must consist of three or more directors, of which one should be independent 

5. Duties for CSR committee –

• The company shall formulate an action plan that includes listing projects, implementing and monitoring the CSR activity, and recommending a CSR policy to the board.

6. Board reporting –

• The Board shall report annually on the CSR of that particular company.

7. CSR policy –

• In case a company has a website, it must disclose the composition of the CSR committee, its policy, and projects that are approved by the board.

8. CSR-2 form –

• This CSR 2 form is an electronic reporting form introduced by the Ministry of Corporate Affairs (MCA) as part of the Companies (Accounts) Amendment Rules, 2022. Its primary purpose is to provide a standardised mechanism for companies covered under Section 135 of the Companies Act, 2013, to annually disclose their Corporate Social Responsibility (CSR) activities, expenditures, and project outcomes to the Registrar of Companies. The CSR-2 Form must be submitted with detailed CSR information, including financial outlays, project details, committee composition, and compliance status.[7]

PENALTIES FOR NON-COMPLIANCE

No penalties had previously been imposed on companies for non-compliance in the matter of CSR projects as long as the company states a specific reason.  However, the application of the Companies (Amendment) Bill, 2019, has introduced a new provision under which a company can incur a monetary penalty for non-compliance.

The penalty will apply to a company if –

• A company fails to spend the allotted CSR amount in one financial year, or fails to transfer the unspent amount to the fund under section VII
• Does not transfer the unspent money to ‘Unspent CSR Account’ for ongoing CSR activity.

If any of the scenes as mentioned earlier occur, the business may face a penalty of a minimum of ₹ 50,000 to a maximum of ₹ 25 lakhs. The members of the company responsible for the default may face similar charges. The member responsible may face imprisonment for up to three years or a fine of any amount between fifty thousand and five lakhs or both, depending on the severity of the case.

HOW THE LAW REGARDING CSR HAS MADE A DIFFERENCE

In India, corporate social responsibility (CSR) has steadily increased since the implementation of mandatory CSR in 2014. Businesses have been focusing more on rural development, healthcare, education, and environmental sustainability. This suggests not only compliance with the law but also a growing understanding of business accountability in addressing societal issues.

Several well-known companies have undertaken significant projects. For instance, the Tata Trusts’ sustainable farming programs (Lakhpati Kisan initiative) have improved rural livelihoods.  In non-developed places, the Infosys Foundation has constructed educational facilities and funded public healthcare.  The technology industry has also shown leadership by financing initiatives that support education, climate action, and digital literacy. These initiatives have extended the reach of CSR beyond traditional methods, demonstrating that businesses can contribute meaningfully to long-term development.

DRAWBACKS

Yet, there are some limitations to such a CSR act. One of them is the geographic concentration of CSR expenditure in industrialized states. At the same time, regions with greater need for development, including some areas in the Northeast and central India, receive less assistance from such big corporations. Moreover, CSR is viewed by many companies as just a mandatory activity, rather than a development initiative; therefore, there is not much detailed planning or execution.
Another challenge is the limited capacity of the NGOs, which makes it difficult to implement and manage the projects. While new regulations now make it essential to assess larger CSR projects, practice in actual evaluations continues to develop.
CSR has played a role in building the nation, but it can do more. More focus should be laid on implementation.

FUTURE OF CSR IN INDIA

India’s corporate social responsibility is undergoing a transformation phase, marked by several crucial changes, global sustainability goals (17 SDGs), and a push for more inclusive outcomes. With the introduction of the Business Responsibility and Sustainability Report (BRSR) framework by SEBI[8]

Now, companies are expected to establish CSR policies that take into account a wider range of environmental, social, and governance issues, as mentioned earlier in the article.

Regulatory assessments are changing what people expect to find a balance between what can be done and what is understood, especially for small enterprises. Adjustments in supply chains are likely to occur, and timetables for assurance and reporting are being established to make declarations more plausible and verifiable.

More prominence is also being laid on regional equity in CSR deployment. Initiatives like NITI Aayog’s Aspirational Districts[9] Encourage businesses to allocate resources to the underdeveloped regions rather than concentrating their efforts only around industrial areas. This shift stimulates alignment between CSR programs and national development priorities.

Usage of tech in the present day to trace the progress of CSR is increasing and has been increasing over the past few years. Businesses are using technology to check how their funds are being used , they also use tech to measure their progress, and ensure liability.

In the future, it is predicted that CSR in India will become more strategic and focus more on outcomes. Businesses will have the opportunity to contribute more to social welfare and sustainable growth. There is growing support for viewing corporate social responsibility (CSR) as an important path towards long term development of the society.

CSR system in our country mandates companies to take measures for development. This change increases the support financially for underdeveloped sectors. Despite the progress, there are many more challenges that remain un-explored, such as uneven implementation across several regions and limited resources for partner organisations. As regulations evolve and the focus on sustainable growth, CSR in India is slowly moving toward creating a significant impact. Continued efforts are needed to improve its clarity, fairness, and planning in a particularss manner to ensure CSR reaches its full potential.

REFERENCES

[1] United Nations Industrial Development Organization, What is CSR? (UNIDO) < https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr > accessed 19^th  July 2025.

[2] National CSR Portal, About CSR (Ministry of Corporate Affairs, Government of India) <https://www.csr.gov.in/content/csr/global/master/home/aboutcsr/about-csr.html> accessed 18^th  July 2025.

[3]Soul Ace, How has CSR evolved in India? (Soul Ace, undated) < https://www.soulace.in/how-has-csr-evolved-in-india.php>  accessed 18^th July 2025.

[4] Ministry of Corporate Affairs, History (National CSR Portal, MCA) <https://www.csr.gov.in/content/csr/global/master/home/aboutcsr/history.html> accessed 18^th July 2025.

[5] Mayashree Acharya, ‘Corporate Social Responsibility Under Section 135 of Companies Act’ (ClearTax, May 2025) < https://cleartax.in/s/corporate-social-responsibility> accessed 19^th July 2025

[6]CA Satish Auti, Understanding CSR Compliance: Companies Act, 2013 (TaxGuru, March 2024) <https://taxguru.in/company-law/understanding-csr-compliance-companies-act-2013.html > accessed 19^th July 2025.

 

[7] Renu Suresh, ‘MCA Form CSR‑2: Report on the Corporate Social Responsibility’ (IndiaFilings, 16 July 2025) <https://www.indiafilings.com/learn/mca-form-csr-2-report-on-the-corporate-social-responsibility/ > accessed 19^th July 2025.

[8] Securities and Exchange Board of India, Business Responsibility and Sustainability Reporting Framework (SEBI, May 2021) < https://www.sebi.gov.in/sebi_data/commondocs/may-2021/Business%20responsibility%20and%20sustainability%20reporting%20by%20listed%20entitiesAnnexure1_p.PDF%20accessed > 19^th  July 2025

[9] Ministry of Corporate Affairs, History (National CSR Portal, undated)  <https://www.csr.gov.in/content/csr/global/master/home/aboutcsr/history.html > accessed 19^th  July 2025.