Understanding CSR Rules: A Simple Guide for Indian Companies

In today’s business world, success is no longer measured by profit alone. Companies are increasingly expected to contribute to society in meaningful ways. In India, this responsibility is not just ethical—it’s also legal, thanks to the CSR rules outlined under the Companies Act, 2013.

Whether you're a business owner, a CSR professional, or simply curious about how companies are legally required to give back, understanding the CSR rules is essential. In this blog, we break down the CSR rules in simple, human language so you can understand what they mean, who they apply to, and how to comply effectively.

What Are CSR Rules?

CSR rules refer to the legal framework and guidelines issued by the Ministry of Corporate Affairs (MCA), Government of India, for the implementation and reporting of Corporate Social Responsibility (CSR) activities by certain companies.

These rules are derived from Section 135 of the Companies Act, 2013 and were officially notified in February 2014, with several amendments introduced over time to strengthen accountability and transparency.

Who Has to Follow CSR Rules?

According to the Act, CSR rules apply to companies that meet any of the following financial criteria in a financial year:

Net worth of ₹500 crore or more

Turnover of ₹1,000 crore or more

Net profit of ₹5 crore or more

If a company meets any one of these conditions, it must:

Form a CSR Committee

Create and adopt a CSR Policy

Spend at least 2% of its average net profit (from the last 3 years) on CSR activities

Report its CSR performance annually in the Board’s Report and MCA filings

Key CSR Rules You Need to Know

Here’s a simplified look at the major rules companies need to follow:

1. CSR Committee Formation

Eligible companies must set up a CSR Committee of the board. The committee must include at least three directors, with at least one being an independent director. This committee is responsible for:

Recommending the CSR policy

Approving CSR projects

Monitoring the implementation and impact

2. CSR Policy Requirements

Companies must have a formal CSR policy stating:

The projects or programs to be undertaken

Implementation strategy

Funding mechanism and monitoring process

The policy should align with activities listed under Schedule VII of the Companies Act, such as:

Education

Health and sanitation

Environmental sustainability

Women empowerment

Rural development

Skill development

Support to armed forces, etc.

3. Minimum CSR Expenditure

As per CSR rules, companies must spend at least 2% of their average net profits from the last three financial years on approved CSR activities. If the company fails to spend the amount, it must:

Disclose the reason in its annual report

Transfer the unspent amount to a specified fund within six months (if not tied to an ongoing project)

4. Unspent CSR Funds

Unspent CSR amounts (that are not part of an ongoing project) must be transferred to the Schedule VII funds, such as:

Prime Minister’s National Relief Fund (PMNRF)

Swachh Bharat Kosh

Clean Ganga Fund

PM CARES Fund, etc.

If the CSR amount is committed to an ongoing project, it should be transferred to a special Unspent CSR Account and spent within three financial years.

5. Mandatory Registration of Implementing Agencies

As per the amended CSR rules (2021), companies must carry out CSR activities through:

Section 8 companies

Registered public trusts or societies

Government-established bodies

These implementing agencies must be registered with the MCA by filing Form CSR-1.

6. Impact Assessment

Companies with a CSR obligation of ₹10 crore or more in the previous three years are required to conduct impact assessments for CSR projects with an outlay of ₹1 crore or more. This ensures that the funds have made a measurable difference.

7. Reporting and Disclosure

Companies must disclose CSR details in:

The Annual Board Report

A separate section on their website

Annual return filings via Form CSR-2 on the MCA portal

Importance of CSR Rules

Following CSR rules not only ensures legal compliance but also brings several benefits:

Stronger brand reputation

Better employee engagement and retention

Greater trust among investors and stakeholders

Real, measurable social impact

Reduced risk of penalties and legal issues

How to Comply Effectively

To meet CSR obligations smoothly, companies should:

Hire CSR consultants for strategic planning and implementation

Choose projects aligned with company values and community needs

Partner with credible NGOs registered with the MCA

Maintain transparency through proper documentation and impact reports

Regularly review and update the CSR policy

Final Thoughts

The CSR rules under the Companies Act, 2013, are designed to ensure that corporate India contributes meaningfully to nation-building. These rules go beyond mere compliance—they help businesses drive change, improve lives, and build stronger relationships with communities.

For Indian companies, CSR is no longer optional—it’s a legal and moral duty. By following the CSR rules, businesses not only meet legal requirements but also become agents of positive transformation.