CSR Legal Requirements in India: A Guide by Chrysalis Services

CSR Legal Requirements in India: A Guide by Chrysalis Services

Corporate Social Responsibility (CSR) isn’t just a buzzword anymore it’s a legal obligation for many companies in India. In an era where businesses are being held accountable not just for profits, but for their social impact too, CSR compliance has become a serious boardroom topic. But what does the law really say?

Let’s break it down with this in-depth guide powered by Chrysalis Services, your expert legal partner for CSR compliance.

The Legal Foundation of CSR in India

Companies Act 2013: A Turning Point

India made history by being the first country to legislate CSR. The Companies Act, 2013, especially Section 135, mandates that qualifying companies must spend a portion of their profits on socially beneficial activities.

Section 135: The Game-Changer for CSR

This section outlines the legal framework, defining who must comply, how much to spend, and where to spend. It’s the cornerstone of all CSR legal Requirements.

Who Must Comply with CSR Provisions?

Threshold Limits for Applicability

A company must comply with CSR provisions if, during the immediately preceding financial year, it meets any one of these:

• Net worth ≥ ₹500 crore
• Turnover ≥ ₹1,000 crore
• Net profit ≥ ₹5 crore

Types of Companies Covered

Not just listed companies. The rule applies to private companies, unlisted public companies, and even foreign companies operating in India.

CSR Expenditure Requirements

Minimum CSR Spending Criteria

Companies are required to spend at least 2% of the average net profits made during the three immediately preceding financial years on CSR activities.

How to Calculate Average Net Profit

This is not just book profit it is calculated as per Section 198 of the Companies Act, excluding profits from overseas branches and capital profits.

Approved CSR Activities

Schedule VII – The CSR Activity List

CSR activities must align with Schedule VII, which includes:

• Eradicating hunger and poverty
• Promoting education
• Gender equality
• Environmental sustainability
• Rural development

What Qualifies and What Doesn’t

Spending on employees or marketing in the name of CSR? That doesn’t count. Activities must be altruistic, not profit-driven.

Formation of CSR Committee

Composition and Duties

If a company is required to undertake CSR, it must form a CSR Committee comprising:

• 3 or more directors (at least 1 independent)
• For private companies: 2 directors

Role in Project Selection and Monitoring

The committee is in charge of:

• Recommending CSR policy
• Identifying and approving projects
• Monitoring implementation

CSR Policy Framework

Drafting and Implementation

The company must create a CSR Policy, which outlines:

• Areas of intervention
• Mode of execution (in-house/outsourced)
• Budget allocation

Mandatory Disclosures

This policy must be uploaded on the company website and included in the Board’s Report.

CSR Reporting and Disclosures

Board’s Report Requirements

The Board must detail:

• Composition of CSR Committee
• CSR initiatives undertaken
• Reasons for unspent funds

Format of CSR Reports

As per Rule 8 of CSR Rules, companies must follow a prescribed format, which enhances transparency and accountability.

Audit and Compliance

Internal Checks

Maintaining records, invoices, and impact assessments are critical to passing internal reviews.

Role of Statutory Auditors

While CSR spending is not audited like financials, auditors must comment on CSR compliance in their report.

Penalties for Non-Compliance

Changes Post 2021 Amendment

Earlier, failure to comply resulted in just reporting. Now, under the Companies (Amendment) Act, 2021, monetary penalties apply.

Legal and Financial Implications

• Company: Penalty up to ₹1 crore
• Officers: Penalty up to ₹2 lakh each

Challenges Faced by Companies

Misinterpretation of Rules

Many companies struggle with:

• Understanding eligible projects
• How to track utilization

Implementation Hurdles

CSR isn’t just about cutting a cheque. It involves planning, partnerships, and impact assessment—all of which can get tricky without guidance.

CSR and ESG Integration

How CSR Aligns with ESG Goals

CSR is often the first step toward broader Environmental, Social & Governance (ESG) practices, making companies future-ready and stakeholder-responsible.

Long-Term Sustainability Benefits

• Better brand image
• Increased investor confidence
• Employee engagement

Best Practices in CSR Compliance

Real-World Examples

• TCS focusing on education and skill development
• ITC’s watershed programs in rural areas

Strategic CSR by Chrysalis Services

At Chrysalis Services, we help companies turn CSR from a legal duty into a strategic asset maximizing both compliance and community impact.

Chrysalis Services: Your Trusted CSR Compliance Partner

Why Choose Chrysalis Services?

• Expertise in Companies Act and CSR Rules
• End-to-end compliance solutions
• Transparent documentation and reporting

Holistic CSR & Legal Advisory

From drafting policies to impact assessments, we ensure your CSR journey is not just lawful, but impactful.

Conclusion

CSR is not just a legal checkbox it’s a social contract between business and society. With changing laws and rising expectations, having a trusted partner like Chrysalis Services makes all the difference. Stay compliant, stay compassionate, and drive change where it matters most.

FAQs

1. What is the mandatory CSR spending limit?
Companies must spend at least 2% of their average net profits (last 3 years) on CSR activities as per Section 135.

2. Can a company carry forward unspent CSR funds?
Yes, if the unspent amount pertains to an ongoing project, it must be transferred to a special account within 30 days.

3. Are donations to political parties considered CSR?
No. Political contributions are explicitly excluded from the definition of CSR activities.

4. Is it mandatory to form a CSR committee?
Yes, for companies meeting the CSR threshold. However, certain private and foreign companies may have relaxations.

5. How can Chrysalis Services assist in CSR compliance?
Chrysalis Services provides end-to-end CSR solutions—legal advice, policy drafting, reporting, and ensuring full statutory compliance.