Thursday, July 3, 2025

Corporate Social Responsibility (CSR) in India — The Ultimate Legal & Compliance Guide for FY 2024–25 & FY 2025–26

 Updated as on July 2025 | Law ⬩ Rules ⬩ Circulars ⬩ FAQs ⬩ Legal Interpretation

Legal Framework – Section 135 of the Companies Act, 2013

CSR is applicable if, during the immediately preceding financial year, the company satisfies any one of the thresholds under Section 135(1):

CriteriaThreshold
Net Worth₹500 Crore or more
Turnover₹1,000 Crore or more
Net Profit (Sec. 198)₹5 Crore or more

CSR applicability is assessed afresh every year. It is not presumed or carried forward based on past status.

Amendments (2021–2025): Shift to Annual Trigger-Based CSR

DateAmendment/EventImpact
Jan 2021Rule 3(2) introduced via GSR 40(E)Allowed CSR exit after 3 consecutive ineligible years
Sept 2022Rule 3(2) deleted via GSR 700(E)✅ CSR is now triggered purely based on preceding year financials
Feb 2022CSR-2 made mandatoryCSR digital compliance reporting initiated
Jan 2024Rule 12(1B) amendedCSR-2 to be filed separately by 31 December each year
Jan 2024Impact Assessment mandated (> ₹1 Cr projects)Enhances project accountability via 3rd-party review
Nov 2023MCA FAQs updatedClarified deemed CSR fulfillment for eligible Section 8 companies

CSR Applicability 

Financial YearCSR Applicability Based OnCSR Obligation?
FY 2024–25FY 2023–24If any threshold met in FY 2023–24
FY 2025–26FY 2024–25Fresh test required

 Applicability is rolling and real-time. CSR applies if any one condition is met in the immediately preceding FY.

Legal Interpretation – What the Law Now Requires

  • Trigger Point: CSR becomes applicable in the next FY if any threshold is met in the preceding FY.

  • Non-Applicability: If all criteria are missed in a given FY, CSR obligation does not arise in the following year.

  • Exit Logic Abolished: Rule 3(2), which allowed continuation/exits over 3 years, was deleted in 2022.

  • Re-Trigger: CSR re-applies whenever a company again satisfies any eligibility criteria under Section 135(1), even after a break.

CSR Spending Framework

ComponentRequirement
Spend RequirementMinimum 2% of average net profits (Sec. 198) over 3 preceding FYs
Eligible ActivitiesMust be aligned with items listed in Schedule VII
Net Profit BasisAs per Section 198 – excludes capital profits, revaluation reserves, etc.
Board DisclosureMust be reported in the Board’s Report under Section 134(3)(o)

Mandatory Impact Assessment

When RequiredConditionCapped Cost Allowance
For any project spending > ₹1 CroreThird-party Impact Assessment is mandatoryMax 2% of CSR obligation or ₹50 Lakhs, whichever is higher

Management of Unspent CSR Funds

CategoryAction RequiredTimeline
Ongoing ProjectsTransfer to Unspent CSR AccountWithin 30 days of FY end
Non-Ongoing ProjectsTransfer to PM CARES / Govt. FundWithin 6 months of FY end
Unused for 3 YearsTransfer to separate designated CSR FundAfter 3 years of inaction

CSR Compliance Calendar – FY 2024–25 & FY 2025–26

Compliance TaskTimelineRelevant Law / Rule
Check CSR applicability (Sec. 135(1))Post-audit every FYSection 135(1)
Form CSR Committee (if spend > ₹50L)At start of FYSection 135(1), Rule 5
Draft/Revise CSR PolicyWithin 6 months of applicabilityRule 6
Identify Schedule VII causesBefore allocation/spendingRule 4
Transfer Unspent Funds (Ongoing)Within 30 days of FY endRule 10
Transfer Unspent Funds (Other)Within 6 months of FY endRule 10
File Form CSR-2By 31 DecemberRule 12(1B)
Conduct Impact Assessment (> ₹1 Cr)Before next cycle beginsRule 8(3)
Disclosure in Board ReportAlong with financial statementsSection 134(3)(o), Rule 8

FAQs – Clarified with Law & Reasoning

QuestionAnswerLaw / Guidance
If only one criterion is met, does CSR apply?✅ Yes. Any one of net worth, turnover, or profitSection 135(1)
Can CSR continue if criteria aren’t met for one year?❌ No. Rule 3(2) deleted – annual re-testing onlyGSR 700(E), Sept 2022
Can CSR re-apply after previous inapplicability?✅ Yes. Once any threshold is met againSection 135(1)
Are Section 8 companies exempt from CSR?⚠️ No. But deemed fulfilled if 100% spent on Schedule VIIMCA FAQ, Nov 2023
What is the profit base for CSR spend calculation?Net Profit as per Section 198Section 135(5) + Sec. 198
Can a new company be tested for CSR applicability?❌ No. No preceding FY data availableMCA FAQ
Deadline for CSR-2 filing?📌 31 December following FY (after AOC-4)Rule 12(1B)

Legal Position Matrix – At a Glance

ScenarioCSR Applicable?Legal Reasoning
Any one Section 135(1) trigger met✅ YesLaw requires only one criterion
All triggers missed in one FY❌ NoNo obligation for following year
Triggers missed for 3 consecutive years❌ NoIrrelevant now – Rule 3(2) repealed
Trigger met again after break✅ YesRe-triggered by fresh satisfaction of Sec. 135(1)
Newly incorporated company❌ NoNo previous year data for testing
Section 8 Company using all income on CSR✅ Deemed fulfilledPer MCA FAQ (Nov 2023)

CSR Is a Responsibility, Not a Ritual

“CSR is not a legacy — it is a live test of governance, impact, and intention.”

  • CSR is dynamic, not frozen.

  • Compliance must follow real-time financials — not legacy assumptions.

  • Annual testing, transparent disclosure, and impact-driven outcomes are now the legal and ethical expectations.

  • Boardrooms must institutionalize CSR into strategy, policy, compliance, and reputation management.