CSR Applicability for Foreign Owned Companies in India (2026)

Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.

CSR applicability under section 135 of the Companies Act, 2013 is the same for a foreign owned Indian company as for any other. It applies if, in the preceding financial year, net worth was INR 500 crore or more or turnover INR 1,000 crore or more. Net profit of INR 5 crore or more also triggers it. The company then spends at least 2 percent of its three year average net profit on Schedule VII activities in India.

This page explains the thresholds, the 2 percent computation, the committee rules, the activities that count, unspent amounts, reporting and penalties. It also covers branch and project offices of foreign companies, and what a foreign parent can and cannot do with its group CSR programme.

Is CSR applicable to a foreign owned company in India?

Yes, if it crosses any one threshold in section 135(1) in the immediately preceding financial year. An Indian subsidiary is a company under the Companies Act, 2013, so foreign ownership changes nothing. Rule 3(1) of the CSR Rules also covers a foreign company with a branch office or project office in India.

Rule 3(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 reads widely. It covers "every company including its holding or subsidiary", and a foreign company under section 2(42) with a branch or project office in India. Each company is tested on its own financial statements. A foreign parent's group results do not count.

Entity in India	Is section 135 applicable?	Figures used for the thresholds
Wholly owned subsidiary of a foreign company	Yes, if any threshold is met	Its own standalone financial statements
Joint venture company with a foreign partner	Yes, if any threshold is met	Its own standalone financial statements
Branch office or project office of a foreign company	Yes, under rule 3(1)	Indian business accounts under sections 381(1)(a) and 198
Liaison office of a foreign company	No, on our reading	Rule 3(1) names branch and project offices only, and a liaison office may not earn income in India
LLP with foreign partners	No	Section 135 applies to companies, not LLPs

The text of section 135 sets the thresholds, the 2 percent, the unspent amount rules and the penalties. The CSR Rules supply the definitions and procedure. MCA has amended the rules several times. The latest amendment we found is dated 27 May 2026.

What are the CSR thresholds under section 135(1)?

Section 135(1) sets three alternative thresholds, tested on the immediately preceding financial year. They are net worth of INR 500 crore, turnover of INR 1,000 crore and net profit of INR 5 crore. Meeting any one is enough. For most foreign owned subsidiaries, the net profit test is the one that bites.

Threshold	Amount	Defined in	Measured on
Net worth	INR 500 crore or more	Section 2(57)	Balance sheet at the end of the preceding financial year
Turnover	INR 1,000 crore or more	Section 2(91)	Revenue for the preceding financial year
Net profit	INR 5 crore or more	Explanation to section 135, read with section 198	Profit for the preceding financial year, computed under section 198

Net worth under section 2(57) is paid up capital plus reserves created from profits and securities premium, less accumulated losses and unwritten expenditure. Turnover under section 2(91) is the gross revenue from goods and services recognised in the profit and loss account. Net profit follows section 198, not the reported profit before tax.

The test runs every year. Rule 3(2) used to keep a company in the regime until it fell below the thresholds for three consecutive years. The Companies (CSR Policy) Amendment Rules, 2022 of 20 Sep 2022 omitted it. So a company that drops below every threshold in a year has no fresh obligation for the next year.

One exception remains. The proviso to rule 3(1), inserted by the same 2022 amendment, applies to a company holding money in an Unspent CSR Account. It must keep a CSR Committee and comply with section 135(2) to (6) even if it no longer meets a threshold.

A capital rich subsidiary can cross the net worth test without profits. A captive services centre with large equity infusions and modest margins should check net worth as well as profit every year.

How do you calculate the 2 percent CSR obligation?

Take the net profit under section 198 for each of the three immediately preceding financial years, average them, and multiply by 2 percent. Section 135(5) requires the board to ensure the company spends at least that amount in the year. A company younger than three years averages the years it has.

Rule 2(1)(h) of the CSR Rules adjusts the section 198 profit in two ways. It excludes profit from any overseas branch, whether run as a separate company or otherwise. It also excludes dividends received from other Indian companies that are covered by and comply with section 135.

Section 198 starts from the profit and loss account and adjusts it. It gives no credit for capital profits, share premium or fair value gains. It allows no deduction for income tax or capital losses. The result usually differs from profit before tax. We prepare a section 198 working for every client that is near the INR 5 crore line.

The annual report format in Annexure II to the CSR Rules sets the obligation as three parts:

1. Two percent of average net profit under section 135(5).
2. Plus any surplus arising out of the previous year's CSR projects.
3. Less any excess spent in earlier years that the board chooses to set off.

If the three year average is a loss, two percent of it is nil, so there is no spending obligation for that year. The company still forms its committee or has its board act, because the threshold test and the spending test are separate.

When does a company need a CSR Committee?

A covered company needs a CSR Committee of the board under section 135(1), unless its obligation is INR 50 lakh or less. Section 135(9) then lets the board perform the committee's functions. The committee has three or more directors, including one independent director, or two directors where no independent director is required.

Most foreign owned subsidiaries are private companies with no independent director requirement under section 149(4). The proviso to section 135(1) and rule 5(1) of the CSR Rules then allow a committee of two directors. A private company with only two directors forms its committee with those two.

Rule 5(1) has a special rule for a foreign company's branch or project office. Its CSR Committee has at least two persons. One is the person resident in India named under section 380(1)(d) to accept service on the company's behalf. The foreign company nominates the other.

Under section 135(3), the committee:

1. Formulates and recommends a CSR Policy listing the Schedule VII activities the company will undertake.
2. Recommends the amount to spend.
3. Monitors the policy from time to time.

Rule 5(2) adds an annual action plan. It lists the projects, how they will be run, the fund allocation, the monitoring method and any impact assessment. The board approves the policy under section 135(4), discloses it in the board's report and puts it on the website.

Foreign directors can attend CSR Committee meetings by video conference, as they do board meetings. Our page on board meetings with non resident directors covers the rules.

Which activities count as CSR under Schedule VII?

Only activities in the areas listed in Schedule VII to the Companies Act, 2013 count, and only when carried out in India. The list runs from hunger and health to disaster management. MCA General Circular 21/2014 of 18 Jun 2014 asks companies to read the entries liberally, to capture the essence of each subject.

Item	Area, in short
(i)	Eradicating hunger, poverty and malnutrition; health care; sanitation, including the Swachh Bharat Kosh; safe drinking water
(ii)	Education, special education, employment enhancing vocational skills and livelihood projects
(iii)	Gender equality, women's empowerment, homes and hostels for women and orphans, old age homes, and reducing inequality
(iv)	Environmental sustainability, ecological balance, flora and fauna, animal welfare, agroforestry, natural resources, including the Clean Ganga Fund
(v)	National heritage, art and culture, public libraries and traditional arts and handicrafts
(vi)	Measures for armed forces veterans, war widows and their dependants, and for Central Armed Police Forces veterans
(vii)	Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports
(viii)	Contributions to the PM National Relief Fund, PM CARES Fund and Central Government welfare funds for Scheduled Castes, Scheduled Tribes, backward classes, minorities and women
(ix)	Contributions to government funded incubators and research in science, technology, engineering and medicine; and to public funded universities, IITs, national laboratories and specified research bodies
(x)	Rural development projects
(xi)	Slum area development
(xii)	Disaster management, including relief, rehabilitation and reconstruction
(xiii)	Subscription to zero coupon zero principal instruments on a Social Stock Exchange (added 27 May 2026)

Item (xiii) came after this page's publish date. We cover it under "What has happened since" below.

Section 135(5) asks the company to prefer the local area where it operates. The preference is not a ban on other areas. A Bengaluru subsidiary can fund a project in Odisha, but its policy should say why.

Which spending does not count as CSR?

Rule 2(1)(d) of the CSR Rules excludes six kinds of activity, even if they fall within Schedule VII. The main ones for a foreign group are activities outside India, activities that benefit the company's own employees, and sponsorship for marketing benefit. Spending on these does not reduce the obligation.

Excluded under rule 2(1)(d)	What it means for a foreign owned company
(i) Activities in the normal course of business	A software company's paid training courses do not count. A time bound exception for COVID 19 research ran for FY 2020-21 to FY 2022-23
(ii) Activities outside India	Funding the parent's projects abroad does not count. The only exception is training Indian sports personnel representing a State, a Union territory or India
(iii) Contributions to political parties under section 182	Never counts
(iv) Activities benefiting employees as defined in section 2(k) of the Code on Wages, 2019	Staff welfare, staff scholarships and employee volunteering costs do not count
(v) Sponsorship for marketing benefit	Branded events and cause marketing do not count
(vi) Activities to meet any other statutory obligation	Spending required by another law, such as an environmental clearance condition, does not count

The employee exclusion now works with the Code on Wages, 2019, which came into force on 21 Nov 2025 by S.O. 5322(E). Its definition of employee is wide. We check that a project's beneficiaries are not mostly staff or their families before it goes into the CSR budget.

Administrative overheads are capped. Rule 7(1) limits them to 5 percent of total CSR expenditure for the year. Rule 2(1)(b) defines them as general management and administration of the CSR function. Costs tied directly to designing, running, monitoring or evaluating a project are not overheads.

Who can implement CSR projects and what is Form CSR-1?

A company can run CSR projects itself or through an eligible implementing agency under rule 4(1) of the CSR Rules. Every agency must first register with the Central Government in Form CSR-1, filed online with the Registrar, under rule 4(2). That requirement has applied since 1 Apr 2021.

The Companies (CSR Policy) Amendment Rules, 2022 of 20 Sep 2022 substituted rule 4(1). The eligible routes are now:

Route	Who qualifies	Conditions
The company itself	The covered company	None beyond the CSR Policy
Rule 4(1)(a)	A section 8 company, registered public trust or registered society set up by the company, alone or with any other company	Registered under section 12A and approved under section 80G of the Income Tax Act, 1961, or exempt under section 10(23C)
Rule 4(1)(b)	A section 8 company, registered trust or society set up by the Central or a State Government	None more
Rule 4(1)(c)	A statutory body set up under an Act of Parliament or a State legislature to undertake Schedule VII activities	None more
Rule 4(1)(d)	Any other section 8 company, registered public trust or registered society	Section 12A and 80G registration, or section 10(23C) exemption, and a track record of at least three years in similar activities

Rule 4(1) still names sections 12A, 80G and 10(23C) of the Income Tax Act, 1961. The latest amendment to the CSR Rules we found, of 27 May 2026, did not change rule 4(1). From 1 Apr 2026, registrations are granted under the Income Tax Act, 2025. We ask agencies for their current registration orders and check the rule text on mca.gov.in before we rely on a registration under the 2025 Act.

CSR-1 is filed by the agency, not by the company. A practising chartered accountant, company secretary or cost accountant verifies it digitally. The MCA system then issues a CSR Registration Number, which the company records in its annual report. Our CSR-1 registration service handles agency filings.

Rule 4(3) lets a company engage international organisations to design, monitor and evaluate projects and to train its own staff. It does not let an international body implement the projects. Rule 4(4) allows companies to collaborate on a project if each company's CSR Committee reports separately.

Rule 4(5) requires the board to satisfy itself that agencies used the money as approved. The chief financial officer, or the person responsible for financial management, certifies this. We ask agencies for utilisation certificates before the board meeting that approves the annual report.

What happens to unspent CSR money?

It depends on whether the money belongs to an ongoing project. Unspent money on an ongoing project goes to an Unspent CSR Account in a scheduled bank within 30 days of the year end. It must be spent within three financial years. Other unspent money goes to a Schedule VII fund within six months.

Rule 2(1)(i) defines an ongoing project as a multi year project lasting up to three years. The year it starts is not counted. A one year project that the board extends with reasonable justification also qualifies.

Unspent amount	Where it goes	Deadline	What happens next
For an ongoing project	Unspent CSR Account in a scheduled bank	Within 30 days of the financial year end	Spend within three financial years from the transfer
Unspent CSR Account balance after three years	A Schedule VII fund	Within 30 days of the end of the third financial year	Transferred out; the obligation ends
Not for an ongoing project	A Schedule VII fund	Within six months of the financial year end	The obligation ends
Surplus arising from CSR activities	Same project, the Unspent CSR Account or a Schedule VII fund	Within six months of the financial year end	Never part of business profit
Excess spent over the obligation	Set off against future obligations	Within the next three financial years, by board resolution	Excludes any surplus from CSR activities

Rule 10 says that until MCA names a specific fund, the company may transfer to any fund included in Schedule VII. In practice we use the PM National Relief Fund or the PM CARES Fund, both in item (viii).

The second proviso to section 135(5) also requires the board's report to give reasons for any shortfall. A company that transfers on time faces no penalty for the shortfall itself. Section 135(7) penalises a failure to transfer.

Capital assets need care. Under rule 7(4), CSR money can create a capital asset only if an eligible holder owns it. The holder may be a section 8 company, trust or society with a CSR Registration Number. It may also be the project's beneficiaries or a public authority. A company cannot keep a CSR funded asset on its own balance sheet.

How is CSR reported?

A covered company reports CSR in the board's report, on its website and in Form CSR-2 with the Registrar. Larger obligations also need an impact assessment. The board's report carries the annual CSR report in Annexure II for years from FY 2020-21. CSR-2 is filed with the AOC-4 financial statements.

Report	What it contains	Rule
Board's report	CSR Policy summary, committee composition and the annual report on CSR in Annexure II	Section 134(3)(o); rule 8(1)
Foreign company accounts	The same annual report, attached to the balance sheet under section 381(1)(b)	Rule 8(2)
Website	Committee composition, CSR Policy and projects approved by the board	Rule 9
Form CSR-2	Detailed CSR data reported to the Registrar	Rule 12(1B), Companies (Accounts) Rules, 2014
Impact assessment	Independent assessment of projects with outlay of INR 1 crore or more, completed at least a year earlier	Rule 8(3), where the average obligation is INR 10 crore or more

Rule 8(3) applies to a company whose average CSR obligation over the three preceding years is INR 10 crore or more. Since the 2022 amendment of 20 Sep 2022, it may book assessment costs as CSR up to 2 percent of the year's CSR spend or INR 50 lakh, whichever is higher.

CSR-2 has had its own dates. Rule 12(1B) makes it an addendum to AOC-4, but MCA allowed separate filing for several years:

1. FY 2020-21: on or before 30 Jun 2022.
2. FY 2021-22: on or before 31 Mar 2023.
3. FY 2022-23: on or before 31 Mar 2024.
4. FY 2023-24: on or before 30 Jun 2025, after the Companies (Accounts) Amendment Rules, 2024 of 24 Sep 2024 and two later extensions.

Rule 12(1B) sets no separate date for FY 2024-25 or FY 2025-26, on the ICSI online copy of the rule. CSR-2 therefore goes with AOC-4, which is due within 30 days of the AGM under section 137(1). Our guide to AOC-4 and MGT-7 annual filing gives the AOC-4 dates. The statutory auditor reports on transfers of unspent amounts under clause (xx) of CARO 2020. See our page on the statutory audit of a foreign owned subsidiary.

How does CSR apply to a branch or project office of a foreign company?

Rule 3(1) of the CSR Rules brings a foreign company's branch office or project office into section 135. The thresholds use the Indian business accounts it prepares under section 381(1)(a), with net profit under section 198. If a threshold is met, the branch spends 2 percent in India like any company.

The branch forms a CSR Committee of at least two persons under rule 5(1). One is its authorised representative under section 380(1)(d). The other is a nominee of the foreign company. The committee recommends the policy and spend. Rule 5(1) does not say which body of the foreign company approves them. We have the foreign company's board approve the policy and spend, and we record that in the annual CSR report.

The annual CSR report goes with the balance sheet the foreign company files under section 381(1)(b), under rule 8(2). The branch files this in Form FC-3 with its Indian accounts. Our page on the branch office in India covers its other filings.

A liaison office is different. Rule 3(1) names branch offices and project offices, not liaison offices. Under FEMA, a liaison office may only act as a communication channel and may not earn income in India. On our reading it has no net profit or turnover to test, so section 135 does not bite. Our page on the liaison office explains its limits.

Can an Indian subsidiary use its foreign parent's CSR programme?

Only for projects carried out in India through an eligible route. Rule 2(1)(d)(ii) excludes activities outside India, so money sent to the parent's global foundation abroad does not count. The subsidiary can join a group project in India, run by an agency registered in Form CSR-1, if its own committee reports on it.

The parent can still shape the programme. Its global themes, such as education or climate, usually map to a Schedule VII item. We write the Indian CSR Policy to match those themes and then pick Indian projects and agencies under rule 4(1).

A foundation set up by the foreign parent alone does not fall under rule 4(1)(a). That clause speaks of an entity set up by the company, alone or with another company. On our reading, an Indian section 8 company, public trust or society set up by the parent qualifies under rule 4(1)(d) once it has the tax registrations and a three year track record. Until then, the subsidiary can set up its own entity under rule 4(1)(a).

Rule 4(3) lets the parent's international partner design, monitor and evaluate projects. The money must still reach an Indian implementer or be spent by the subsidiary itself. Payments to the parent for CSR management are not CSR spending and may raise transfer pricing questions.

What are the penalties for CSR default?

Section 135(7) penalises a failure to transfer unspent amounts under section 135(5) or 135(6). The company pays twice the amount it should have transferred or INR 1 crore, whichever is less. Each officer in default pays one tenth of that amount or INR 2 lakh, whichever is less.

The same penalty applies to three defaults:

1. Not moving an unspent amount to a Schedule VII fund within six months of the year end.
2. Not moving ongoing project money to the Unspent CSR Account within 30 days of the year end.
3. Not moving an Unspent CSR Account balance to a Schedule VII fund within 30 days after the third year.

The Registrar adjudicates these penalties under section 454. The current scheme took effect with the 2021 amendments, and Annexure II applies to years from FY 2020-21. Under section 135(8), the Central Government may also give a company directions on CSR, which it must follow.

Failing to spend is not, by itself, a penalised default. Failing to explain the shortfall in the board's report and failing to transfer the money are. We set calendar reminders for 30 April and 30 September each year for our covered clients.

Is CSR spending tax deductible?

No. From tax year 2026-27, section 34(2)(b) of the Income Tax Act, 2025 disallows CSR expenditure under section 135 as a business expense. It replaces Explanation 2 to section 37(1) of the Income Tax Act, 1961, which applied up to FY 2025-26. GST input tax credit on CSR inputs is also blocked.

The 1961 Act rule is in Explanation 2 to section 37. The 2025 Act rule is in section 34(2)(b). That section is headed "General conditions for allowable deductions". The tax computation adds back CSR spend booked in the profit and loss account.

Section 17(5)(fa) of the CGST Act, 2017 blocks input tax credit on goods or services used for obligations under section 135. We could not read the commencement notification of that clause on an official page. Check it on cbic-gst.gov.in before you rely on credit claimed for earlier periods. We tag CSR purchases in the ledger so the GST team reverses or does not claim the credit.

For a foreign parent planning budgets, the cost of CSR is the full spend. There is no tax shield on it, and the GST on inputs is a cost. Our page on the Income Tax Act, 2025 for foreign owned companies covers the wider transition.

What changed in 2026

On this page's publish date of 25 Jan 2026, section 135 and the CSR Rules stood as amended in 2021 and 2022. We found no 2026 amendment before that date. Three things happened later in 2026, set out below.

Area	Old rule	New rule	Date	Instrument
Employee exclusion	Rule 2(1)(d)(iv) referred to the Code on Wages, 2019 before it was in force	The Code on Wages definition of employee now operates	21 Nov 2025	S.O. 5322(E)
Tax disallowance of CSR	Explanation 2 to section 37(1), Income Tax Act, 1961	Section 34(2)(b), Income Tax Act, 2025	1 Apr 2026	Income Tax Act, 2025
Schedule VII	Twelve items	Item (xiii): subscription to zero coupon zero principal instruments on a Social Stock Exchange	27 May 2026	G.S.R. 416(E), as named in the PIB release of 29 May 2026
CSR Rules	No rule on social stock exchange instruments	Rule 2 definitions and rule 4A; spend capped at 10 percent of total CSR spend	27 May 2026	Companies (CSR Policy) Amendment Rules, 2026, G.S.R. 415(E)
Companies Act amendments	Not applicable	Corporate Laws (Amendment) Bill, 2026 introduced; would raise the net profit threshold in section 135(1); not law	23 Mar 2026	Bill No. 85 of 2026, clause 43

What has happened since

The Income Tax Act, 2025 came into force on 1 Apr 2026, so the CSR disallowance now sits in section 34(2)(b). The rule is unchanged in substance.

On 27 May 2026, MCA notified G.S.R. 415(E) and G.S.R. 416(E), announced in a PIB release of 29 May 2026. G.S.R. 415(E) is the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026. It added definitions to rule 2 and a new rule 4A, and it came into force on publication. Schedule VII gained item (xiii) for zero coupon zero principal instruments on a Social Stock Exchange.

Not for profit organisations issue these instruments under SEBI rules. A company may put at most 10 percent of its total CSR spend for the year into them. A company that subscribes is exempt from impact assessment of the projects they fund.

The Corporate Laws (Amendment) Bill, 2026 (Bill No. 85 of 2026) was introduced on 23 Mar 2026 and sent to a Joint Parliamentary Committee. The PRS tracker shows the committee's report dated 3 Aug 2026 and no passage by either House. The Bill was not law on 23 Oct 2026. Clause 43 would amend section 135 in four ways:

• The net profit limit in section 135(1) would rise from INR 5 crore to INR 10 crore, or a sum the rules prescribe. The net worth and turnover limits would stay.
• The 30 day period in section 135(6) for moving ongoing project money to the Unspent CSR Account would become 90 days.
• The INR 50 lakh limit in section 135(9) would rise to INR 1 crore, or a higher prescribed amount.
• A new section 135(10) would exempt prescribed classes of companies on prescribed conditions.

Until Parliament passes the Bill and MCA brings it into force, the limits described above apply.

Worked example

A US owned software subsidiary in Bengaluru reports these net profits under section 198:

1. FY 2022-23: INR 3,20,00,000.
2. FY 2023-24: INR 4,60,00,000.
3. FY 2024-25: INR 6,10,00,000.

Its FY 2024-25 net profit crosses INR 5 crore, so section 135 applies for FY 2025-26. Its turnover and net worth are far below the other thresholds, which does not matter.

The obligation for FY 2025-26 works out as follows:

1. Total of three years: INR 3,20,00,000 + INR 4,60,00,000 + INR 6,10,00,000 = INR 13,90,00,000.
2. Average: INR 13,90,00,000 / 3 = INR 4,63,33,333.
3. Two percent: INR 4,63,33,333 x 2 percent = INR 9,26,667.

The obligation is below INR 50 lakh, so section 135(9) waives the CSR Committee. The board approves the policy and the spend. Administrative overheads may not exceed 5 percent of the total CSR spend. On a spend of INR 9,26,667, that is INR 46,333.

During FY 2025-26 the company spends INR 7,00,000 on a two year digital literacy project in government schools. A CSR-1 registered trust runs it. It also spends INR 1,50,000 on a one off health camp. Total spend is INR 8,50,000, leaving INR 76,667 unspent.

The board classifies the INR 76,667 as part of the ongoing school project. So:

1. By 30 Apr 2026, the company moves INR 76,667 to an Unspent CSR Account in a scheduled bank.
2. It spends that money on the project by 31 Mar 2029, the end of the third financial year after the transfer.
3. Anything left on 31 Mar 2029 goes to a Schedule VII fund by 30 Apr 2029.

Had the money not belonged to an ongoing project, the company would move it to a Schedule VII fund by 30 Sep 2026.

Now suppose the company misses the 30 Apr 2026 transfer. The penalty under section 135(7) is twice INR 76,667, so INR 1,53,334. That is less than INR 1 crore, so the full amount applies. Each officer in default pays one tenth of INR 76,667, so INR 7,667, which is less than INR 2 lakh.

For FY 2026-27, the three year window moves to FY 2023-24, FY 2024-25 and FY 2025-26. The company tests the thresholds again on its FY 2025-26 results. Because it holds money in an Unspent CSR Account, the proviso to rule 3(1) keeps it in the regime regardless.

Common mistakes

1. Testing thresholds on the parent's consolidated results. Fix: test each Indian company on its own standalone figures.
2. Using profit before tax as net profit. Fix: compute net profit under section 198 and apply rule 2(1)(h).
3. Funding the parent's global foundation abroad. Fix: spend in India through the company or a CSR-1 registered agency.
4. Counting staff welfare or employee volunteering. Fix: exclude activities that benefit employees under rule 2(1)(d)(iv).
5. Paying an unregistered NGO. Fix: check the CSR Registration Number and the income tax registrations before signing.
6. Missing the 30 April transfer for an ongoing project. Fix: decide project status at the March board meeting and transfer in April.
7. Leaving a CSR funded asset on the company's books. Fix: hold it through an eligible entity, beneficiaries or a public authority under rule 7(4).
8. Claiming GST credit on CSR purchases. Fix: tag CSR spend so the credit is not claimed.
9. Dropping the committee too early. Fix: keep it while any money sits in the Unspent CSR Account.

Checklist

1. Compute net worth, turnover and section 198 net profit for the preceding financial year.
2. Compute the 2 percent of the three year average net profit, with any set off and surplus.
3. Form a CSR Committee, or record that section 135(9) lets the board act.
4. Approve a CSR Policy and an annual action plan on Schedule VII items in India.
5. Verify each implementing agency's CSR Registration Number and income tax registrations.
6. Release funds against milestones and collect utilisation certificates.
7. Obtain the chief financial officer's certificate on use of funds under rule 4(5).
8. Transfer ongoing project shortfalls to the Unspent CSR Account by 30 April.
9. Transfer other shortfalls to a Schedule VII fund by 30 September.
10. Include the Annexure II report in the board's report and update the website.
11. File Form CSR-2 with AOC-4.
12. Add back CSR spend in the tax computation and block GST credit on CSR inputs.

To have us set up CSR for a newly covered subsidiary, email [email protected]. Send the last three years' audited accounts and the parent's CSR themes.

Frequently Asked Questions

What is the CSR applicability threshold in India?+

Section 135(1) of the Companies Act, 2013 sets three thresholds. They are net worth of INR 500 crore or more, turnover of INR 1,000 crore or more, and net profit of INR 5 crore or more. The test uses the immediately preceding financial year, and meeting any one threshold is enough.

Does CSR apply to a wholly owned subsidiary of a foreign company?+

Yes. An Indian subsidiary is a company under the Companies Act, 2013. Rule 3(1) of the CSR Rules covers every company including a holding or subsidiary company. The subsidiary is tested on its own standalone figures. The foreign parent's group results are not counted.

Does CSR apply to a branch office of a foreign company?+

Yes, if its Indian business accounts cross a threshold. Rule 3(1) of the Companies (CSR Policy) Rules, 2014 covers a foreign company with a branch or project office in India. Its figures come from accounts under section 381(1)(a) and section 198. Its committee includes the section 380(1)(d) representative.

How is the 2 percent CSR amount calculated?+

Average the net profits under section 198 for the three immediately preceding financial years and take 2 percent, under section 135(5). Exclude overseas branch profits and dividends from Indian companies that comply with section 135, under rule 2(1)(h). A company younger than three years averages the years it has.

Is a CSR Committee required if the CSR amount is small?+

No, if the amount to be spent is INR 50 lakh or less. Section 135(9) of the Companies Act, 2013 removes the committee requirement and lets the board perform its functions. A company with money in an Unspent CSR Account must still keep a committee under the proviso to rule 3(1).

How many directors does a CSR Committee need?+

Section 135(1) asks for three or more directors including one independent director. Where no independent director is required, two directors are enough. A private company with only two directors uses both. A foreign company's branch needs two persons, one being its section 380(1)(d) representative, under rule 5(1).

Can an Indian subsidiary spend CSR money outside India?+

No. Rule 2(1)(d)(ii) of the Companies (CSR Policy) Rules, 2014 excludes activities undertaken outside India from CSR. The only exception is training Indian sports personnel representing a State, a Union territory or India. Contributions to a foreign parent's global foundation abroad do not count.

Does spending on employees count as CSR?+

No. Rule 2(1)(d)(iv) of the Companies (CSR Policy) Rules, 2014 excludes activities benefiting the company's employees. It uses the definition in section 2(k) of the Code on Wages, 2019. Staff welfare, staff scholarships and employee events stay outside the CSR budget, even if they fall within a Schedule VII area.

What is the Unspent CSR Account?+

It is a special account in a scheduled bank under section 135(6) of the Companies Act, 2013. A company moves unspent money for an ongoing project into it within 30 days of the year end. It must spend the money within three financial years, then move any balance to a Schedule VII fund.

What happens if a company does not spend its CSR amount?+

It must explain the shortfall in the board's report and transfer the unspent amount. Under sections 135(5) and 135(6), ongoing project money goes to an Unspent CSR Account within 30 days. Other money goes to a Schedule VII fund within six months. Failing to transfer attracts the section 135(7) penalty.

What is the penalty for a CSR default?+

Section 135(7) of the Companies Act, 2013 charges the company twice the amount it failed to transfer, or INR 1 crore, whichever is less. Each officer in default pays one tenth of that amount, or INR 2 lakh, whichever is less. The Registrar adjudicates under section 454.

What is Form CSR-1?+

Form CSR-1 registers an implementing agency for CSR work under rule 4(2) of the Companies (CSR Policy) Rules, 2014. Agencies include trusts, societies and section 8 companies. It has been required since 1 Apr 2021. A practising professional verifies it, and the agency receives a CSR Registration Number.

When is Form CSR-2 filed?+

Rule 12(1B) of the Companies (Accounts) Rules, 2014 makes CSR-2 an addendum to Form AOC-4. The rule carries separate filing dates for FY 2020-21 to FY 2023-24, with the last date for FY 2023-24 at 30 Jun 2025. For later years it sets no separate date, so CSR-2 goes with AOC-4, within 30 days of the AGM.

Is CSR expenditure deductible for income tax?+

No. From tax year 2026-27, section 34(2)(b) of the Income Tax Act, 2025 disallows CSR expenditure under section 135. Explanation 2 to section 37(1) of the Income Tax Act, 1961 applied the same rule for earlier years. The company adds the spend back in its tax computation.

Can excess CSR spending be carried forward?+

Yes. Rule 7(3) of the Companies (CSR Policy) Rules, 2014 lets a company set off excess spending. It can use the excess against the next three financial years' obligations. The board must pass a resolution, and any surplus arising from CSR activities cannot form part of the excess.

Sources

• Income Tax Department (Companies Act, 2013 text), Section 135, corporate social responsibility, accessed 23 Oct 2026, https://www.incometaxindia.gov.in/w/section-135-80
• Income Tax Department, Income Tax Act, 2025, section 34, general conditions for allowable deductions, accessed 23 Oct 2026, https://www.incometaxindia.gov.in/w/section-34-175
• Income Tax Department, Income Tax Act, 1961, section 37, Explanation 2, accessed 23 Oct 2026, https://www.incometaxindia.gov.in/w/section-37-64
• Press Information Bureau, MCA facilitates CSR through Zero Coupon Zero Principal Instrument by expanding the scope of Schedule VII, 29 May 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2266792&reg=3&lang=1
• Ministry of Corporate Affairs, Rules: Companies (Corporate Social Responsibility Policy) Rules, 2014 and Companies (Accounts) Rules, 2014 (rule 12(1B)), https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/rules.html
• Ministry of Corporate Affairs, Notifications: Companies (CSR Policy) Amendment Rules, 2021 of 22 Jan 2021 and 2022 of 20 Sep 2022; Companies (Accounts) Amendment Rules, 2024 of 24 Sep 2024; G.S.R. 415(E) and G.S.R. 416(E) of 27 May 2026, https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/notifications.html
• Ministry of Corporate Affairs, G.S.R. 415(E), Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026, 27 May 2026 (copy on an ICAI branch site), https://navimumbai.icai.org/detail/59749.aspx
• Institute of Company Secretaries of India, online copy of the Companies (Corporate Social Responsibility Policy) Rules, 2014 (rules 2 to 10), https://e-book.icsi.edu/Actpagedisplay.aspx?PAGENAME=21461
• Institute of Company Secretaries of India, online copy of rule 12 of the Companies (Accounts) Rules, 2014 (rule 12(1B), Form CSR-2), https://e-book.icsi.edu/Actpagedisplay.aspx?PAGENAME=18061
• Lok Sabha, Corporate Laws (Amendment) Bill, 2026, Bill No. 85 of 2026, clause 43, introduced 23 Mar 2026 (text and status via the PRS Legislative Research tracker), https://prsindia.org/billtrack/the-corporate-laws-amendment-bill-2026
• Ministry of Corporate Affairs, General Circular 21/2014 of 18 Jun 2014 (Schedule VII clarifications), https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/circulars.html