CSR Compliance 2026: Updated Rules After ₹10 Crore Threshold Change

If your company's net profit crossed ₹10 crore in the preceding financial year, or if it hit ₹1,000 crore in turnover or ₹500 crore in net worth, you now have a mandatory CSR obligation under Section 135 of the Companies Act, 2013. This is not optional. You must form a CSR Committee, adopt a Board-approved CSR policy, spend at least 2% of your average net profit on Schedule VII activities, file Form CSR-2 with the Registrar of Companies, and disclose every detail in your Board's Report. Non-compliance attracts penalties of up to ₹1 crore on the company and ₹2 lakh on every defaulting officer. This guide covers every compliance obligation, calculation method, reporting requirement, and deadline you need to meet in FY 2026-27 and beyond.

Section 135: When CSR Obligations Get Triggered

Section 135(1) of the Companies Act, 2013 establishes three independent triggers for CSR applicability. A company must comply with CSR if it meets any one of these conditions during the immediately preceding financial year. The assessment is annual, so a company can enter and exit CSR applicability based on each year's financials.

The triggers operate independently. A Private Limited Company with ₹12 crore net profit, ₹200 crore turnover, and ₹50 crore net worth triggers CSR through the net profit route alone. A company with ₹8 crore net profit but ₹1,500 crore turnover triggers CSR through the turnover route, despite being below the profit threshold.

The Corporate Laws (Amendment) Bill, 2026 revised the net profit trigger from ₹5 crore to ₹10 crore. The turnover and net worth thresholds remain at their original 2013 levels. Once triggered, all CSR obligations activate simultaneously: Committee formation, policy adoption, 2% spending, reporting, and filing.

How to Determine Your Trigger Year

The applicability test uses the immediately preceding financial year. If your company's net profit exceeded ₹10 crore in FY 2025-26, CSR obligations apply for FY 2026-27. The spending obligation for FY 2026-27 is calculated based on the average net profit of FY 2023-24, FY 2024-25, and FY 2025-26. For newly incorporated companies with fewer than 3 financial years, the average is taken over the available years.

Companies Exempt from CSR

Companies that do not meet any of the three thresholds are fully exempt. This includes most startups, small businesses, and mid-sized firms below ₹10 crore net profit. LLPs, partnership firms, and sole proprietorships are entirely outside the scope of Section 135, regardless of their revenue or profit levels. CSR applies only to entities registered under the Companies Act, 2013, including Private Limited Companies, One Person Companies, and Public Limited Companies.

Forming the CSR Committee: Composition and Responsibilities

Every company meeting a CSR threshold must constitute a CSR Committee of the Board of Directors. The committee is the governance backbone of CSR compliance, responsible for policy formulation, expenditure recommendations, and implementation monitoring.

Committee Composition Rules

• Minimum 3 directors, of which at least 1 must be an independent director
• Private Limited Companies not required to have an independent director (paid-up capital below ₹10 crore and turnover below ₹50 crore) can form the committee with 2 or more directors
• Companies with CSR obligation below ₹50 lakh per year are exempt from forming a separate committee; the Board directly discharges CSR functions
• An unlisted public company with Board of 2 directors can have a committee of 2 directors

Four Core Responsibilities

1. Policy Formulation: Draft and recommend the CSR policy to the Board, specifying which Schedule VII activities the company will undertake
2. Expenditure Recommendation: Recommend the annual CSR spending amount (minimum 2% of average net profit)
3. Implementation Monitoring: Oversee project execution, verify that funds are used for approved activities, and track progress against timelines
4. Reporting Input: Provide data and disclosures for the Board's Report under Section 134(3)(o) and Form CSR-2

The CSR Committee must meet at least twice a year to review ongoing projects and spending progress. Minutes of the committee meetings form part of the statutory records and are subject to inspection by the Registrar of Companies.

Calculating the 2% CSR Obligation

The core financial obligation under Section 135 is straightforward: spend at least 2% of the average net profit of the three immediately preceding financial years on eligible CSR activities. The calculation follows Section 198 of the Companies Act, 2013, which defines net profit differently from standard accounting treatment.

Section 198 Net Profit: What to Include and Exclude

Worked Example: CSR Obligation for FY 2026-27

Consider a company with the following Section 198 net profit:

• FY 2023-24: ₹14 crore
• FY 2024-25: ₹11 crore
• FY 2025-26: ₹17 crore

Step 1: Average net profit = (₹14 crore + ₹11 crore + ₹17 crore) / 3 = ₹14 crore

Step 2: CSR obligation = 2% x ₹14 crore = ₹28 lakh

This company must spend at least ₹28 lakh on Schedule VII activities during FY 2026-27. Any shortfall triggers the unspent CSR fund transfer rules and potential penalties under Section 135(7).

Schedule VII: Eligible CSR Activities

CSR funds can only be spent on activities listed in Schedule VII of the Companies Act, 2013. Spending on any activity outside this list, regardless of its social benefit, does not count toward the 2% CSR obligation. The list contains 12 broad categories, each covering multiple sub-activities.

What Does NOT Count as CSR

The Companies (CSR Policy) Rules, 2014 explicitly exclude certain expenses from CSR spending:

• Activities undertaken in the normal course of business of the company
• Activities benefiting only the company's employees and their families
• Contributions to political parties under Section 182 of the Companies Act
• Sponsorships of events for marketing or brand building purposes
• Activities outside India

CSR-1 Registration for Implementing Agencies

If your company plans to implement CSR through external agencies rather than directly, every receiving entity must hold a valid CSR-1 registration on the MCA portal. This requirement was introduced through the Companies (CSR Policy) Amendment Rules, 2021 and applies to all trusts, societies, and Section 8 companies receiving CSR funds.

Who Needs CSR-1 Registration

• Section 8 Companies established for CSR activities under Schedule VII
• Registered trusts working in education, healthcare, rural development, and other Schedule VII areas
• Registered societies implementing CSR projects on behalf of companies
• Entities established by the company itself for CSR implementation

Registration Process

1. The implementing agency files Form CSR-1 on the MCA portal (mca.gov.in)
2. Required documents: entity registration certificate, PAN, list of directors/trustees, and a declaration of Schedule VII activities
3. MCA verifies the application and issues a unique CSR registration number
4. Registration is valid until cancelled; there is no renewal requirement
5. The company funding the CSR project must verify the agency's CSR-1 number before disbursing funds

Companies can search for registered implementing agencies on the MCA portal to verify CSR-1 status before engaging any external entity. Disbursing CSR funds to an unregistered agency is a compliance violation.

Annual CSR Reporting: Form CSR-2 and Board's Report

CSR compliance does not end with spending. Companies must report every detail of their CSR activities through two mandatory disclosure channels: Form CSR-2 filed with the Registrar of Companies and the Board's Report attached to annual financial statements. These filings are part of your company's broader annual ROC compliance obligations.

Form CSR-2: Filing Details

Form CSR-2 is filed as an addendum to Form AOC-4 (annual financial statement) within 30 days of the Annual General Meeting. It requires disclosure of:

• Total CSR obligation for the financial year (2% of average net profit)
• Actual amount spent on CSR activities with project-wise breakdown
• Details of each CSR project: location, sector, implementing agency, and CSR-1 number
• Amount transferred to Unspent CSR Account (for ongoing projects)
• Amount transferred to Schedule VII funds (for non-ongoing unspent amounts)
• Reasons for any underspending
• Details of CSR impact assessment (if applicable)

Board's Report Disclosures Under Section 134(3)(o)

The Board's Report must include a dedicated CSR section containing:

1. The approved CSR policy and a web link to it
2. CSR Committee composition with names and designations of members
3. Prescribed CSR expenditure for the year and the actual amount spent
4. Reasons for any shortfall in CSR spending
5. Details of ongoing projects and their expected completion timelines
6. A declaration that implementation and monitoring is in compliance with the CSR policy

Both Form CSR-2 and Board's Report disclosures are publicly accessible on the MCA portal. Investors, regulatory authorities, and the public can review a company's CSR track record through these filings. Incomplete or inaccurate disclosures attract penalties under Section 134(8) of the Companies Act, 2013.

Unspent CSR Funds: Transfer Rules and Deadlines

Companies that do not spend their full CSR obligation within the financial year face strict transfer requirements. The rules distinguish between unspent amounts related to ongoing projects and those not linked to any ongoing project, with different timelines and destinations for each.

Ongoing Projects: Unspent CSR Account

If the unspent amount relates to a CSR project that is ongoing (multi-year projects approved by the Board), the company must:

1. Transfer the unspent amount to a separate Unspent CSR Account opened with a scheduled bank
2. Complete the transfer within 30 days from the end of the financial year
3. Spend the transferred amount on the designated ongoing project within 3 financial years from the date of transfer
4. If the amount remains unspent after 3 years, transfer the balance to a Schedule VII fund within 30 days

Non-Ongoing Projects: Schedule VII Fund Transfer

If the unspent amount is not related to any ongoing project, the company must transfer it to one of the funds specified in Schedule VII within 6 months from the end of the financial year. Eligible funds include:

• Prime Minister's National Relief Fund
• PM CARES Fund
• Any fund set up by the Central Government for socio-economic development and welfare
• State Disaster Response Fund

CSR Impact Assessment: When It Applies

Companies with large CSR obligations must conduct a mandatory impact assessment of their CSR projects. This requirement was introduced through the Companies (CSR Policy) Amendment Rules, 2021 and targets companies whose CSR spending is substantial enough to warrant independent evaluation of outcomes.

Applicability Criteria

Impact assessment is mandatory when:

• The company's average CSR obligation over the 3 preceding financial years is ₹10 crore or more (meaning average net profit of ₹500 crore or more)
• The company has spent ₹1 crore or more on a single CSR project

Assessment Requirements

1. The assessment must be conducted by an independent agency (not the implementing agency itself)
2. The agency evaluates the social impact, reach, sustainability, and effectiveness of CSR projects
3. Results must be annexed to the Board's Report and disclosed in Form CSR-2
4. The cost of the impact assessment can be counted toward CSR spending, but must not exceed 5% of the total CSR obligation for that year

For companies with average net profit of ₹500 crore or more, the impact assessment is an annual requirement. Companies spending ₹1 crore or more on individual projects must assess those specific projects, regardless of their overall CSR obligation size. Engaging a Virtual CFO to coordinate impact assessment logistics alongside financial compliance ensures continuity and accuracy.

CSR Policy: What Your Board Must Approve

Every CSR-applicable company must adopt a formal CSR policy approved by the Board of Directors on the recommendation of the CSR Committee. The policy is not a one-time document; it must be reviewed and updated periodically to reflect changes in the company's CSR activities, budget, and strategic focus.

Mandatory Contents of the CSR Policy

• List of Schedule VII activities the company intends to undertake
• Whether CSR will be implemented directly or through implementing agencies
• The geographic areas where CSR activities will be focused (preference to local areas and areas around operations)
• The monitoring and evaluation mechanism for tracking project progress
• A declaration that surplus from CSR activities will not be treated as business profit and will be ploughed back into CSR
• The process for identifying and selecting CSR projects and implementing agencies

Disclosure Requirements

The approved CSR policy must be displayed on the company's website (if the company has a website). The web link to the policy must be included in the Board's Report. Companies that do not have a website must disclose the policy in the Board's Report itself. The CSR Committee must review the policy at least once a year and recommend amendments to the Board when necessary.

Penalties for CSR Non-Compliance

The penalty regime for CSR non-compliance is codified under Section 135(7) and Section 135(8) of the Companies Act, 2013. Penalties apply to both the company as an entity and to individual officers in default, including directors who are members of the CSR Committee.

Penalties Do Not Replace the Obligation

A critical aspect of CSR penalties: paying the penalty does not extinguish the original spending obligation. A company that fails to spend ₹25 lakh on CSR must pay the penalty (up to ₹50 lakh or ₹1 crore, whichever is less) and still transfer the original ₹25 lakh to the Unspent CSR Account or a Schedule VII fund. This double liability makes non-compliance significantly more expensive than compliance.

Officer in Default: Who Is Liable?

Every director who is a member of the CSR Committee is an "officer in default" for CSR non-compliance. In cases where the Board directly discharges CSR functions (companies below ₹50 lakh CSR obligation), every director of the company is potentially liable. The penalty is personal and cannot be indemnified by the company.

Complete CSR Compliance Checklist for FY 2026-27

Here is the step-by-step compliance checklist for companies that crossed the CSR threshold based on their FY 2025-26 financials. Follow this timeline to meet every statutory obligation.

Beginning of Financial Year (April 2026)

• Verify CSR applicability based on FY 2025-26 net profit, turnover, and net worth
• Calculate CSR obligation: 2% of average net profit of FY 2023-24, FY 2024-25, and FY 2025-26
• Constitute or reconstitute the CSR Committee with minimum 3 directors (including 1 independent director)
• CSR Committee to formulate or update the CSR policy and recommend it to the Board
• Board to approve the CSR policy and the recommended CSR expenditure for FY 2026-27

During the Financial Year (April 2026 to March 2027)

• Identify and select CSR projects aligned with Schedule VII and the approved CSR policy
• Verify CSR-1 registration of all implementing agencies before disbursing funds
• Maintain project-wise records of CSR expenditure with supporting documentation
• CSR Committee to hold at least 2 meetings to review spending progress and project status
• Commission impact assessment if average CSR obligation exceeds ₹10 crore or any single project exceeds ₹1 crore

End of Financial Year and Post-Year Filings

• Within 30 days of March 31, 2027: transfer any unspent CSR amount for ongoing projects to Unspent CSR Account
• Within 6 months of March 31, 2027: transfer unspent amounts for non-ongoing projects to a Schedule VII fund
• Prepare CSR section of the Board's Report under Section 134(3)(o)
• Hold AGM within 6 months of the financial year end (by September 30, 2027)
• File Form CSR-2 as an addendum to Form AOC-4 within 30 days of the AGM
• Upload the updated CSR policy on the company website

CSR compliance under Section 135 is a structured, deadline-driven process with clear financial and governance obligations. Companies crossing the ₹10 crore net profit threshold in 2026 face the same CSR framework that has governed larger companies since 2014: form a committee, approve a policy, spend 2% of average net profit on Schedule VII activities, report through Form CSR-2 and the Board's Report, and transfer unspent funds within prescribed timelines. The penalties for non-compliance are designed to be more expensive than compliance itself. For companies entering the CSR regime for the first time, establishing the right governance structure and compliance workflow from day one is the most effective way to meet every obligation without disruption. Professional support from experienced compliance partners ensures that CSR obligations are met accurately, on time, and without exposing directors to personal liability.