CSR Threshold Increased to ₹10 Crore Net Profit: What Companies Must Know

The Corporate Laws (Amendment) Bill, 2026, introduced in Parliament in March 2026, proposes a significant change to Corporate Social Responsibility (CSR) requirements in India: the net profit threshold for CSR applicability under Section 135 of the Companies Act, 2013 is being raised from ₹5 crore to ₹10 crore. This means companies with net profit below ₹10 crore will no longer be required to spend 2% of profits on CSR activities, form a CSR Committee, or file CSR-related disclosures. For an estimated 30,000 to 40,000 companies currently caught by the ₹5 crore threshold, this is a direct reduction in compliance obligations. Here is the full breakdown of what changed, who is affected, and what companies need to do next.

What is CSR Under Section 135 of the Companies Act?

Corporate Social Responsibility (CSR) is a statutory requirement under Section 135 of the Companies Act, 2013 that mandates qualifying companies to allocate at least 2% of their average net profit (calculated over the three immediately preceding financial years) toward social welfare activities specified in Schedule VII. CSR is administered by the Ministry of Corporate Affairs (MCA) through the Companies (CSR Policy) Rules, 2014.

The concept is straightforward: companies that generate substantial profits should contribute a portion to society. The law does not leave this to goodwill. It specifies exactly who must comply, how much must be spent, on what types of activities, and what happens if a company falls short. Unlike voluntary philanthropy, CSR under the Companies Act is a regulated obligation with defined penalties, reporting requirements, and board-level governance.

CSR was introduced as part of the Companies Act, 2013, making India one of the first countries to mandate CSR spending by law. Since its implementation in April 2014, Indian companies have collectively spent over ₹1.5 lakh crore on CSR activities across education, healthcare, rural development, and environmental sustainability.

What Changed: CSR Threshold Raised to ₹10 Crore

The Corporate Laws (Amendment) Bill, 2026 proposes to amend Section 135(1) of the Companies Act, 2013 by substituting the words "net profit of rupees five crore" with "net profit of rupees ten crore." This is the central change. The two other triggers for CSR applicability, net worth of ₹500 crore and turnover of ₹1,000 crore, remain untouched.

Why the Threshold Was Raised

The ₹5 crore threshold was set in 2013. Over the past 12 years, inflation, increased compliance costs, and the administrative overhead of CSR governance have disproportionately burdened smaller companies. A company earning ₹6 crore in net profit had to spend ₹12 lakh on CSR while also bearing the cost of forming a CSR Committee (3 directors including an independent director), hiring CSR consultants, registering implementing agencies on MCA, filing Form CSR-2, and disclosing CSR details in the Board's Report. For many companies in this bracket, the compliance cost approached or even exceeded the CSR spending amount itself.

The Statement of Objects and Reasons accompanying the Bill notes the need to "rationalise CSR thresholds to reduce compliance burden on smaller companies while maintaining the spirit of corporate social responsibility among larger enterprises." This is not a dilution of CSR; it is a recalibration.

What the Bill Does NOT Change

The ₹10 crore revision applies only to the net profit trigger. The following remain unchanged:

• Net worth trigger: Companies with net worth of ₹500 crore or more must still comply with CSR
• Turnover trigger: Companies with turnover of ₹1,000 crore or more remain subject to CSR
• 2% spending requirement: The formula (2% of average net profit of 3 preceding years) stays the same
• Schedule VII activities: The list of eligible CSR activities is not altered
• Penalty provisions: Section 135(7) and 135(8) penalties for non-compliance remain in force
• CSR Committee requirements: Composition and responsibilities of the CSR Committee are unchanged

Old vs New CSR Threshold: Comparison Table

Here is a side-by-side comparison of the CSR applicability criteria before and after the proposed amendment under the Corporate Laws (Amendment) Bill, 2026.

Which Companies Are Affected by This Change?

The impact of this amendment falls into three distinct categories, and it is important to understand where your company stands.

Companies That Lose CSR Obligations (Net Profit ₹5 Crore to ₹10 Crore)

This is the directly affected group. A Private Limited Company earning ₹7 crore in net profit currently must spend ₹14 lakh on CSR, maintain a CSR Committee with 3 directors (including an independent director), adopt a formal CSR policy, file Form CSR-2, and report CSR activities in the Board's Report. Under the proposed amendment, this company would be fully exempt from all CSR obligations.

This bracket includes a significant number of mid-sized manufacturing firms, IT services companies, trading businesses, and professional services firms. These companies often found the administrative overhead of CSR, which includes committee meetings, project identification, implementing agency verification, and annual reporting, to be disproportionate to the actual CSR spend amount.

Companies That Retain CSR Obligations (Net Profit Above ₹10 Crore)

For companies earning above ₹10 crore in net profit, nothing changes in terms of CSR requirements. The 2% spending obligation, CSR Committee composition, reporting requirements, and penalties all remain identical. A company with ₹25 crore average net profit still must spend ₹50 lakh annually on Schedule VII activities.

Companies Triggered by Turnover or Net Worth (Regardless of Profit)

A company with ₹1,200 crore turnover but only ₹3 crore net profit still falls under CSR by virtue of the turnover trigger. Similarly, a company with ₹600 crore net worth is covered regardless of its profit level. These companies are unaffected by the net profit threshold revision.

CSR Spending Requirements: The 2% Formula

Companies that remain subject to CSR after the threshold revision must continue spending at least 2% of the average net profit of the three immediately preceding financial years on eligible activities. Here is how the calculation works.

Net Profit Calculation Under Section 198

Net profit for CSR purposes is calculated under Section 198 of the Companies Act, 2013, not under normal accounting standards. Key differences include:

• Profits from overseas branches are excluded
• Dividend income received from other Indian companies is excluded (already subject to CSR at the paying company level)
• Profits from special economic zone (SEZ) units are included
• Capital gains and losses on sale of undertakings are excluded
• Any amount transferred to reserves is included in net profit

The 3-Year Averaging Rule

The CSR obligation is not based on a single year's profit. It is the average of the three immediately preceding financial years. This smoothing mechanism prevents a single high-profit year from creating an outsized CSR obligation and protects against exemption in a year when profits dip temporarily.

For a newly incorporated company with fewer than 3 years of financial history, the average is calculated over the available years. A company in its second year averages over 2 years; a company in its first year uses that year's net profit.

Activities Eligible Under CSR: Schedule VII

Schedule VII of the Companies Act, 2013 lists the broad categories of activities on which CSR funds can be spent. Companies cannot spend CSR money on activities outside this list, and the CSR Committee must ensure that selected projects fall within these categories.

Companies choosing to implement CSR through Section 8 Companies (non-profit entities registered under the Companies Act) must ensure the implementing agency holds a valid CSR-1 registration on the MCA portal. Unregistered entities cannot receive CSR funds from companies.

CSR Committee Requirements

Every company subject to CSR must constitute a CSR Committee of the Board of Directors. The committee is responsible for policy formulation, expenditure recommendation, and implementation oversight.

Composition

• Minimum 3 directors, of which at least 1 must be an independent director
• For companies not required to appoint an independent director (private companies with paid-up capital below ₹10 crore), the committee can have 2 or more directors
• The committee must include at least 1 director who is knowledgeable about the company's CSR activities

Responsibilities

1. CSR Policy: Formulate and recommend a CSR policy to the Board, specifying the activities to be undertaken and the recommended expenditure
2. Expenditure Approval: Recommend the annual CSR spending amount (at least 2% of average net profit)
3. Monitoring: Monitor the CSR policy implementation and ensure funds are utilized for approved activities
4. Reporting: Provide inputs for the CSR section of the Board's Report under Section 134(3)(o)

Exemption from Separate Committee

Companies with annual CSR obligation of less than ₹50 lakh are exempt from constituting a separate CSR Committee. In such cases, the Board of Directors directly discharges all CSR functions. This threshold was introduced by the Companies (CSR Policy) Amendment Rules, 2021 to reduce governance overhead for smaller obligated companies.

Impact on Small and Medium Companies

The threshold increase from ₹5 crore to ₹10 crore is primarily a relief measure for small and medium enterprises. Here is the practical impact across different dimensions of compliance.

Direct Cost Savings

A company with ₹8 crore average net profit currently spends ₹16 lakh on CSR activities. Beyond the spending amount, the compliance infrastructure costs include:

• CSR consultant fees: ₹2 lakh to ₹5 lakh per year for identifying projects and ensuring Schedule VII compliance
• Independent director remuneration: ₹1 lakh to ₹3 lakh per year sitting fees (independent directors are required for the CSR Committee)
• Filing and reporting costs: ₹25,000 to ₹50,000 for Form CSR-2 and Board Report preparation
• Total annual savings: ₹20 lakh to ₹25 lakh per year in combined CSR spend and compliance overhead

Administrative Relief

Beyond direct costs, companies in the ₹5 crore to ₹10 crore bracket gain back significant management time. The Board no longer needs to approve a CSR policy, hold CSR Committee meetings (typically 2 to 4 per year), evaluate implementing agencies, verify CSR-1 registration status of NGOs, prepare CSR disclosures for the Board's Report, or ensure Form CSR-2 is filed alongside Form AOC-4. For companies where the 3 directors on the CSR Committee are also the only directors on the Board, this eliminates a separate layer of governance.

Voluntary CSR Remains an Option

Companies below the ₹10 crore threshold can still undertake CSR voluntarily. The amendment removes the mandatory obligation but does not restrict companies from continuing social initiatives. However, voluntary CSR does not qualify for the same reporting treatment and is not subject to the 2% spending floor or penalty provisions.

CSR Reporting and Filing Requirements

For companies that remain subject to CSR (net profit above ₹10 crore, or triggered by turnover/net worth), the reporting requirements are extensive and carry statutory deadlines.

Form CSR-1: Registration of Implementing Agencies

Every entity receiving CSR funds (trusts, societies, Section 8 companies) must register on the MCA portal using Form CSR-1. The form requires details of the entity's registration, PAN, activities undertaken, and a declaration of compliance with Schedule VII. Without a valid CSR-1 number, an implementing agency cannot receive CSR funds from any company.

Form CSR-2: Annual CSR Reporting

Form CSR-2 is filed as an addendum to Form AOC-4 (annual financial statement filing). It requires disclosure of:

• Total CSR obligation for the financial year
• Amount spent on CSR activities (project-wise breakdown)
• Unspent amount and reasons for underspending
• Details of ongoing CSR projects and their timelines
• Amount transferred to Unspent CSR Account (if applicable)
• Details of implementing agencies engaged (with CSR-1 numbers)

Board's Report Disclosures

Under Section 134(3)(o), the Board's Report attached to annual financial statements must include a CSR report containing the CSR policy, CSR Committee composition, prescribed CSR expenditure, actual expenditure, and reasons for any shortfall. This is a board-level disclosure reviewed by auditors and available for public inspection on the MCA portal.

Filing Through ROC

All CSR-related filings are routed through the Registrar of Companies. Form CSR-2 is filed alongside Form AOC-4 within 30 days of the Annual General Meeting. Late filing attracts additional fees under the MCA fee structure, and persistent non-filing can result in the company being flagged for non-compliance.

Penalties for Non-Compliance with CSR Requirements

The penalty structure for CSR non-compliance is specified under Section 135(7) and Section 135(8) of the Companies Act, 2013. These provisions apply to both the company and its officers in default.

How to Calculate CSR Obligation: Formula with Example

The CSR obligation calculation follows a straightforward formula. Here is a worked example for a company that crosses the proposed ₹10 crore threshold.

The Formula

CSR Obligation = 2% x Average Net Profit of 3 preceding financial years

Where Net Profit is calculated per Section 198 of the Companies Act, 2013 (excluding overseas branch profits and dividend income from Indian companies).

Worked Example

Consider a Private Limited Company with the following net profit (calculated under Section 198):

• FY 2023-24: ₹11 crore
• FY 2024-25: ₹14 crore
• FY 2025-26: ₹13 crore

Step 1: Calculate average net profit = (₹11 crore + ₹14 crore + ₹13 crore) / 3 = ₹12.67 crore

Step 2: Calculate CSR obligation = 2% x ₹12.67 crore = ₹25.33 lakh

This company must spend at least ₹25.33 lakh on Schedule VII activities during FY 2026-27. If the company spends only ₹18 lakh, the shortfall of ₹7.33 lakh must either be transferred to the Unspent CSR Account (for ongoing projects) within 30 days of the financial year end, or to a Schedule VII fund (for non-ongoing projects) within 6 months.

What If Profit Dips Below ₹10 Crore?

If this company's net profit in FY 2026-27 drops to ₹8 crore (below the proposed ₹10 crore threshold), it is not required to comply with CSR for FY 2027-28. The applicability test is applied to the immediately preceding financial year. However, any unspent CSR amount from FY 2026-27 must still be dealt with under the transfer rules, even if the company exits CSR applicability the following year.

When Does the New Threshold Take Effect?

The Corporate Laws (Amendment) Bill, 2026 follows the standard legislative process in India. Here is the expected timeline:

1. Introduction in Parliament: March 2026 (completed)
2. Parliamentary Committee review: The Bill may be referred to the Standing Committee on Finance or passed in the current session
3. Passage by both Houses: The Bill must be passed by Lok Sabha and Rajya Sabha
4. Presidential assent: After passage, the Bill is sent for Presidential assent
5. Gazette notification: The amendment takes effect from the date notified in the Official Gazette or the effective date specified in the Bill

If the Bill is passed during the current (Budget) session of Parliament and receives assent promptly, the new ₹10 crore threshold could apply from FY 2026-27 onward. However, there is no guarantee of timeline. Legislative delays, committee referrals, or amendments during debate could push the effective date.

What Companies Should Do Right Now

Until the Bill becomes law, companies must:

• Continue complying with the existing ₹5 crore net profit threshold for CSR
• Do not stop ongoing CSR projects or spending based on the proposed amendment
• Track the Bill's progress through Parliament via the MCA portal and Gazette notifications
• Prepare transition plans if net profit falls between ₹5 crore and ₹10 crore, so the company can wind down CSR operations cleanly once the amendment takes effect
• Complete current year filings including Form CSR-2 and Board's Report CSR disclosures for FY 2025-26

Summary

The Corporate Laws (Amendment) Bill, 2026 proposes to double the CSR net profit threshold from ₹5 crore to ₹10 crore under Section 135 of the Companies Act, 2013. This relieves an estimated 30,000 to 40,000 companies from mandatory CSR spending, CSR Committee formation, and annual CSR reporting. Companies with net profit above ₹10 crore, turnover above ₹1,000 crore, or net worth above ₹500 crore continue with their existing CSR obligations unchanged. The 2% spending formula, Schedule VII eligible activities, penalty provisions, and filing requirements (Form CSR-2, Board's Report) remain in force. Until the Bill receives Presidential assent and is formally notified, companies must continue complying with the current ₹5 crore threshold. For companies navigating annual compliance, CSR reporting, or ROC filings, professional compliance support ensures every obligation is met accurately and on time.