Corporate Social Responsibility (CSR) isn’t just a good-to-have initiative—it’s a legal requirement for specific companies in India.
Under the Companies Act, 2013, businesses meeting certain thresholds are mandated to allocate at least 2% of their average net profits from the past three years to CSR activities. This legislation ensures that companies play an active role in contributing to social welfare and sustainability.
But let’s be real—navigating CSR obligations can feel overwhelming at first. What qualifies as a CSR activity? How do you ensure compliance without overcomplicating the process? And most importantly, what’s in it for your company?
In this blog, we’ll break down CSR provisions under the Companies Act, 2013, into clear, actionable steps. Whether you’re a seasoned business leader or just getting started, you’ll learn how to fulfill your CSR responsibilities while knowing meaningful benefits for your company and community.
Step 1: Check your Eligibility
The first step in complying with CSR provisions is figuring out whether your company qualifies under the requirements set out in Section 135 of the Companies Act, 2013. Here's how to check:
Your company is required to follow CSR provisions if, during any financial year, it meets any one of these criteria:
- Net Worth: Rs. 500 crore or more
- Turnover: Rs. 1,000 crore or more
- Net Profit: Rs. 5 crore or more
If your company ticks one or more of these boxes, then congratulations—you’re officially in the CSR zone! This means you’re legally obligated to allocate a portion of your profits toward approved CSR activities.
Not eligible? No problem. Even if your company doesn’t meet these thresholds, you’re still free to take on CSR initiatives voluntarily. It’s a great way to give back to society and build goodwill for your brand.
Step 2: Form a CSR Committee
Once you’ve confirmed your company’s CSR eligibility, the next step is to create a CSR Committee. Think of this committee as your company’s guiding force for all things CSR.
It ensures your initiatives are meaningful, compliant, and impactful.
Here’s what the law says about forming a CSR Committee under the Companies Act, 2013:
Composition:
- At least three directors, including one independent director.
- The chairperson, appointed by the board of directors.
- The CEO or managing director, who will act as the secretary of the committee.
But what exactly does this committee do? Here’s a quick breakdown of its key responsibilities:
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Draft the CSR Policy: Create and recommend a comprehensive CSR policy to the board.
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Plan and Approve Projects: Identify and green-light the CSR projects or programs your company will support.
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Oversee Execution: Monitor the progress, implementation, and impact of the chosen initiatives.
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Report to Stakeholders: Regularly disclose the company’s CSR activities, spending, and outcomes to the board and stakeholders.
By setting up a well-structured CSR Committee, you’re laying the foundation for smooth, transparent, and effective CSR operations. Plus, it ensures you’re fully compliant with the law while maximizing the impact of your efforts.
Step 3: Develop Your CSR Policy
After establishing your CSR Committee, the next important step is to develop a CSR policy for your company. This document will serve as the backbone of your CSR activities, outlining your vision, mission, objectives, and strategies.
A well-structured CSR policy ensures that your initiatives are aligned with your company’s values while adhering to the requirements of the Companies Act, 2013. It also covers essential aspects like budget, governance, and reporting.
Here’s what your CSR policy should include, as per the Act and CSR Rules:
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List of CSR Projects: A detailed list of CSR projects or programs that your company plans to implement, based on Schedule VII of the Act.
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Execution Plan: The methods of executing CSR initiatives, whether directly, through partnerships with other organizations, or by outsourcing to third-party agencies.
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Monitoring & Evaluation: A process for monitoring and evaluating the effectiveness of your CSR projects—this could involve audits, surveys, or impact assessments.
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Reporting & Disclosure: Clear guidelines on how and when to report CSR activities to stakeholders, whether through annual reports, your website, social media, or newsletters.
Once your CSR committee has formulated the policy, it should be approved by the board of directors. Additionally, the policy must be displayed on your company’s website for public access. This shows transparency and helps build trust with stakeholders.
Step 4: Implement the CSR Policy
With your CSR policy in place, it’s time to put it into action. The next step is selecting, executing, and monitoring CSR projects or programs that align with your policy and Schedule VII of the Act.
Schedule VII outlines a wide range of activities that qualify as CSR. Here are some examples:
- Eradicating hunger, poverty, and malnutrition
- Promoting health care, education, and skill development
- Ensuring environmental sustainability and biodiversity conservation
- Supporting gender equality and women empowerment
- Contributing to disaster relief and rehabilitation
- Preserving heritage, art, and culture
- Enhancing sports and recreation facilities
- Promoting national and international peace and harmony
- Supporting technology and innovation for social good
When selecting CSR activities, ensure they don’t overlap with your company’s normal business operations or directly benefit employees and shareholders. These projects should be aimed at making a positive impact on society and the environment.
With the right selection of activities, you’ll not only comply with CSR provisions but also contribute to meaningful change in your community.
The Company can Implement the CSR Projects or Programs in any of the Following Ways:
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Through its own foundation, trust, society, or section 8 company;
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Through a registered non-governmental organization (NGO) or a non-profit organization (NPO) that has a track record of at least three years in undertaking similar activities;
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Through a collaboration or partnership with other companies, NGOs, NPOs, government agencies, or international organizations;
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Through a third-party agency that specializes in CSR consultancy, management, or implementation.
The company should ensure that the CSR projects or programs are executed and implemented in a transparent, accountable, and efficient manner and that they adhere to the CSR policy and Schedule VII of the Act.
The company should also monitor and evaluate the progress and impact of the CSR projects or programs regularly, using the process and criteria specified in the CSR policy. The company should collect and analyze data and feedback from the beneficiaries, stakeholders, and partners involved in the CSR activities.
The company should also conduct periodic reviews, audits, surveys, or impact assessments to measure the outcomes and outputs of the CSR activities.
Step 5: Report and Disclose Your CSR Activities
The final step in your CSR journey is to report and disclose your company’s CSR activities. Transparency is key, and regular reporting helps maintain accountability while keeping your stakeholders in the loop.
According to the Companies Act, 2013, and CSR Rules, you must prepare and file an annual CSR report.
This report serves as a comprehensive summary of your CSR efforts throughout the year and must include the following details:
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Overview of CSR Policy & Committee: A brief introduction to your CSR policy and CSR committee, highlighting their roles and responsibilities.
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Description of CSR Projects: Detailed information on the CSR projects or programs you’ve undertaken. Include objectives, locations, budgets, beneficiaries, and partners involved.
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CSR Expenditure Statement: A clear breakdown of CSR expenses, including how much was spent on activities, administrative costs, and any surplus or unspent funds.
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Expenditure Comparison: A comparison of the actual CSR expenditure against the prescribed budget. If there’s any shortfall or excess, explain.
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Board Declaration: A statement from the board of directors confirming that the CSR policy has been implemented and monitored in compliance with the law.
This annual CSR report should be signed by your CEO or managing director and the chairperson of the CSR committee. It must then be attached to your company’s board report, which is filed with the Registrar of Companies (ROC) and the Ministry of Corporate Affairs (MCA).
Beyond the formal report, it’s important to disclose your CSR activities on public platforms such as your company’s website, social media, newsletters, or press releases. Use these platforms to share your CSR mission, objectives, successes, challenges, and key learnings.
Engaging with stakeholders is a vital part of this process—consider soliciting feedback and suggestions to improve future CSR initiatives. This two-way communication can enhance your company’s reputation and deepen its relationship with the community.
By reporting and disclosing your CSR activities, your company demonstrates transparency, accountability, and a strong commitment to social good. Not only does this showcase your positive impact, but it also builds trust with stakeholders, setting the stage for future CSR success.
Also Read: Guide to Incorporate a Company In India Under Companies Act, 2013
That's it!
Complying with CSR provisions under the Companies Act, 2013 is straightforward when you break it down into five clear steps:
- Check your eligibility
- Form a CSR committee
- Develop a CSR policy
- Implement the CSR policy
- Report and disclose your CSR activities
By following these steps, you’ll not only meet your legal obligations but also enhance your company’s performance, build a strong reputation, and contribute positively to society and the environment.
So, why wait? Start your CSR journey today and make a lasting impact on both your business and the world around you.
