For most of the history of Indian company law, a company that wanted to spend money on the village outside its gate could do so, and a company that did not want to was under no obligation. In 2013 Parliament changed that, and India became the first large economy to write corporate social responsibility into statute.
A PIB backgrounder of 22 September 2026 traced what the change looked like inside one company. Coal India Limited had been running community work since its Community Development Policy of 2005, supporting villages within an 8 km radius of mining operations with drinking water, health camps and small infrastructure. In the three years before the Act, its consolidated community development spend ranged from ₹82 crore in FY 2011-12 to ₹409 crore in FY 2013-14 — genuine work, the backgrounder notes, but without a framework that would sustain it year on year.
Under the statute, the picture is different in kind. From FY 2014-15 to FY 2025-26, CIL has spent ₹7,276 crore against a statutory requirement of ₹5,795 crore. Annual expenditure, once nearer ₹500 crore, now approaches ₹1,000 crore.
The interesting question is not whether one company spent well. It is what a law can and cannot achieve by requiring it.
The section, precisely
Section 135 of the Companies Act, 2013 applies to a company that, in the immediately preceding financial year, has:
- net worth of ₹500 crore or more, or
- turnover of ₹1,000 crore or more, or
- net profit of ₹5 crore or more
The word that matters is or. These are alternative thresholds, and this is the single most examined point in the section. A company that crosses any one of the three is covered. Candidates who read them as cumulative requirements get the question wrong, and it is asked in exactly that form.
A covered company must spend, in every financial year, at least two per cent of the average net profits made during the three immediately preceding financial years. Two features of that formula are worth noting. It uses an average across three years, which smooths the obligation so that a single good or bad year does not swing it violently. And it is calculated on net profit, so a company making losses has no obligation — CSR is a claim on profit, not on revenue.
The company must constitute a CSR Committee of the Board. Where the amount required to be spent does not exceed ₹50 lakh, the requirement to constitute a committee does not apply and the Board discharges the function itself — a proportionality carve-out for smaller covered companies.
Schedule VII, and the limits of the list
The activities a company may count towards its obligation must fall within Schedule VII of the Act. The Schedule covers, among other heads: eradicating hunger, poverty and malnutrition; promoting health care and sanitation; education and livelihood enhancement; gender equality and women's empowerment; environmental sustainability; protection of national heritage, art and culture; measures for armed forces veterans, war widows and their dependants; training to promote sports; contributions to specified funds; rural development; and slum area development.
Two exclusions define the boundary more sharply than the list does.
Activities undertaken in the normal course of business do not count. A pharmaceutical company does not discharge its CSR obligation by selling medicines, however socially valuable the medicines are. The expenditure must sit outside the commercial activity that generates the profit being taxed for it.
Contributions to a political party do not count, under any head.
Together these prevent the two most obvious ways of satisfying the letter of the section without doing anything additional — relabelling ordinary business as social good, and routing money to political influence.
What happens to money that is not spent
This is the part of the provision that changed most, and it is where the law acquired teeth.
As originally enacted, Section 135 operated on a "comply or explain" basis. A company that did not spend its two per cent simply stated the reasons in its Board's report. There was no consequence beyond disclosure.
That changed with effect from 22 January 2021, when the amended provisions and the accompanying rules were brought into force, converting the regime into what practitioners promptly labelled "comply or suffer". The mechanics now depend on a distinction the law draws between two kinds of unspent money.
Where the unspent amount relates to an ongoing project, it must be transferred within thirty days of the end of the financial year to a dedicated Unspent Corporate Social Responsibility Account. The company then has three financial years to spend it in accordance with its CSR policy. If it fails, the money goes to a fund specified in Schedule VII.
Where the unspent amount does not relate to an ongoing project, the company has no such grace. It must transfer the money within six months of the end of the financial year to a Schedule VII fund — the Prime Minister's National Relief Fund, PM CARES, the Clean Ganga Fund and others so specified.
The design is coherent. A genuine multi-year project may legitimately not spend its allocation within a single year, and penalising that would push companies towards short, shallow activities that can be completed inside twelve months. An amount simply not spent, with no project attached, has no such justification, and the shorter deadline reflects it. Thirty days and three years for the planned; six months and gone for the unplanned. Non-compliance now attracts penalties on the company and on officers in default.
What the Coal India numbers show, and what they do not
CIL's own policy layers additional geography onto the statute: at least 80 per cent of annual CSR expenditure within a 25 km radius of mines and establishments, prioritising Project Affected Areas, with the balance for State and national initiatives. Consequently more than 90 per cent of its CSR expenditure is incurred within coal-bearing States.
The flagship programmes have identity rather than being generic disbursement: NIRMAN, which has supported more than 1,300 civil services aspirants from mining districts; the Thalassemia Bal Sewa Yojana, which has enabled more than 1,000 bone marrow transplants; and Nanha Sa Dil, a paediatric cardiac screening programme. CIL was the largest central public sector contributor to the Swachh Vidyalaya Abhiyan, completing over 50,000 school toilets, and ran an extensive COVID-19 response including oxygen plants under Mission Praana Vayu.
Now the structural caveat, which is the analytically interesting part.
CSR spending is proportional to profit, and profit is concentrated. The companies with the largest CSR budgets are in the districts where they operate, and those are not necessarily the districts with the greatest need. Corporate social responsibility therefore redistributes from a company to its neighbourhood, not from richer regions to poorer ones. The 90-per-cent-in-coal-bearing-States figure is not a flaw in CIL's policy — it is the intended local-area focus working — but it does describe the limit of the instrument.
This is the same structural feature we identified in our explainer on the District Mineral Foundation and PMKKKY, where a levy on mining accrues to mining districts. The two instruments are worth holding as a contrasting pair: the DMF contribution is a statutory levy on royalty flowing to a district trust, while CSR is a statutory obligation to spend discharged by the company itself. Both are compulsory; only one transfers control of the money away from the payer.
For the wider corporate-law context, our pieces on the Insolvency and Bankruptcy Code at ten and on the National Land Monetisation Corporation cover the neighbouring statutes a candidate is likely to be asked about in the same paper.
The argument worth being able to make
Mandatory CSR is genuinely contested, and an examination answer is stronger for engaging the objection rather than ignoring it.
The case against is that a company's obligation is to obey the law, pay its taxes and generate returns, and that the State — which has a revenue system, a budget and democratic accountability for how money is spent — is better placed to fund public goods than a board of directors selecting among Schedule VII heads. On this view mandatory CSR is a tax collected without being called one, and spent without the scrutiny a budget receives.
The case for is that companies impose costs on the places they operate in — the mining district being the clearest example — and that a general tax paid into the Consolidated Fund does not return to those places. A local-area obligation reconnects the cost and the compensation. There is also an information argument: a company operating in a district for forty years may know its needs better than a distant department.
The honest position is that both are partly right, and that the answer depends on what is being funded. For a public good that is genuinely national, the objection has force. For remediation of a locality that a specific company's operations have affected, the case for is strong. Which is why the provisions that work best in practice — like CIL's 25 km radius and its Project Affected Areas priority — are the ones that look least like a general tax and most like a neighbour paying for what it used.
🔑 Revision block
- The statute: Section 135, Companies Act, 2013 — India among the first large economies to make CSR a statutory obligation
- Thresholds (preceding financial year, any ONE suffices): net worth ₹500 crore or more, or turnover ₹1,000 crore or more, or net profit ₹5 crore or more
- The spend: at least 2 per cent of average net profits of the three immediately preceding financial years
- Loss-making company: no obligation — CSR is a claim on profit, not revenue
- CSR Committee: of the Board; not required where the obligation does not exceed ₹50 lakh
- Permitted activities: must fall within Schedule VII
- Excluded: activities in the normal course of business; contributions to any political party
- Unspent, ongoing project: transfer to Unspent CSR Account within 30 days of financial year end; spend within 3 financial years
- Unspent, not an ongoing project: transfer to a Schedule VII fund within 6 months of financial year end
- Schedule VII funds include: PM National Relief Fund, PM CARES, Clean Ganga Fund
- Regime change: "comply or explain" until the amended provisions took effect on 22 January 2021, then "comply or suffer", with penalties
- Coal India: ₹7,276 crore spent against ₹5,795 crore statutory requirement, FY 2014-15 to FY 2025-26; annual outlay now near ₹1,000 crore
- CIL before the Act: Community Development Policy, 2005; 8 km radius; ₹82 crore (FY 2011-12) to ₹409 crore (FY 2013-14)
- CIL policy layer: at least 80 per cent within 25 km of mines, prioritising Project Affected Areas; more than 90 per cent in coal-bearing States
- CIL flagships: NIRMAN (1,300+ aspirants), Thalassemia Bal Sewa Yojana (1,000+ transplants), Nanha Sa Dil; 50,000+ school toilets under Swachh Vidyalaya Abhiyan
🎯 Practice MCQs
Q1. CSR provisions under the Companies Act, 2013 apply to a company that, in the preceding financial year, has: (a) All three of the prescribed net worth, turnover and net profit (b) Only net worth of ₹500 crore (c) Net profit of ₹5 crore and turnover of ₹1,000 crore together (d) Any one of the prescribed net worth, turnover or net profit thresholds
→ (d) — the thresholds are alternatives, and this is the most commonly inverted fact in the section.
Q2. The prescribed CSR spend is: (a) 2 per cent of turnover in the preceding year (b) 2 per cent of average net profits of the three immediately preceding financial years (c) 5 per cent of net profit in the preceding year (d) 2 per cent of net worth
→ (b)
Q3. The permitted CSR activities are listed in: (a) Schedule V of the Companies Act, 2013 (b) The Eleventh Schedule of the Constitution (c) Schedule VII of the Companies Act, 2013 (d) Section 8 of the Companies Act, 2013
→ (c)
Q4. Which of the following may NOT be counted towards a company's CSR obligation? (a) Promoting health care and sanitation (b) Measures for the benefit of armed forces veterans and war widows (c) Environmental sustainability activities (d) Contribution to a political party
→ (d) — as are activities undertaken in the normal course of business.
Q5. Unspent CSR money relating to an ongoing project must be transferred to the Unspent CSR Account within: (a) 30 days of the end of the financial year (b) 3 months of the end of the financial year (c) 6 months of the end of the financial year (d) 1 year of the end of the financial year
→ (a) — and spent within three financial years thereafter.
Q6. Unspent CSR money NOT relating to an ongoing project must be transferred to a Schedule VII fund within: (a) 30 days of the end of the financial year (b) 6 months of the end of the financial year (c) 3 financial years (d) It need not be transferred at all
→ (b)
Q7. A company is not required to constitute a CSR Committee where the amount to be spent does not exceed: (a) ₹10 lakh (b) ₹25 lakh (c) ₹50 lakh (d) ₹1 crore
→ (c) — the Board discharges the function itself.
Q8. The shift described as moving CSR from "comply or explain" to "comply or suffer" took effect from: (a) 1 April 2014 (b) 22 January 2021 (c) 1 April 2022 (d) 1 October 2023
→ (b) — when the amended provisions and penalties were brought into force.
Q9. A company that makes a loss in the relevant years: (a) Must still spend 2 per cent of turnover (b) Must borrow to meet its CSR obligation (c) Has no CSR spending obligation, since the obligation is computed on net profits (d) Must transfer 2 per cent of net worth to a Schedule VII fund
→ (c)
Q10. Consider the following statements: 1. CSR spending tends to be concentrated where profitable companies operate rather than where need is greatest. 2. The District Mineral Foundation contribution and CSR are the same instrument under different names. Which is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
→ (a) — the DMF contribution is a statutory levy on royalty paid into a district trust; CSR is a statutory obligation the company discharges itself.
📋 How this gets asked (PYQ pattern)
Corporate law is a growing presence in the CDS and OTA economy section, and CSR is the single most asked provision within it because it is short, numerical and distinctive.
The threshold question dominates, and it is almost always framed to test whether the candidate knows the three criteria are alternatives. Learn them as "any one of ₹500 crore net worth, ₹1,000 crore turnover, ₹5 crore net profit" and the trap disappears.
The percentage question asks for the two per cent and the three-year averaging. Both halves are asked; the averaging is the half candidates drop.
The Schedule question asks where the permitted activities are listed. Schedule VII. Candidates confuse it with Schedule V of the same Act, and occasionally with the Eleventh or Twelfth Schedules of the Constitution, which list Panchayat and municipal subjects and have nothing to do with it.
The timeline question — 30 days and three years for ongoing projects, six months for everything else — is the newer and more discriminating fact, and it is the one that separates candidates who learnt CSR from a 2015 note from those who learnt it after 2021.
For the descriptive paper, the question is usually some version of whether mandatory CSR is good policy. The strongest answers take a position and defend it against the obvious objection — that a board is not a legislature and CSR is a tax without the accountability of one — rather than listing Schedule VII heads. Pairing CSR with the DMF, as two compulsory but structurally different instruments, is an efficient way to show that the distinction is understood.
Preparing for CDS or OTA? Statutes are learnt fastest as four things — who it applies to, what it requires, what is excluded, and what happens on failure. Build the base with our CDS/OTA economy notes, follow the daily CDS/OTA current affairs, and prepare with our faculty in the upcoming Cavalier courses in Delhi.
✍️ Written by The Cavalier — Faculty desk at The Cavalier. Reviewed by the Cavalier Faculty Desk.