Resources · CSR
CSR fund explained: Section 135, the 2% rule, Schedule VII activities and Form CSR-1
What a CSR fund is, which companies must spend it, how much, on which activities, through whom, and what happens to money left unspent — written from the Companies Act, 2013 and the Companies (CSR Policy) Rules, 2014 as amended, in plain English, for companies and for the NGOs that work with them.
The short answer
What is a CSR fund?
CSR fund full form: Corporate Social Responsibility fund.
A CSR fund is the money a company is legally required to spend on social development under Section 135 of the Companies Act, 2013. India is one of the few countries in the world where corporate social responsibility is mandated by statute rather than left to goodwill: a company that crosses any one of three financial thresholds must spend at least two per cent of its average net profit of the preceding three financial years on activities listed in Schedule VII of the Act, in the manner set out in the Companies (Corporate Social Responsibility Policy) Rules, 2014.
The term “CSR fund” is used loosely in practice for three related things: the amount a company is obliged to spend in a year; the Unspent CSR Account it must open when an ongoing project's money is not fully spent by year end; and the government funds named in Schedule VII — the Prime Minister's National Relief Fund, PM CARES, the Swachh Bharat Kosh and the Clean Ganga Fund — to which a company may contribute. This page covers all three, and then explains how a non-profit organisation actually accesses CSR funding, because the honest answer is different from what most “apply online for CSR funds” pages suggest.
Who must spend, and how much
The Section 135 thresholds and the 2% rule
A company that meets any one of the three thresholds in the immediately preceding financial year falls within Section 135. It must then spend, in every financial year, at least 2% of its average net profits made during the three immediately preceding financial years — or, where it has not completed three years since incorporation, the years it has completed. Net profit for this purpose is calculated under Section 198 of the Act, not simply taken from the profit and loss account. The company must also give preference to the local area and areas around where it operates when choosing where to spend, which is why a plant in Gujarat tends to fund projects in Gujarat.
A company within Section 135 must constitute a CSR Committee of the Board with three or more directors, at least one of them independent; where the company is not required to have an independent director, two directors suffice. If the amount to be spent does not exceed ₹50 lakh in a year, Section 135(9) dispenses with the committee altogether and the Board discharges its functions. The committee recommends a CSR policy, an annual action plan and the projects to be undertaken; the Board approves, and must disclose the committee's composition, the policy and the approved projects on the company's website under Rule 9.
Where the money can go
The Schedule VII list of CSR activities
CSR expenditure is eligible only if it falls under one of the heads in Schedule VII. The Ministry of Corporate Affairs has said the list is to be read liberally, capturing the essence of each head rather than its literal wording — but a project still has to be mapped to a head.
| Head | Activity permitted under Schedule VII | Examples in practice |
|---|---|---|
| (i) | Eradicating hunger, poverty and malnutrition; promoting health care including preventive health care and sanitation, including contribution to the Swachh Bharat Kosh; making available safe drinking water | Nutrition programmes, health and eye camps, anaemia screening, school toilets, RO plants, hand-pump repair |
| (ii) | Promoting education, including special education and employment-enhancing vocational skills, especially among children, women, the elderly and the differently abled; livelihood enhancement projects | Learning centres, scholarships, digital classrooms, skilling and placement, SHG enterprise support |
| (iii) | Promoting gender equality and empowering women; homes and hostels for women and orphans; old-age homes, day-care centres and facilities for senior citizens; reducing inequalities faced by socially and economically backward groups | Women's SHGs, shelters, elder day-care, pension facilitation, inclusion programmes |
| (iv) | Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining the quality of soil, air and water, including contribution to the Clean Ganga Fund | Tree plantation, water recharge structures, waste management, street-animal sterilisation and vaccination, solar upkeep training |
| (v) | Protection of national heritage, art and culture, including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts | Village libraries, craft-cluster livelihoods, heritage site upkeep |
| (vi) | Measures for the benefit of armed-forces veterans, war widows and their dependants, and CAPF and CPMF veterans and their dependants | Veteran welfare and dependant support programmes |
| (vii) | Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports | Sport-for-development, coaching and equipment for rural youth |
| (viii) | Contribution to the Prime Minister's National Relief Fund, PM CARES Fund, or any other fund set up by the Central Government for socio-economic development and relief and for the welfare of SCs, STs, OBCs, minorities and women | Direct transfers to the named government funds |
| (ix) | (a) Contributions to incubators or R&D projects in science, technology, engineering and medicine funded by the Central or a State Government, a PSU or their agencies; (b) contributions to public-funded universities, IITs, national laboratories and specified autonomous research bodies | University research grants, incubator funding |
| (x) | Rural development projects | Village infrastructure, farm-support, market access, community centres |
| (xi) | Slum area development | Basic services, sanitation and housing improvement in notified slums |
| (xii) | Disaster management, including relief, rehabilitation and reconstruction activities | Pre-positioned relief stock, flood and cyclone response, rebuild support |
Through whom
Who can implement a CSR project — and what Form CSR-1 is
Rule 4(1) of the CSR Rules allows a company to carry out its CSR activities itself, or through one of four kinds of implementing agency: (a) a Section 8 company, registered public trust or registered society that holds 12A and 80G registration and was established by the company itself, alone or with other companies; (b) a Section 8 company, trust or society established by the Central or a State Government; (c) any entity established under an Act of Parliament or a State legislature; or (d) an independent Section 8 company, registered public trust or registered society holding 12A and 80G registration and having an established track record of at least three years in undertaking similar activities.
Since 1 April 2021, every implementing agency in categories (a) to (d) must register with the Ministry of Corporate Affairs by filing Form CSR-1 electronically, verified by a practising Chartered Accountant, Company Secretary or Cost Accountant. The system then generates a unique CSR Registration Number, and a company may only route CSR funds to an agency that holds one. Companies may also collaborate with each other on a project under Rule 4(4), provided each can report on it separately, and the Board must satisfy itself — with its Chief Financial Officer certifying — that disbursed funds were used for the approved purpose, under Rule 4(5).
What an NGO needs before Form CSR-1
Legal form: Section 8 company, registered public trust or registered society · Section 12A registration · Section 80G registration · three-year track record in similar activities (unless established by the company or a government) · PAN · NGO Darpan ID is expected in practice · a practising CA, CS or CMA to verify the form · audited accounts for the track-record years.
Unspent money, overheads and assessment
The rules companies most often get wrong
Unspent amount — ongoing project
Where the money relates to an “ongoing project” (a multi-year project of up to three years beyond the year it starts), the unspent amount must be transferred to a separate Unspent CSR Account in a scheduled bank within 30 days of the end of the financial year, and spent within the following three financial years. Anything still unspent then goes to a Schedule VII fund within 30 days of the end of the third year. Section 135(6)
Unspent amount — no ongoing project
Where the unspent amount does not relate to an ongoing project, it must be transferred to a fund specified in Schedule VII — the PM National Relief Fund, PM CARES or another named fund — within six months of the end of the financial year. Second proviso to Section 135(5)
Excess spending — set-off
A company that spends more than the 2% requirement may set the excess off against its obligation in the three succeeding financial years, provided the excess did not arise from a surplus on CSR activities themselves. Rule 7(3)
Administrative overheads
Expenses incurred by the company for the general management and administration of its CSR function are capped at 5% of total CSR expenditure for the year. Costs of designing, implementing, monitoring and evaluating a specific project are project costs, not overheads. Rule 7(1)
Impact assessment
A company with an average CSR obligation of ₹10 crore or more in the three preceding years must have an independent agency assess the impact of every CSR project with an outlay of ₹1 crore or more, completed at least one year earlier. The cost may be booked as CSR expenditure up to 2% of the year's total CSR spend or ₹50 lakh, whichever is higher. Rule 8(3)
Penalty for non-compliance
A company that fails to transfer an unspent amount as required is liable to a penalty of twice the amount it should have transferred or ₹1 crore, whichever is less; every officer in default is liable to one-tenth of that amount or ₹2 lakh, whichever is less. Section 135(7)
How much is spent
CSR in India by the numbers
For NGOs
How a non-profit actually gets CSR funding
There is no government portal on which an NGO can “apply for CSR funds”. Form CSR-1 registers an organisation as eligible to receive CSR money; it does not allocate any. Each company chooses its own implementing partners through its CSR Committee, against its own CSR policy and annual action plan, and most companies prefer the local area of their operations. An organisation that wants CSR funding therefore has to be eligible (the right legal form, 12A and 80G, three years' track record, CSR-1), findable (NGO Darpan, audited accounts and a website that states its registrations plainly), and relevant (a proposal mapped to a Schedule VII head, in a geography the company operates in, with a unit cost and an indicator the company can report against).
The proposals that succeed are short and specific. They name the cohort and the location, state what will be measured at baseline and endline, show the budget as unit costs, explain how utilisation will be certified each quarter, and — where the outlay is ₹1 crore or more — anticipate the independent impact assessment the company may be required to commission. Companies are not looking for the largest NGO; they are looking for the one whose reporting will survive their auditor. That is the standard Scapex Foundation has built its programmes to meet, and the basis on which we partner with companies.
Frequently asked
CSR fund questions, answered briefly
Corporate Social Responsibility fund — the amount a company covered by Section 135 of the Companies Act, 2013 must spend on Schedule VII activities each year, at least 2% of its average net profit of the three preceding financial years.
Yes, for companies meeting the Section 135(1) thresholds — net worth ₹500 crore, turnover ₹1,000 crore or net profit ₹5 crore in the immediately preceding financial year. Since the 2019 and 2020 amendments, failure to spend or to transfer the unspent amount attracts a monetary penalty under Section 135(7).
Form CSR-1 is the e-form an implementing agency files with the Ministry of Corporate Affairs to register for undertaking CSR activities. It has been mandatory since 1 April 2021, must be verified by a practising CA, CS or CMA, and generates a CSR Registration Number. A company may route CSR funds only to an agency holding one.
The activities listed in Schedule VII of the Companies Act — twelve heads covering hunger, health and sanitation; education and skills; gender equality and care for the elderly; environment and animal welfare; heritage and culture; armed-forces veterans; sport; government relief funds; research and incubators; rural development; slum development; and disaster management. The full list, with practical examples, is in the table above.
Yes. Both are named in Schedule VII head (viii), and they are also the funds to which unspent CSR amounts not tied to an ongoing project must be transferred within six months of year end.
Only within limits. Salaries of personnel engaged in general management of the CSR function fall under administrative overheads, capped at 5% of total CSR expenditure. Staff time directly attributable to designing, implementing or monitoring a specific CSR project is a project cost. Activities that benefit the company's own employees are excluded altogether.
Not as an independent implementing agency under Rule 4(1)(d), which requires a three-year track record, unless the NGO was established by the company itself or by a government. A new organisation can still work on CSR projects that a company implements itself, or as a field partner to a CSR-1 registered agency, and can receive philanthropic grants outside the CSR mandate. That is Scapex Foundation's own position today, and we state it openly.