CSR is not about looking good; it’s about doing good. Many activities may seem social, but only those that create real community impact count as CSR.
Across India, many people often ask a simple yet important question — “What exactly is CSR, and what is not CSR?” Corporate Social Responsibility, or CSR, is a legal and moral responsibility of companies to give back to society. It means businesses must spend a part of their profits on activities that benefit people, communities, and the environment — beyond earning profits. However, not every good-looking activity by a company can be called CSR. The Ministry of Corporate Affairs (MCA) has made it clear that CSR is not about brand promotion, employee welfare, or fulfilling legal obligations. It is about creating lasting social impact, not temporary publicity or profit.
This article explains, in simple words, based on MCA’s General Circular No. 14/2021, what does not qualify as CSR under the Companies Act, 2013, so that everyone — from students to professionals — can understand the real spirit of social responsibility.
It emphasizes that CSR is not charity for business gain, nor a means to fulfil legal obligations, but a voluntary commitment to nation-building.
What Is CSR Under the Companies Act
CSR is defined under Section 135 of the Companies Act, 2013, and applies to companies that meet certain financial criteria — having a net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or net profit of Rs. 5 crore or more in the previous financial year.
Such companies must form a CSR Committee, plan social development projects aligned with Schedule VII of the Act, and spend at least 2% of their average net profit on eligible activities. The law encourages businesses to go beyond profit-making and become active partners in national development.
***
Understanding CSR and the Purpose of Clarification
Corporate Social Responsibility (CSR) is a board-driven process. Companies meeting specific financial thresholds must spend at least 2% of their average net profits from the last three years on eligible social activities under Schedule VII of the Act.
However, in recent years, many companies blurred the line between CSR and business expenditure, undertaking promotional or compliance-related activities in the name of CSR. To maintain the sanctity of CSR, the MCA has defined six categories of activities that cannot be treated as CSR.
1. Activities Undertaken in the Normal Course of Business
CSR is not meant to cover routine business operations or profit-making activities. Any initiative that forms part of the company’s ordinary business or contributes directly to commercial gain cannot be categorized as CSR.
What It Means:
If a company’s project promotes its regular product, service, or business model, it is not CSR.
Example:
A pharmaceutical company conducting free health check-up camps to promote its new medicine brand or distribute product samples is not doing CSR — it is marketing.
Exception:
Between FY 2020–21 to FY 2022–23, companies engaged in R&D for COVID-19 vaccines, drugs, or medical devices can treat such activities as CSR, but only if they are:
- Conducted in collaboration with recognized institutions (as per Schedule VII, item ix), and
- Disclosed in the Board’s Report transparently.
***
2. Activities Undertaken Outside India
CSR spending must be confined to activities within India’s territorial jurisdiction. Expenditure on projects abroad, even for Indian-origin beneficiaries, cannot be treated as CSR.
What It Means
CSR is intended to benefit the Indian population and support India’s development priorities.
Example
An Indian IT company funding a school in Nepal or supporting disaster relief in Indonesia will not qualify as CSR.
Exception
Only training of Indian sports personnel representing India or a state/UT at national or international levels can be undertaken outside India under CSR.
***
3. Contributions to Political Parties
CSR funds cannot be used for any direct or indirect contribution to political parties under Section 182 of the Companies Act, 2013.
What It Means
CSR must remain apolitical and focused solely on social good, not political influence.
Example
A company donating Rs. 50 lakh to a political party’s election campaign, funding rallies, or sponsoring political advertisements cannot classify it as CSR. Such contributions are regulated under Section 182 and are distinct from CSR obligations.
Rationale
CSR is for public welfare, not for supporting or influencing political agendas.
***
4. Activities Benefiting Company Employees or Their Families
Activities that are exclusive to company employees or their family members are not CSR. CSR initiatives should serve the community at large, not internal beneficiaries.
What It Means
If an activity benefits only employees, it fails the CSR test. The initiative must be inclusive and public-focused.
Example
- Constructing staff housing, medical facilities, or recreational clubs exclusively for employees does not qualify as CSR.
- Conducting company-sponsored wellness camps only for employees or their dependents is also excluded.
However
If a company runs a public hospital or school, and employees benefit incidentally as part of a wider community program, such activities are eligible CSR projects.
***
5. Sponsorship Activities with Marketing or Brand Promotion Intent
CSR funds cannot be used for sponsorships or events designed to promote a brand, product, or service. CSR must not become a marketing tool to generate business visibility.
What It Means
If the primary intention is to advertise or enhance brand recognition, the expenditure cannot be treated as CSR.
Example
A beverage company sponsoring a marathon or cultural event displaying its logo, distributing products, and advertising its tagline prominently — even if the event has a social angle — will not qualify as CSR.
However
If the same company partners with NGOs to provide clean drinking water, plants trees, or supports rural sanitation without brand display or marketing focus, it will qualify as CSR.
Rationale
CSR should create social value, not brand value.
***
6. Activities for Fulfilling Statutory Obligations
CSR funds cannot be used to meet mandatory legal or regulatory obligations under other Indian laws. Compliance-based spending is part of normal operations and cannot replace CSR.
What It Means
CSR must be voluntary and beyond compliance. Any action taken to meet statutory requirements cannot be claimed as CSR expenditure.
Example
- Setting up waste treatment facilities or pollution control devices to comply with environmental regulations.
- Constructing toilets or creches as mandated by the Factories Act.
- Conducting safety audits to meet Occupational Health and Safety standards.
All these are legal obligations and therefore not CSR.
***
Why These Restrictions Are Important
The MCA emphasizes that CSR must not become a disguised business expense or a substitute for government funding. The clarifications reinforce that CSR is a social commitment, not an economic strategy.
CSR should reflect a company’s ethical responsibility to uplift underprivileged communities, protect the environment, and promote equitable development.
These exclusions are designed to:
- Prevent misuse of CSR funds.
- Ensure transparency in CSR reporting.
- Strengthen accountability in project implementation.
- Encourage companies to focus on sustainable, measurable outcomes.
What Is CSR Under the Companies Act
| Particulars | Details |
|---|---|
| Legal Provision | Section 135 of the Companies Act, 2013 |
| Applicability | Applies to every company (including holding, subsidiary, and foreign companies) that meets any of the following financial criteria during the immediately preceding financial year. |
| Eligibility Criteria | 1. Net Worth: ₹500 crore or more 2. Turnover: ₹1,000 crore or more 3. Net Profit: ₹5 crore or more |
| Mandatory Requirement | Such companies must constitute a Corporate Social Responsibility (CSR) Committee of the Board. |
| CSR Committee Role | 1. Formulate and recommend CSR Policy. 2. Recommend annual CSR expenditure. 3. Monitor implementation and impact of CSR projects. |
| CSR Spending Obligation | Companies must spend at least 2% of the average net profits of the preceding three financial years on CSR activities. |
| Eligible CSR Activities | Activities listed under Schedule VII, including: education, healthcare, environment sustainability, rural development, gender equality, and poverty eradication. |
| Purpose of the Law | To encourage companies to go beyond profit-making and become active partners in national development through measurable social impact. |
***
Summary Table: What Is Not CSR (With Examples)
| S. No. | Category | Explanation | Example |
|---|---|---|---|
| 1 | Activities in Normal Course of Business | CSR cannot include regular business operations or marketing exercises. | A pharma company conducting free product trials to boost sales. |
| 2 | Activities Outside India | CSR must be within India; only training for Indian sports personnel abroad is allowed. | Funding schools or hospitals abroad. |
| 3 | Political Contributions | Donations or indirect support to political parties under Section 182 not allowed. | Contributing to election funds or sponsoring political events. |
| 4 | Employee Benefit Activities | Projects exclusively benefiting employees or their families are not CSR. | Building staff quarters or running employee-only health camps. |
| 5 | Sponsorships for Marketing | Activities undertaken mainly for brand promotion or marketing are not CSR. | Sponsoring events with heavy brand visibility and product promotion. |
| 6 | Statutory Compliance Activities | Spending to fulfil legal obligations under any other law cannot be CSR. | Installing pollution control systems or safety equipment as per law. |
Permitted CSR Activities
(Schedule VII of the Companies Act, 2013)
| S. No. | Permitted CSR Activity | Scope / Examples |
|---|---|---|
| (i) | Eradicating hunger, poverty, and malnutrition; promoting health care including preventive health care and sanitation; making available safe drinking water. | Examples: Mid-day meal support, health camps, mobile clinics, Swachh Bharat Kosh contributions, RO plants for safe water. |
| (ii) | Promoting education, including special education and employment-enhancing vocational skills especially among children, women, elderly, and differently-abled; livelihood enhancement projects. | Examples: Scholarships, vocational training, digital literacy, skill centres for women and youth. |
| (iii) | Promoting gender equality, empowering women, setting up homes/hostels for women and orphans, old-age homes, day-care centres, and measures for reducing inequalities faced by socially and economically backward groups. | Examples: Women self-help groups, orphanages, shelters for widows, senior citizen care centres. |
| (iv) | Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources, maintaining quality of soil, air and water, and contribution to Clean Ganga Fund. | Examples: Tree-planting, renewable energy, waste management, water harvesting, biodiversity parks. |
| (v) | Protection of national heritage, art and culture including restoration of buildings and sites of historical importance, works of art, setting up public libraries, promotion and development of traditional art and handicrafts. | Examples: Heritage restoration projects, libraries, artisan training programs, cultural festivals. |
| (vi) | Measures for the benefit of armed forces veterans, war widows and their dependents; Central Armed Police Forces (CAPF) and Central Para-Military Forces (CPMF) veterans and their dependents including widows. | Examples: Scholarships for soldiers’ children, housing support, rehabilitation aid. |
| (vii) | Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports. | Examples: Funding sports academies, sports equipment in rural areas, athlete training. |
| (viii) | Contribution to PM National Relief Fund or PM CARES Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of SC/ST/OBC/minorities/women. | Examples: Donations to PM CARES Fund, CM Relief Fund, disaster relief funds. |
| (ix-a) | Contribution to incubators or R&D projects in the field of science, technology, engineering, and medicine funded by Central or State Govt./PSU or any agency thereof. | Examples: Supporting biotech labs, healthcare innovation centres, technology incubators. |
| (ix-b) | Contributions to public-funded universities, IITs, national laboratories and autonomous bodies such as DRDO, ICMR, ICAR, CSIR etc. working towards Sustainable Development Goals (SDGs). | Examples: Research chairs, fellowships, SDG aligned projects with government institutions. |
| (x) | Rural development projects. | Examples: Village adoption programs, rural infrastructure, sanitation projects. |
| (xi) | Slum area development (as defined by law). | Examples: Housing, sanitation, healthcare and livelihood programs for slum residents. |
| (xii) | Disaster management including relief, rehabilitation and reconstruction activities. | Examples: Post-disaster relief, temporary shelters, infrastructure rebuilding in affected regions. |
Non-Permitted CSR Activities
(Rule 2(d) of the Companies (CSR Policy) Rules, 2014)
| S. No. | Non-Permitted Activity | Clarification / Reason |
|---|---|---|
| (i) | Activities undertaken in pursuance of the normal course of business of the company. | Exception (temporary COVID-19 relaxation for R&D in vaccines and medical devices 2020-23). |
| (ii) | Any activity undertaken outside India, except training of Indian sports personnel representing the State/India at the national/international level. | CSR is intended for development within India. |
| (iii) | Contribution to any political party under Section 182 of the Act. | Political funding is prohibited as CSR. |
| (iv) | Activities benefitting employees of the company (as defined in Section 2(k) of Code on Wages 2019). | CSR must benefit society at large, not employees. |
| (v) | Any activity undertaken outside India, except training of Indian sports personnel representing State/India at the national/international level. | Promotional or branding activities cannot be CSR. |
| (vi) | Activities carried out to fulfil any statutory obligations under any law in force in India. | Compliance activities (e.g. EIA, labour welfare) are not CSR. |
Defining CSR with Integrity
The Ministry’s clarification in Circular No. 14/2021 serves as a crucial guide for companies to uphold the spirit of Corporate Social Responsibility. It draws a clear line between business obligations and social commitments, ensuring that CSR remains a genuine instrument of social change rather than a marketing or compliance activity.
When CSR is implemented with integrity, it enhances not only a company’s reputation but also contributes to India’s sustainable and inclusive growth.
(India CSR)
