Are you a business owner wondering if your company needs to comply with Corporate Social Responsibility (CSR) regulations in India? Or perhaps you’re a professional seeking clarity on how CSR applies to different organizations? Understanding CSR applicability is essential for navigating India’s unique legal framework, which mandates certain companies to contribute to societal welfare. Introduced under the Companies Act, 2013, India stands out as one of the few nations with statutory CSR obligations, making it a critical topic for businesses in 2025.

In this in-depth guide, we’ll explore everything you need to know about CSR applicability as of March 22, 2025. From eligibility criteria and compliance requirements to penalties, recent updates, and practical examples, this 3000+ word blog post will equip you with the knowledge to determine if and how CSR applies to your organization. Whether you’re a startup founder, a corporate leader, or a curious learner, let’s unpack the essentials of CSR applicability together!

What is CSR Applicability?

CSR applicability refers to the conditions under which a company in India is legally required to engage in Corporate Social Responsibility activities, as mandated by Section 135 of the Companies Act, 2013. CSR involves companies allocating resources—typically a percentage of their profits—to social, environmental, and economic development initiatives, such as education, healthcare, and poverty alleviation. Unlike voluntary CSR efforts seen globally, India’s framework makes it compulsory for qualifying companies, aligning business success with societal progress.

The Ministry of Corporate Affairs (MCA) oversees this mandate, ensuring that companies meeting specific financial thresholds contribute at least 2% of their average net profits to CSR projects. As of 2025, with India’s economy growing and corporate accountability in focus, understanding CSR applicability is more relevant than ever for fostering sustainable development.

Why Does CSR Applicability Matter?

Why should you care about CSR applicability? Here’s why it’s a game-changer:

1. Legal Compliance: Non-compliance risks fines and penalties, impacting your bottom line.
2. Social Impact: It mandates contributions to national goals like the Sustainable Development Goals (SDGs).
3. Reputation Boost: CSR enhances brand goodwill and stakeholder trust.
4. Financial Planning: Knowing applicability helps budget for mandatory spending.
5. Competitive Edge: Compliance signals responsibility, attracting investors and customers.

With over 17,000 companies reporting CSR spending of ₹24,865 crore in FY 2020-21 (latest comprehensive data), the stakes—and opportunities—are high.

Who Does CSR Applicability Cover?

CSR applicability under Section 135(1) of the Companies Act, 2013, targets companies based on financial thresholds in the immediately preceding financial year. It applies to:

1. Indian Companies

• Private Limited Companies, Public Limited Companies, and Section 8 Companies (non-profits) meeting the criteria.

2. Foreign Companies

• Those with a branch or project office in India, if they meet the thresholds.

3. Holding and Subsidiary Companies

• Each entity must independently satisfy the criteria—parent or subsidiary status alone doesn’t trigger applicability.

Eligibility Criteria

A company qualifies if it has:

• Net Worth: ₹500 crore or more, OR
• Turnover: ₹1,000 crore or more, OR
• Net Profit: ₹5 crore or more.
• Key Note: These thresholds apply to the immediately preceding financial year (e.g., FY 2023-24 for FY 2024-25 compliance). If a company ceases to meet these for three consecutive years, CSR obligations lapse until it requalifies.

How Does CSR Applicability Work?

Once a company falls under CSR applicability, it must:

1. Constitute a CSR Committee:
   • Composition: Three or more directors, including at least one independent director (exceptions for private/unlisted companies).
   • Exception: If CSR spending is ≤ ₹50 lakh annually, the Board can handle CSR functions without a committee (Section 135(9)).
2. Spend 2% of Average Net Profits:
   • Calculated as 2% of the average net profits of the three immediately preceding financial years (per Section 198).
   • For new companies (<3 years), use profits from available years.
3. Undertake CSR Activities:
   • Projects must align with Schedule VII (e.g., education, health, environment).
   • Activities must occur in India, with a preference for local areas around operations.
4. Report Compliance:
   • File Form CSR-2 annually (deadline extended to March 31, 2025, for FY 2023-24 per MCA notification, December 31, 2024).

This structured approach ensures accountability and impact.

Detailed Eligibility Criteria for CSR Applicability

Let’s break down the financial thresholds:

1. Net Worth ≥ ₹500 Crore

• Definition: Total assets minus liabilities, per the latest audited balance sheet.
• Example: A company with ₹600 crore net worth in FY 2023-24 must comply in FY 2024-25.

2. Turnover ≥ ₹1,000 Crore

• Definition: Total revenue from operations (sales, services, etc.).
• Example: A firm with ₹1,200 crore turnover in FY 2023-24 triggers CSR obligations.

3. Net Profit ≥ ₹5 Crore

• Definition: Profit before tax (per Section 198), excluding overseas branch profits and dividends from other Section 135-compliant Indian companies.
• Example: A net profit of ₹6 crore in FY 2023-24 activates CSR applicability.
• New Companies: If incorporated mid-year or less than three years old, applicability kicks in based on profits from available years (e.g., one year for a company in its second year).

Exemptions and Exceptions to CSR Applicability

Not all companies are bound by CSR rules:

1. Below Threshold: Companies not meeting any criterion in the preceding year are exempt.
2. Three-Year Cessation: If a company falls below all thresholds for three consecutive years, CSR obligations cease until it requalifies.
3. Small Spending Exception: Companies with CSR obligations ≤ ₹50 lakh annually can bypass forming a CSR committee, with the Board taking charge.
4. Non-Qualifying Activities: Spending on employee benefits, political contributions, or overseas projects (except sports training) doesn’t count as CSR.

These exemptions balance flexibility with responsibility.

CSR Committee: Structure and Role

When CSR applicability is triggered, forming a CSR committee is mandatory unless the spending is minimal. Here’s the breakdown:

Composition

• Standard: 3+ directors, including 1 independent director.
• Private/Unlisted Companies: 2+ directors (no independent director required if not mandated).
• Foreign Companies: 2 persons, including one India-resident authorized representative.

Functions

1. Formulate CSR Policy: Recommend activities aligned with Schedule VII.
2. Budget Allocation: Suggest spending amounts.
3. Monitor Implementation: Oversee execution and impact.

Exception

• If annual CSR spending ≤ ₹50 lakh, the Board assumes these roles (introduced via 2021 amendments).

CSR Spending Requirements

Once applicable, companies must spend:

• Amount: 2% of the average net profit of the three preceding financial years.
• Calculation: Per Section 198, excluding tax, capital gains, and certain profits (e.g., overseas branches).
• Unspent Funds:
  • Ongoing Projects: Transfer to an Unspent CSR Account within 30 days of FY-end, to be spent within three years.
  • Other: Transfer to a Schedule VII fund (e.g., PM National Relief Fund) within six months.
• Excess Spending: Can be set off against future obligations for three years (post-January 22, 2021).

Example

• Company A: Average net profit (FY 2021-22 to 2023-24) = ₹50 crore.
• CSR Obligation: 2% of ₹50 crore = ₹1 crore for FY 2024-25.

Schedule VII: Eligible CSR Activities

CSR applicability ties spending to activities listed in Schedule VII, including:

1. Eradicating Poverty: Hunger, malnutrition, healthcare, sanitation (e.g., Swachh Bharat Kosh).
2. Education: Promoting literacy, vocational skills, special education.
3. Gender Equality: Women’s empowerment, reducing inequalities.
4. Environment: Sustainability, conservation, Clean Ganga Fund.
5. Health: Preventive care, TB elimination (aligned with India’s 2025 goal).
6. Others: Rural development, sports, disaster relief.

Companies can innovate within these areas, ensuring alignment with national priorities.

Reporting and Compliance Under CSR Applicability

Compliance isn’t just about spending—it’s about transparency:

• Form CSR-2: Mandatory annual report detailing projects, spending, and unspent amounts.
  • Deadline: March 31, 2025, for FY 2023-24 (extended from December 31, 2024).
• Board Report: Disclose CSR policy, committee composition, and reasons for unspent funds.
• Website Disclosure: Publish CSR policy publicly.

Failure to report or spend triggers penalties, ensuring accountability.

Penalties for Non-Compliance with CSR Applicability

Non-compliance with CSR applicability carries consequences:

• Company:
  • Fine: Twice the unspent amount or ₹1 crore, whichever is less (Section 135(7)).
• Officers in Default:
  • Fine: 1/10th of unspent amount or ₹2 lakh, whichever is less, OR
  • Imprisonment: Up to 3 years, OR both.
• General Penalties (Section 134(8)):
  • Company: ₹3 lakh.
  • Officers: ₹50,000.

These strict measures, introduced in 2019, enforce mandatory spending and reporting.

Recent Updates to CSR Applicability (2025)

As of March 22, 2025, key developments include:

1. Filing Deadline Extension: Form CSR-2 for FY 2023-24 due by March 31, 2025 (MCA notification, December 31, 2024).
2. Impact Assessment: Mandatory for companies with CSR budgets ≥ ₹10 crore and projects ≥ ₹1 crore, capped at 5% of spending or ₹50 lakh (2021 amendment).
3. Digital Reporting: Enhanced MCA21 portal for CSR-2 filings, improving transparency.
4. Ongoing Projects: Stricter timelines for unspent fund utilization (three years from transfer).

These updates refine compliance while supporting flexibility.

Practical Examples of CSR Applicability

Example 1: New Startup

• Profile: Incorporated in 2023, net profit ₹6 crore in FY 2023-24.
• Applicability: Yes, in FY 2024-25 (₹5 crore threshold met).
• Spending: 2% of ₹6 crore = ₹12 lakh.

Example 2: Established Firm

• Profile: Turnover ₹1,200 crore in FY 2023-24, average profit ₹100 crore.
• Applicability: Yes, in FY 2024-25.
• Spending: 2% of ₹100 crore = ₹2 crore.

Example 3: Foreign Branch

• Profile: US company’s India branch, net profit ₹7 crore in FY 2023-24.
• Applicability: Yes, in FY 2024-25.
• Spending: 2% of ₹7 crore = ₹14 lakh.

These cases show how thresholds apply across contexts.

Challenges of CSR Applicability

Despite its intent, CSR applicability poses challenges:

1. Threshold Fluctuations: Yearly changes in financials can toggle applicability, complicating planning.
2. Compliance Burden: SMEs may struggle with committee formation and reporting.
3. Unspent Funds: Managing ongoing projects or transfers adds complexity.
4. Awareness Gaps: New companies may miss eligibility nuances.

Proactive strategies can address these hurdles.

Benefits of Complying with CSR Applicability

Meeting CSR applicability requirements offers:

1. Social Good: Contributes to India’s development goals (e.g., TB elimination by 2025).
2. Tax Benefits: ITC eligibility on CSR-related GST (pre-2023 ruling, now restricted).
3. Brand Equity: Enhances reputation and customer loyalty.
4. Investor Appeal: Signals ethical governance.

It’s a win-win for society and business.

How to Determine CSR Applicability

Follow these steps:

1. Review Financials: Check net worth, turnover, and net profit for the last FY.
2. Compare Thresholds: Match against ₹500 crore, ₹1,000 crore, or ₹5 crore.
3. Assess History: For cessation, verify three consecutive years below thresholds.
4. Consult Experts: Engage a CA to calculate net profit per Section 198.

Use MCA tools like www.csr.gov.in for data insights.

CSR Applicability vs. Voluntary CSR

Aspect	Mandatory CSR (Applicability)	Voluntary CSR
Legal Status	Compulsory (Section 135)	Optional
Threshold	Financial criteria	No criteria
Spending	2% of average net profit	Discretionary
Penalties	Fines/imprisonment	None

Mandatory CSR ensures structured impact, unlike voluntary efforts.

Tips for Managing CSR Applicability

1. Track Finances: Monitor thresholds annually.
2. Form a Committee Early: Prepare if nearing applicability.
3. Leverage Local Projects: Prioritize community impact.
4. File Timely: Meet CSR-2 deadlines (e.g., March 31, 2025).
5. Document Thoroughly: Justify unspent funds clearly.

These steps streamline compliance.

Future of CSR Applicability in 2025

As of March 22, 2025, trends suggest:

• Threshold Adjustments: Potential hikes to ease SME burdens.
• Tech Integration: AI-driven CSR monitoring via MCA21.
• SDG Alignment: Stronger focus on sustainability and health.
• Global Influence: Lessons from India’s model may shape international norms.

CSR applicability will evolve with economic and social priorities.

FAQs About CSR Applicability

1. What triggers CSR applicability?

Net worth ≥ ₹500 crore, turnover ≥ ₹1,000 crore, or net profit ≥ ₹5 crore in the preceding FY.

2. Does CSR apply to new companies?

Yes, if they meet thresholds, using profits from available years.

3. What if a company stops meeting criteria?

It’s exempt after three consecutive years below thresholds.

4. Is CSR mandatory for foreign companies?

Yes, if their Indian operations meet the criteria.

5. Where can I check CSR rules?

Visit www.mca.gov.in or www.csr.gov.in.

Conclusion: Navigate CSR Applicability with Confidence

CSR applicability is more than a legal mandate—it’s a chance to align business success with societal good. As of March 22, 2025, India’s pioneering CSR framework under Section 135 ensures companies play a role in sustainable development, from education to environmental care. By understanding thresholds, forming committees, and meeting spending goals, you can turn compliance into opportunity.

Ready to check your company’s CSR applicability? Dive into your financials, explore www.mca.gov.in, and start planning your impact today. Have questions or insights? Share them in the comments below.