By S&S Co. Advocates & Solicitors · Published 22 July 2026 · Informational content, not legal advice — see our disclaimer
Why 'Does This Qualify as CSR' Is a Recurring Question
Section 135 of the Companies Act, 2013 requires every company crossing a net worth, turnover or net profit threshold — ₹500 crore net worth, ₹1,000 crore turnover, or ₹5 crore net profit in the preceding financial year — to spend at least 2% of its average net profits of the preceding three years on Corporate Social Responsibility. The obligation is not optional once the threshold is crossed, and failure to spend (without adequately explaining the shortfall in the Board's report, or transferring the unspent amount to a Schedule VII fund or the Unspent CSR Account within the prescribed timelines) attracts a penalty under Section 135(7) — up to twice the shortfall or ₹1 crore, whichever is less, for the company, and a personal penalty on defaulting officers.
Because the penalty regime is real and the definition of qualifying activity is drawn in fairly general language, companies routinely need a specific answer before committing funds to a particular NGO partnership: does supporting this specific programme actually count? The CSR Rules, 2014 (as amended, most recently by the Companies (CSR Policy) Amendment Rules, 2021) answer this by cross-referencing Schedule VII of the Act, which lists the categories of activity that qualify — and by carving out a short list of activities that are expressly excluded even if they sound charitable.
What Schedule VII Actually Covers
Schedule VII's list is broader than most business owners assume. It runs from the obvious — eradicating hunger and poverty, promoting healthcare and sanitation — through education and vocational skill development 'especially among children, women, elderly and the differently abled', gender equality and women's empowerment, environmental sustainability, protection of national heritage, support for armed forces veterans, promotion of sports, contributions to specified relief funds, funding of incubators and R&D at recognised institutions, rural development, and disaster management. A company evaluating a proposed NGO partnership should map the NGO's actual activity — not its general reputation or sector — against this list item by item; a partnership can qualify under more than one head simultaneously.
Vocational training and skill-enhancement programmes for persons with disabilities sit squarely within the 'promoting education... and employment enhancing vocation skills, especially among children, women, elderly and the differently abled' limb of Schedule VII, and support for NGOs that place persons with disabilities into part-time or full-time employment is generally treated the same way, since it advances the identical statutory objective of livelihood enhancement for a specifically named vulnerable group. The CSR Rules define 'Corporate Social Responsibility' itself as activities undertaken 'in pursuance of its statutory obligation laid down in section 135... in accordance with the provisions contained in these rules', which means the analysis is genuinely activity-by-activity rather than sector-by-sector.
What Is Expressly Excluded — Read This Before You Commit Funds
The CSR Rules carve out several categories that do not qualify even though they may look charitable on paper. Activities undertaken in the normal course of business are excluded (with a narrow COVID-era carve-out for vaccine and drug R&D that has since lapsed). Any activity carried out outside India is excluded, except training of Indian sportspersons representing a state or the country internationally. Contributions to political parties under Section 182 are excluded outright. Activities that benefit the company's own employees, as defined under the Code on Wages, 2019, are excluded — a distinction that matters if an NGO partnership is framed in a way that primarily serves the company's own workforce rather than the wider community. Sponsorships undertaken for marketing benefit are excluded, and so is spend that merely fulfils another statutory obligation the company already owes under a different law.
This last exclusion is the one companies most often overlook. If a proposed 'CSR' payment is really discharging a separate legal obligation the company owes anyway — for example, statutory contributions required under a different labour or environmental law — it cannot double as CSR spend. The safest practice is to document, at the time the CSR Committee approves the partnership, precisely which Schedule VII head is being invoked and why the arrangement is not caught by any of these exclusions, since that contemporaneous record is what a company relies on if the spend is later questioned.
Governance Steps a Company Should Not Skip
Beyond the substantive qualification question, Section 135 imposes process requirements that are easy to overlook when a partnership is negotiated quickly. The CSR Committee (three or more directors, at least one independent, unless the company is exempt from appointing an independent director, or the unspent obligation is under ₹50 lakh, in which case the Board itself performs the Committee's functions) must formulate and recommend the CSR Policy identifying the activities to be undertaken, and the Board must approve that Policy, disclose it in the Board's report, and place it on the company's website. The Committee also monitors implementation — an ongoing obligation, not a one-time sign-off.
For companies structuring a multi-year partnership rather than a one-off donation, the 'ongoing project' provisions under Section 135(6) matter: unspent amounts tied to an ongoing project must be moved to a dedicated Unspent CSR Account within thirty days of the financial year's end and spent within three financial years of that transfer, failing which the balance goes to a Schedule VII fund. Treating the NGO partnership as a formally recognised 'ongoing project' from the outset — rather than an informal annual commitment — gives the company the benefit of this longer spending window and avoids an inadvertent shortfall being flagged in the Board's report.
Frequently Asked Questions
Does CSR spend on employee welfare ever qualify?
Generally no — the CSR Rules expressly exclude activities that benefit the company's own employees as defined under the Code on Wages, 2019, so a programme has to reach the wider community, not primarily your own workforce, to qualify.
Can a private limited company have a CSR obligation?
Yes — Section 135 applies by reference to net worth, turnover or net profit thresholds, not to the public/private distinction, so a private limited company that crosses any of the three thresholds is equally bound.
What happens if we approve a partnership that later turns out not to qualify?
The spend would not count toward the mandatory 2%, potentially creating or worsening a shortfall that must be disclosed in the Board's report and, if not remedied within the statutory window, transferred to a Schedule VII fund — with penalty exposure under Section 135(7) if the shortfall goes unaddressed.
References & Further Reading
This article references the following statutes, rules and judicial decisions. Case citations link to the fuller discussion in our Legal Updates archive, verified against primary sources at the time of writing.
- Companies Act, 2013, Section 135 (as amended) — CSR applicability thresholds, spending obligation, Unspent CSR Account and penalty provisions.
- Schedule VII, Companies Act, 2013 — the exhaustive list of activities a CSR policy may cover.
- Companies (Corporate Social Responsibility Policy) Rules, 2014, as amended by the Companies (CSR Policy) Amendment Rules, 2021 — Rule 2(d) definition of CSR and the express exclusions.
- See our Corporate Law & M&A Notable Judgments and Legal Updates — Corporate Law archive for related compliance developments.