Can Indian Companies Spend CSR Funds Outside India? A 2026 Guide

Professional Knowledge Series | MCA & CSR Compliance

I. Executive Summary

Companies with international promoters, diaspora ties, or overseas operations often ask if the CSR spending required by Section 135 of the Companies Act, 2013 can go to projects or causes outside India. The current rules are clear: only training for eligible Indian sports personnel abroad qualifies as CSR. All other activities outside India do not count.

Rule 2(1)(d)(ii) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, is the key rule here. It says that activities outside India do not count as CSR, except for training Indian sports personnel who represent a State or Union territory at the national level, or India at the international level. This restriction comes from Rule 2(1)(d)(ii), not Rule 4(4), which only covers company collaborations and reporting.

The overseas exception only removes the geographical restriction. Other exclusions in Rule 2(1)(d) still apply. For an overseas sports-training project to count as CSR, it must meet four conditions: it must fit the geographical exception, relate to an eligible Schedule VII activity, not be a sponsorship for marketing, and not be meant to benefit the company's own employees.

Even if a payment qualifies as CSR, there are other rules to consider. The payment must be checked under the Foreign Exchange Management (Current Account Transactions) Rules, 2000, the Income-tax Act, 2025 and any tax treaty, and GST rules. Companies must also check if the overseas service counts as an import and if input tax credit is blocked because it relates to the Section 135 CSR requirement.

This article covers the main rules, the sports-training exception, common reasons projects fail to qualify, how to handle mixed programmes and overseas service providers, reporting requirements, and the FEMA, withholding tax, and GST checks needed for foreign payments.

II. Legal and Regulatory Background

Section 135(5) requires an eligible company to spend at least 2% of the average net profits determined in the prescribed manner in pursuance of its CSR Policy. The projects or programmes selected by the company must relate to the areas or subjects specified in Schedule VII. Schedule VII identifies the permitted subject areas, while the CSR Rules prescribe important exclusions, implementation conditions, governance responsibilities and reporting requirements.

Rule 2(1)(d)(ii) creates the decisive geographical exclusion: an activity undertaken by the company outside India is not CSR, except training of Indian sports personnel representing any State or Union territory at national level, or India at international level. By contrast, current Rule 4(4) permits companies to collaborate on CSR projects, provided their respective CSR Committees can report separately.

The persistence of the Rule 4(4) misattribution has a traceable explanation, and it is worth stating, because it is the reason the error survives in otherwise reliable commentary.

MCA General Circular No. 14/2021, dated 25 August 2021, through FAQ 4.4, expressly states that activities undertaken outside India are ineligible even when intended to benefit resident Indians, and identifies the sports-training provision as the only exception. This administrative clarification is consistent with the text of Rule 2(1)(d)(ii).

III. Key Provisions — Professional Analysis

3.1 The General Rule: The Activity Must Be Undertaken in India

The location of the substantive CSR activity is the principal test. A proposed programme does not become eligible merely because its objects resemble education, healthcare, environmental sustainability, disaster relief, sports promotion or another Schedule VII subject. If the activity is undertaken outside India and does not fall within the express sports-training exception, the expenditure cannot be counted toward the company's Section 135 obligation.

It does not matter who owns the company, where the promoters live, if there is a foreign parent, where the money comes from, or if the overseas beneficiaries have Indian ties. What matters is where the actual activity or benefit takes place, not just where the payment is made or recorded.

3.2 The Narrow Exception: Training of Indian Sports Personnel

The exception is very specific and should be used carefully. Usually, the following points must be met:

• Indian personnel: The persons receiving the training must be Indian sports personnel. The exception does not cover costs attributable to foreign athletes.
• Representative status: The sportsperson must represent a State or Union territory at national level, or India at international level. General, recreational, academy-level or grassroots coaching abroad does not qualify merely because the participant may compete in the future.
• Eligible subject under Schedule VII: The training must independently relate to an eligible Schedule VII activity. Item (vii) covers training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports. The overseas exception does not replace this underlying eligibility requirement. However, the MCA has separately indicated that Schedule VII entries are to be construed liberally to capture the essence of the subjects listed.
• Approved CSR project: The project should form part of the company's approved CSR Policy and annual action plan. The CSR Committee, where its constitution is required, should recommend the project and plan to the Board. Where Section 135(9) applies, and no CSR Committee is required, the Board should directly discharge the corresponding functions. The manner of execution, utilisation of funds, implementation schedule and monitoring mechanism should be documented.
• Supportable overseas rationale: The Rules do not require proof that similar facilities are unavailable in India. However, the Board should document the reasons for choosing foreign training, such as the need for specialised coaching, better facilities, or preparation for a specific event.

If a programme has both qualifying and non-qualifying participants, having a mixed group does not automatically disqualify all costs. The company should exclude costs for foreign or non-representative participants and use a fair and documented method to split shared costs. There is no set rule for this, so the Board should ensure the approach is reasonable and well-supported.

3.3 Three Further Exclusions That Commonly Defeat a Sports CSR Project

Rule 2(1)(d) lists six exclusions. The geographical exclusion in sub-clause (ii) is most relevant for cross-border cases, and the sports-training exception only removes this one. The other exclusions still apply, and three are common in sports projects. So, a project can meet the location rule but still not qualify.

Sponsorship deriving marketing benefit — Rule 2(1)(d)(v)

This is the exclusion most likely to be overlooked, and the one most likely to be triggered. Elite sports carry visibility, and visibility attracts branding: kit and equipment logos, athlete endorsement obligations, naming rights, media appearances, social media commitments, and hospitality entitlements. Where the arrangement with the athlete, federation or academy confers such rights on the company, the expenditure begins to look less like a CSR project and more like a sponsorship agreement.

The MCA has addressed the distinction directly. Its guidance is that companies should undertake CSR in a project or programme mode rather than as one-off events, and that CSR must not be used purely as a marketing or brand-building tool — while accepting that brand building arising as a collateral benefit does not, by itself, vitiate the CSR character of the activity. The test is therefore one of substance and design, not of whether any reputational benefit exists.

Activities benefitting employees — Rule 2(1)(d)(iv)

Rule 2(1)(d)(iv) excludes activities benefitting employees of the company, as defined in clause (k) of Section 2 of the Code on Wages, 2019. This exclusion has unusual practical significance in Indian sport because nationally representative sportspersons may hold employment through sports quotas in public sector undertakings, banks, insurers, the railways and similar organisations. A company proposing to fund overseas training for a sportsperson on its own payroll is directly exposed to this exclusion. Employment with another group entity does not, by itself, trigger Rule 2(1)(d)(iv), although it should still be identified for conflict, related-benefit and substance review.

The MCA says the key is the project's design. If an activity is meant only for employees, it does not qualify as CSR. If it is for the public and employees just happen to benefit, it is allowed. But if a programme mainly helps the company's own sports-quota employees, it likely will not qualify, no matter how talented the athletes are.

Normal course of business — Rule 2(1)(d)(i)

Rule 2(1)(d)(i) excludes activities that are part of the company's normal business. This usually does not affect manufacturers or service companies. But if the company works in sports goods, nutrition, sportswear, media, athlete management, or fitness, funding athlete training could look like product development or endorsement. The Board should clearly show how the project is different from regular business.

3.4 What Does Not Qualify: Common Misconceptions

The following arrangements are often assumed to fall within an implied cross-border CSR carve-out. They do not:

• Diaspora and overseas community causes: An Indian connection to the beneficiaries does not overcome the location rule. The proposed activity must independently fall within Schedule VII and be undertaken in India.
• International disaster relief or foreign-government funds: Relief activity carried out outside India, or a contribution to an overseas relief programme, does not become eligible merely because the humanitarian need is urgent or the subject would otherwise resemble a Schedule VII activity.
• A foreign parent's global CSR or ESG programme: An Indian subsidiary must discharge its own Section 135 obligation through eligible CSR activities. Group-level sustainability reporting cannot convert an ineligible overseas activity into Indian CSR expenditure.
• Engagement of an overseas entity as an 'International Organisation': 'International Organisation' is a defined term under Rule 2(1)(g), confined to bodies notified under Section 3 of the United Nations (Privileges and Immunities) Act, 1947. A foreign academy, federation or consultancy is not an International Organisation. Even a genuine International Organisation may be engaged only for designing, monitoring and evaluation of CSR projects and for capacity building of the company's own CSR personnel under Rule 4(3), and the MCA has confirmed that it cannot act as an implementing agency at all.
• Sponsorship of an overseas event, team or athlete: Sponsorship undertaken for deriving marketing benefit for the company's products or services is excluded by Rule 2(1)(d)(v), independently of where the activity occurs. A qualifying athlete does not cure a sponsorship structure.
• Training for the company's own sports-quota employees: Rule 2(1)(d)(iv) excludes activities benefitting employees as defined under the Code on Wages, 2019. An overseas training programme designed around the company's own employees is not eligible CSR, whatever the athletes' representative status.
• Overseas conferences, study tours and benchmarking visits: Such expenditure is not automatically a Schedule VII activity. A connection with the company's CSR function does not, by itself, make the expense eligible.
• Foreign or non-representative athletes: Costs attributable to foreign athletes, or to Indian sportspersons who do not satisfy the prescribed representative-status test, are not covered. In a mixed programme, only clearly identifiable and supportable costs attributable to qualifying Indian personnel should be considered.

3.5 Overseas Academy: Service Provider, Not Implementing Agency

The legal status of the overseas academy or training facility must be clear. If the company runs the CSR project and hires the academy for coaching or services, the academy is just a vendor or service provider. It should not be called the CSR implementing agency.

This is not merely a documentation preference. Every category of eligible implementing entity under Rule 4(1) is an Indian legal form: a company established under Section 8 of the Act; a registered public trust or registered society satisfying the prescribed income-tax conditions; or an entity established under an Act of Parliament or of a State legislature. A foreign academy, in its capacity as a foreign legal entity, cannot satisfy these descriptions or obtain a CSR Registration Number by filing Form CSR-1 and therefore cannot act as the Rule 4(1) implementing agency.

The company can run the project itself and hire the overseas academy as a service provider, or it can work through an eligible Indian agency with a valid CSR Registration Number, which then hires the overseas provider. In both cases, all documents should clearly show the foreign academy as a service provider, not as the Rule 4(1) implementing agency.

3.6 Practical Compliance: Approval, Documentation and Reporting

Since the sports-training rule is the only clear reason to allow an outside-India activity, the company should confirm eligibility as the project happens, not wait until annual reporting or audit. A strong project file should include:

• Board and CSR governance: CSR Committee recommendation, where constitution of the Committee is required, or direct consideration by the Board under Section 135(9); Board approval; inclusion in the CSR Policy and annual action plan; project budget; manner of execution; milestones; and monitoring responsibility.
• Representative-status evidence: Selection, nomination, accreditation or confirmation from the relevant recognised sports federation, association, Sports Authority of India or appropriate State-level authority, identifying the representative capacity and event.
• Exclusion clearances: Written confirmation as to whether any participant is an employee of the company undertaking the CSR expenditure, together with disclosure of any employment with a group entity for conflict and substance review. The file should also record the Board's satisfaction that the arrangement is not sponsorship undertaken for marketing benefit, including a review of branding, endorsement, appearance or media rights.
• Training nexus and programme records: Agreement with the training provider, training schedule, location, coaching scope, participant list, travel itinerary and a documented connection between the programme and the relevant representative competition.
• Cost attribution and supporting records: Keep invoices, remittance records, attendance lists, and a clear method for splitting costs like coaching, facility fees, travel, accommodation, equipment, and support services. Only costs that are essential and directly linked to the qualifying training should be counted as eligible.
• Capital assets: Where equipment or another item constitutes a capital asset created or acquired out of CSR expenditure, the ownership and holding conditions in Rule 7(4) should be separately examined.
• Utilisation and certification: Rule 4(5) requires the Board to satisfy itself that CSR funds disbursed have been utilised for the purposes and in the manner approved, and the Chief Financial Officer or person responsible for financial management must certify accordingly. This requirement should be complied with whether the project is implemented directly or through an implementing agency. The supporting evidence may differ: a direct vendor arrangement may be supported by invoices, attendance, service-delivery and completion records, while a grant routed through an implementing agency would ordinarily require appropriate utilisation reporting.
• CSR reporting: The project and expenditure must be included in the annual report on CSR under Rule 8 in Annexure I or Annexure II, as applicable. Rule 2(1)(d)(ii) does not prescribe a separate statutory disclosure for the sports exception.

3.7 Classification of Project and Administrative Costs

Coaching fees, facility charges, travel, accommodation, equipment, and related support can be counted only if they are essential and directly tied to the qualifying training. The CSR Rules do not give a set list of approved overseas costs, so each expense must be checked individually.

Travel or related costs for directors, executives, or CSR staff should be reviewed separately. An expense that is not eligible does not become eligible just because it fits within the 5% administrative overhead cap in Rule 7(1). Also, costs directly related to designing, running, monitoring, or evaluating a specific CSR project are not counted as administrative overheads, but general management costs may be.

3.8 Remittance and the FEMA Framework

When an Indian company pays an overseas training provider, it is a company-level current-account remittance. The Liberalised Remittance Scheme does not apply, as it is only for individuals. The payment usually goes through an Authorised Dealer bank, with all required documents like agreements, invoices, beneficiary details, and purpose codes.

Both the company and the Authorised Dealer bank must check the Foreign Exchange Management (Current Account Transactions) Rules, 2000. Schedule I lists banned transactions, Schedule II lists those needing Central Government approval, and Schedule III covers those needing Reserve Bank of India approval above certain limits. KYC, sanctions checks, anti-money-laundering, and genuineness checks are also required.

3.9 Withholding Tax and GST

The payment must separately be reviewed under the applicable income-tax law. For amounts credited or paid on or after 1 April 2026, the withholding framework is that of the Income-tax Act, 2025: payments to non-residents are dealt with under Section 393(2), and the residuary entry at serial number 17 of that table, covering any interest or any other sum chargeable under the Act, other than income under the head 'Salaries', carries forward the obligation previously imposed by Section 195 of the Income-tax Act, 1961. For payments or credits before that date, the earlier provisions continue to govern. The associated remittance reporting forms have been renumbered, Form 15CA and Form 15CB becoming Form 145 and Form 146 respectively.

The special withholding entry for non-resident sportspersons, entertainers and sports associations applies only where the payment constitutes income referred to in Section 211. It does not apply solely because the payee is a sportsperson, coach, academy or sports body. A fee for coaching or training performed outside India should first be analysed according to its actual character, chargeability under the Income-tax Act, 2025, the applicable Double Taxation Avoidance Agreement and, where relevant, the residuary withholding entry at serial number 17 of the Section 393(2) table.

In every case, the company must check if tax applies, what the relevant treaty says, the withholding rate, any gross-up requirements, and whether Form 145 or 146 reporting is needed.

Just because something qualifies as CSR does not mean it will meet FEMA, income-tax, or GST rules. A positive result under one set of rules does not guarantee the same under another.

VIII. Conclusion

The rule for CSR spending outside India is strict and clear. Rule 2(1)(d)(ii) excludes activities outside India, except for training eligible Indian sports personnel. Rule 4(4) does not apply here, as it only deals with company collaborations.

Even with the exception, each project needs careful review. The company must confirm the participants’ representative status, the link to Schedule VII, that it is not a sponsorship or employee benefit, the proper role of the overseas provider, and that costs are directly linked. It must also check FEMA, withholding tax, and GST rules before sending money, and include any unrecoverable tax in the budget.

Companies and promoters who want to support overseas community, cultural, humanitarian, or group causes should keep this spending outside the Section 135 CSR framework unless it clearly fits the sports-training exception. They should also make sure the remittance is allowed under exchange-control rules. Careful planning and up-to-date documentation are the best way to stay compliant.