CSR Expenditure Rules in India (2026): Section 135, Rule 2(1)(d) & MCA Circular 14/2021 Explained

Professional Knowledge Series | CSR

I. Executive Summary

The Companies Act, 2013, specifies the amount that a company is required to spend on Corporate Social Responsibility, and Schedule VII details the purposes for which those funds may be used. In reality, it is the determination of what counts as CSR expenditure that causes the greatest uncertainty among boards, CSR committees, and the finance teams. This is not due to the list being short, but rather because it is deliberately wide. Since there is no clear method for applying these rules, companies might end up being either overly cautious or else taking unnecessary risks.

The article looks at each category in turn to show what is currently allowed under Schedule VII, including examples of projects that generally qualify in each area, for instance in the fields of health, education, livelihoods, women's empowerment, the environment, heritage, sports, research, rural development, slum development, and disaster management. It also deals with the other categories listed in the Schedule. Furthermore, the article examines the kinds of expenditure which the Companies (Corporate Social Responsibility Policy) Rules, 2014 expressly exclude, even when these appear to be similar to eligible activities.

The analysis includes the latest amendment to Schedule VII, which involves the addition of a new category effective from 27 May 2026, allowing CSR to be carried out by subscribing to zero-coupon, zero-principal instruments on the Social Stock Exchange. It also incorporates MCA General Circular No. 14/2021, the Ministry's present consolidated FAQ guidance on CSR, this guidance explicitly superseding General Circular No. 21/2014 as well as certain other previous interpretations. The article also refers to specific topic-related MCA notifications and circulars that are still pertinent to certain issues such as expenditure related to the pandemic and contributions to the fund.

II. Legal and Regulatory Background

2.1 The Statutory Architecture

Under section 135(1) of the Companies Act, 2013, any company that in the financial year just ended met any one of three conditions—having a net worth of ₹500 crore or more, a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more—is required to comply with the CSR obligation. So long as a company satisfies one of these conditions, it is covered by section 135, even if it does not meet the other two.

The amount required under Section 135(5) is a minimum of 2% of the company's average net profit calculated in accordance with Section 198 for the three preceding financial years. Furthermore, the Board is required to give priority to the local area and the surrounding regions in which the company carries out its operations when deciding how to allocate this amount. However, this is only a preference and not a strict obligation, so projects located outside the company's normal area may still be selected if they are the most suitable option.

Schedule VII is presented in the Act as a list of activities which companies may incorporate into their Corporate Social Responsibility Policies. Instead of providing a precise definition of what is permitted, each item is described as 'Activities relating to' a particular subject; this phrasing forms the basis for the principle of liberal interpretation which is explained later on. The Central Government has the authority to amend the Schedule under Section 467(1) of the Act, a procedure that is different from the one granted by Section 469 for altering the CSR Rules. Although both kinds of amendment can take place on the same day, they remain separate, as the amendment of May 2026 demonstrates.

The machinery in question is set out in the Companies (Corporate Social Responsibility Policy) Rules, 2014; Rule 2(1)(d) gives the defining meaning of "Corporate Social Responsibility" as well as the six specific exclusions mentioned in Section 3.14. Rule 4 deals with the manner in which CSR is to be carried out: a company can either carry it out on its own or via an eligible implementing agency as provided for in Rule 4(1); however, entities falling within the scope of Rule 4(2) must apply for a CSR Registration Number using Form CSR-1 before they can engage in any CSR activities. The MCA General Circular No. 14/2021 also stresses the project or programme approach. It lists as the main methods of implementation those involving the company acting alone, carrying it out through an eligible implementing agency, or carrying it out in collaboration with other companies.

2.2 The General Circular No. 14/2021 of the MCA: The Present Interpretative Stance

The FAQ guidance on CSR currently in force is MCA General Circular No. 14/2021, issued on 25 August 2021; this document has explicitly superseded General Circular No. 21/2014 dated 18 June 2014 as well as a number of other previous CSR interpretations. The present FAQs set out two propositions which are especially pertinent to questions concerning project eligibility.

• With regard to a liberal interpretation, FAQ 3.13 states that expenditures in the field of CSR cannot be made beyond the provisions in Schedule VII, yet it also says that the items listed therein are broad in nature and must be interpreted liberally in order to capture the essence of the subjects mentioned. The appropriate question therefore is whether the proposed activity has a genuine connection with an area or subject listed in Schedule VII — not whether the wording of the activity exactly matches that in the Schedule.
• The approach should be that of a project or programme. The frequently asked questions make it clear that CSR must be carried out via a project or programme approach not treated as a single, isolated activity or as a purely marketing initiative. For instance, FAQ 4.3 differentiates genuine CSR from sponsorship carried out for marketing purposes, while at the same time acknowledging that incidental brand exposure does not in itself render an otherwise eligible CSR project invalid.

A major departure from the earlier position concerns the way in which contributions to the corpus are handled. According to FAQ 3.5 in General Circular No. 14/2021, any contribution to the corpus by an organisation is no longer regarded as an acceptable CSR expense with effect from 22 January 2021. It follows that CSR funding which is channeled through an implementing agency must be linked to an eligible project or programme and must be used in line with the approved purpose rather than being treated as a qualifying corpus contribution.

2.3 The Development of Schedule VII

Since 2014, Schedule VII has been amended on numerous occasions, the main purpose of these amendments being to broaden or make clearer its scope. The timeline given below is based on the amendment record in the MCA/Gazette and focuses on the changes most pertinent to project eligibility. Further information on procedural developments under the CSR Rules and MCA guidance can be found elsewhere in this article and is summarised in the Selected Legal References.

III. The Main Provisions and a Professional Analysis

Schedule VII now includes thirteen types. The section that follows groups these into the eleven subject areas which are most commonly encountered in practice: health, education, livelihood, women's empowerment, environment, heritage, sports, research, rural development, slum development, and disaster management. It also looks at the categories that are excluded and provides a simple procedure for determining whether a project fits where it does not clearly belong to any one of the categories.

A Quick Overview of Schedule VII

The following descriptions are brief summaries provided for convenience of reference and are not copies of the full text as set out in Schedule VII. They must be read in conjunction with Schedule VII as it has been amended from time to time, including the notice G.S.R. 416(E) of 27 May 2026 which inserted item (xiii).

3.2 Health, Nutrition and Sanitation — Point (i)

The item includes eliminating hunger, poverty, and malnutrition; promoting healthcare, such as preventive healthcare; ensuring sanitation; and making safe drinking water available. In practice, it provides for both service-delivery programmes and capital-intensive community infrastructure, on the basis of the general eligibility and capital-asset conditions mentioned above.

Illustrative projects that typically qualify include:

• Medical mobile units and diagnostic camps are provided for underserved rural areas or urban slum clusters.
• The construction, equipping and upgrading of Primary Health Centres and sub-centres, generally carried out in cooperation with the state health department.
• Programmes relating to the nutrition of children and other vulnerable groups, including support aimed at combating hunger or malnutrition in conjunction with eligible public schemes.
• Programmes for the management of menstrual hygiene in government schools, including those relating to facilities and raising awareness.
• The sanitation facilities available in households or communities, as well as campaigns aimed at changing people's behaviour, including those funded through the Swachh Bharat Kosh.
• The infrastructure for pumping drinking water, along with borewells and water-purification facilities, is present in villages that experience water stress.

3.3 Education, Item (ii), First Limb

Item (ii) refers to education in the general sense, specifically including special education and the promotion of vocational skills which enhance employment, with a special focus on children, women, the elderly and people who are differently abled.

Illustrative projects that typically qualify include:

• There are scholarship schemes and programmes designed to provide financial support for students from economically disadvantaged backgrounds.
• Government or government-subsidized schools have digital classrooms, smart-board installations and STEM laboratories.
• Teacher training and programmes aimed at providing curriculum support which are carried out in cooperation with a state education department.
• In inclusive education settings, children with disabilities receive assistive devices, use resource rooms, and are supported by trained aides.
• Programmes for adult literacy and further education.
• The infrastructure of the library and the support for reading programmes at the school level (as opposed to public libraries, which are governed by the heritage authority in section 3.7).

3.4 Livelihood, Item (ii), Second Limb

The point also applies to projects intended to enhance people's livelihoods, a separate area from education which focuses on improving earning potential rather than on formal learning outcomes, and one of the more flexible categories available to a company when designing a skilling-linked CSR portfolio.

Illustrative projects that typically qualify include:

• The vocational skill-training centres, which are located in fields such as tailoring, electrical work, plumbing or IT-enabled services, are intended for young people and women.
• Including micro-enterprise seed funding and market-linkage assistance, support is provided for self-help groups.
• The skilling that is linked to placement is carried out in collaboration with a State Skill Development Mission or an accredited training partner.
• Support for the restoration of livelihoods in communities that are engaged in artisan and traditional craft activities—a category which often overlaps with the one listed under Section 3.7—should be recorded against both headings when a project actually extends across these two areas.

3.5 Women's Empowerment and Support for Vulnerable Groups — Point (iii)

The third item is wider in scope than its usual shorthand of "women's empowerment" indicates; it includes both gender equality and women's empowerment itself, as well as homes and hostels for women and orphans, old age homes and day care facilities for senior citizens, and measures aimed at reducing the inequalities experienced by socially and economically backward groups.

Illustrative projects that typically qualify include:

• There are hostels and safe-housing schemes available for working women located near areas where industrial or urban employment is concentrated.
• Programmes providing legal aid, financial literacy and training in entrepreneurship, all aimed at women.
• There should be old age homes and day-care centres for senior citizens, including support for those currently operated by the government or by NGOs.
• Support for orphanages and child-care institutions, including grants for infrastructure and staffing.
• Economic inclusion schemes which are aimed at the Scheduled Caste, Scheduled Tribe, other backward classes or minority groups, are designed specifically to reduce a particular kind of inequality rather than to promote general welfare.

3.6 Environment — Point (iv)

The fourth item includes environmental sustainability, ecological balance, the protection of flora and fauna, animal welfare, agroforestry, the conservation of natural resources, and the maintenance of soil, air and water quality—this being a deliberately broad formulation which has taken in most of the corporate social responsibility spending associated with climate change and sustainability without any further changes.

Illustrative projects that typically qualify include:

• Projects involving afforestation and the expansion of green space in urban areas, including the obligations relating to maintenance throughout the stated life of the project.
• Solar power and various other forms of renewable energy for public institutions such as schools or Primary Health Centres.
• Management of watersheds, the construction of check dams and the development of rainwater-harvesting infrastructure.
• Things aimed at improving animal welfare, such as veterinary field camps and assistance for shelters.
• Projects aimed at the rejuvenation of rivers and other water bodies, including those which are channeled through the Clean Ganga Fund when the project is related to the Ganga basin.
• Infrastructure for the segregation of waste and pilot schemes involving composting or those based on a circular economy.

3.7 Heritage, Art and Culture — Point (v)

The fifth item includes measures for the protection of the national heritage, art and culture, such as the restoration of buildings and sites of historical importance and works of art, the establishment of public libraries, and the promotion and development of traditional arts and handicrafts.

Illustrative projects that typically qualify include:

• Restoration and conservation of heritage buildings is carried out in cooperation with either the Archaeological Survey of India or the appropriate state archaeology department when the site in question has protected status.
• The public library's infrastructure, its collection development and the digitisation of its existing collections.
• Providing documentation, assisting in the revival of, and offering support with regard to access to the market for traditional art forms, crafts and languages which are at risk of declining.
• Support for museum and cultural center buildings.

3.8 Sports — Point (vii)

Section (vii) relates to training aimed at promoting rural sports, nationally recognised sports, Paralympic sports and Olympic sports. In this case, the term "training" is carrying real weight, since it refers to the development of sporting ability rather than to sponsoring events or teams for the sake of visibility.

Illustrative projects that typically qualify include:

• The infrastructure for sports in rural areas—this including playing fields, equipment and coaching support—was developed in cooperation with a state sports authority.
• Support for athletes who are competing in disciplines that are recognised at a national level.
• Where equipment, coaching and the necessary travel expenses are included in a structured training programme for a sport listed in item (vii).
• Grassroots talent-spotting and coaching schemes are carried out as a systematic and continuous effort rather than as one tournament or camp.

3.9 Research — Item (ix)

Item (ix) has two separate parts and it should not be reduced to a single test based on whether the recipient is publicly funded. Part (a) refers to contributions made to incubators or to research and development projects in the fields of science, technology, engineering and medicine when the incubator or the project is funded by the Central Government, a State Government, a Public Sector Undertaking or an agency of the Central or a State Government. Part (b) on the other hand relates to contributions to public-funded universities, the IITs, the National Laboratories and the specified autonomous bodies—namely, the DAE, the DBT, the DST, the Department of Pharmaceuticals, the Ministry of AYUSH, the Ministry of Electronics and Information Technology, DRDO, ICAR, ICMR and CSIR—where their research is carried out in those fields with the aim of promoting the Sustainable Development Goals.

Illustrative projects that typically qualify include:

• Granting research funding or providing project support to an IIT, a National Laboratory, or to one of the autonomously designated bodies for research that is oriented towards the SDGs.
• The amount contributed to an incubator or to a qualifying R&D project which is financed by the Central Government, a State Government, a Public Sector Undertaking or an agency of the Central or State Government, on the condition that the circumstances meet the requirements of limb (a).
• Backed by funding from the public for university research into agricultural productivity, clean technology, or public health.

3.10 Rural Development, Point (x)

Rural development is covered by item (x) as a separate and general category—in effect, it includes spending on infrastructure and on livelihoods that does not fit comfortably within a more particular item such as health or livelihood improvement.

Illustrative projects that typically qualify include:

• Improvements to roads in rural areas and those relating to the final mile are generally carried out in coordination with the local panchayat.
• Electrification projects in rural areas and micro-grids in habitats that are not connected or only poorly connected.
• Services for extending agricultural knowledge, programmes aimed at training farmers, and irrigation facilities.
• Village-development projects that combine several of the above under one programme.

3.11 Slum Development, Point (xi)

The entry referred to as (xi) relates to the development of slum areas. A definition is provided in the Schedule: "a slum area" means any area which has been declared as such by the Central Government, a State Government, or by any other competent authority under a law that is in force at the time.

Illustrative projects that typically qualify include:

• Upgrading the water, sanitation and drainage systems within a slum area that has been formally notified.
• There are anganwadi and crèche facilities situated in a notified slum area.
• Skill and livelihood centres which have been set up in a notified slum area are operated as an extension of the broader livelihood programme mentioned in Section 3.4.

3.12 Disaster Management, Point (xii)

The entry referred to as (xii), which was added by G.S.R. 390(E) of 30 May 2019, includes provisions on disaster management, such as relief, rehabilitation and reconstruction. Furthermore, the MCA's circulars on COVID-19 made clear the practical limits of the provision by differentiating between projects directly related to a disaster and contributions to specific funds or authorities.

Illustrative projects that typically qualify include:

• The distribution of relief materials and the provision of emergency assistance in cases of floods, cyclones, earthquakes and similar disasters, if organised as an eligible disaster management project.
• The process of rehabilitating and reconstructing housing or community infrastructure after a disaster has occurred.
• Contributions should only be made to a governmental fund or body in cases where the legal basis for CSR eligibility is clear. For instance, MCA General Circular No. 15/2020 clearly stated that a contribution to a State Disaster Management Authority in order to combat COVID-19 amounted to item (xii); this clarification should not, however, be applied to all State-level relief funds.

3.13 The Other Heads: Defence Welfare, Government Relief Funds and the New Social Stock Exchange Route

The Schedule is completed by three more headings. Although these headings are not included among those mentioned at the beginning of the article, a truly comprehensive and practical guide to Schedule VII should cover them.

Item (vi) — Armed Forces, CAPF and CPMF Welfare

The measures provided for in item (vi) are intended to benefit armed forces veterans, war widows and their dependants. An amendment passed in 2020 extended the scope of the item so as to specifically cover veterans of the Central Armed Police Forces and the Central Para Military Forces as well as their dependants, including widows. Examples of such projects are structured scholarship or education schemes for eligible dependants, rehabilitation and livelihood programmes for veterans who are moving into civil employment, and other welfare initiatives based on projects and aimed at the beneficiaries specifically included in item (vi). It cannot be assumed that a simple contribution to a welfare fund would count as qualifying unless the fund's method of operation is based on a specific Schedule VII or MCA basis.

Item (viii) — PM Relief Funds and Welfare of Backwards Classes

The entry referred to as (viii) includes donations made to the Prime Minister's National Relief Fund, the PM CARES Fund, or to any other fund established by the Central Government for the purpose of socio-economic development and for the relief and welfare of the Scheduled Castes, the Scheduled Tribes, the other backward classes, the minorities, and women. This is an instance of making a contribution to funds. The appropriate criterion therefore is to determine if the specific fund is covered by the wording of item (viii), not whether the underlying objective is generally socially desirable.

Item (xiii) — Zero Coupon Zero Principal Instruments on the Social Stock Exchange

The latest entry, numbered (xiii), came into force on 27 May 2026 via G.S.R. 416(E) and allows subscription to zero-coupon, zero-principal instruments on the Social Stock Exchange. On that same date, G.S.R. 415(E) added the relevant definitions and Rule 4A to the CSR Rules. Rule 4A enables a company to carry out its CSR through a ZCZP instrument, provided that the amount spent on such instruments does not exceed 10% of the company's total CSR expenditure for that financial year. The company subscribing to the instrument is exempt from carrying out an impact assessment for a project financed by it. The issuing Not for Profit Organisation must carry out the project for a period not exceeding three financial years following the date of issue; when the listing is terminated, it must transfer any unspent amount to a fund listed in Schedule VII and submit its compliance report to SEBI. Except for sub-rules (5) and (6), Rule 4 applies in this case. Since this route has only recently been introduced, companies should check the instrument, the NPO and the project documentation against Rule 4A and the applicable SEBI Social Stock Exchange framework before deciding to subscribe.

3.14 Exclusions: Those Which Do Not Qualify Under Rule 2(1)(d)

The content set out in Schedule VII specifies what a project must relate to; together, Rule 2(1)(d) of the CSR Rules and Rule 4 indicate what an activity must not be, even if the subject matter of that activity otherwise corresponds to a head in Schedule VII. Six of the exclusions are most frequently encountered in practice.

• Normal course of business. An activity undertaken in the ordinary course of the company's own business is not CSR, however socially beneficial it may be—this is the boundary that separates item (ix) research funding from a company's own product-development spend, discussed in Section 3.9.
• Activities outside India. CSR spend must be applied in India, with a single, narrow exception for training Indian sportspersons representing a State, Union Territory or India at the national or international level — and even then, only where the underlying activity independently qualifies under item (vii).
• Contribution to a political party. Any contribution, direct or indirect, to a political party under Section 182 of the Act is excluded outright.
• Activities benefiting only employees. A project designed exclusively for the company's employees does not qualify. MCA FAQ 4.2 confirms, however, that an activity designed for the public at large is not disqualified merely because employees or their family members are incidental beneficiaries.
• Sponsorship for marketing benefit. Spend undertaken to derive marketing benefit for the company's products or services is excluded. Under MCA FAQ 4.3, CSR should not be used purely as a marketing or brand-building tool, although brand building that arises only as a collateral benefit does not by itself invalidate an eligible project.
• Fulfilling other statutory obligations. Spend incurred to satisfy a separate legal obligation under any other law in force in India — as distinct from a voluntary initiative that happens also to serve a public good — does not count toward the CSR obligation.

There are two points which are important. The first is that payments into the corpus are no longer acceptable as part of CSR expenditure: it is expressly stated in MCA FAQ 3.5 that contributions to the corpus of any body are not admissible from 22 January 2021. The second is that the exclusions provided for in Rule 2(1)(d) function independently of the scope laid down in Schedule VII; an activity may be genuinely related to a subject in Schedule VII and yet still be excluded because it is part of the normal course of business, carried out outside India, limited to employees, based on marketing, political in nature, or carried out merely in order to fulfil some other statutory obligation.

3.15 Testing a New Project: A Practical Framework

The majority of disagreements about eligibility do not stem from the well-known examples mentioned above, but rather from a completely new project idea which does not fit easily into any one of the illustrations. The sequence listed below is a dependable method of testing a proposal.

1. Map it to a head. Identify which of the thirteen Schedule VII items the project is relatable to, applying the liberal-interpretation principle from Section 2.2 — the activity need not match the item's wording exactly. Still, it must genuinely capture the essence of the subject named.
2. Check it against the exclusions. Test the project against all six exclusions in Section 3.14, not only the most obvious one. A project can clear the Schedule VII test comfortably and still fail on normal-course-of-business or marketing-benefit grounds.
3. Confirm the CSR Policy actually covers it. A project can be Schedule VII-eligible in principle and still require the Board first to update the company's own CSR Policy if the category was not previously contemplated in it.
4. Confirm the implementation route. Use direct implementation or an implementing agency that satisfies the applicable Rule 4(1) category and, where Rule 4(2) applies, holds a valid CSR Registration Number through Form CSR-1. For agencies not established by a company or Government, also test the prescribed tax-status and three-year track-record conditions where applicable.
5. Check the route-specific conditions and document the fit. If the spend creates a capital asset, apply Rule 7(4); if it is a contribution to a fund, verify that the fund route is specifically supported by Schedule VII or applicable MCA guidance; and if it uses a ZCZP instrument, apply Rule 4A. Record the Schedule VII mapping, exclusion analysis, implementation route and key conditions in the Board/CSR Committee approval and annual action plan rather than reconstructing the reasoning later.

IV. Business Implications

4.1 For the Boards and CSR Committees

A CSR Policy drafted in narrow, internally branded language can end up more restrictive than Schedule VII itself requires. Policies are better drafted to track the Schedule's own broad subject headings, so that a legitimately eligible new project is not blocked by policy wording that was never intended to be a ceiling. The annual action plan required under Rule 5(2) is a natural place to record, project by project, the specific Schedule VII item each initiative is relatable to — a discipline that pays off well beyond the year in which it is written.

4.2 For Finance and Compliance Functions

Category tagging at the point of disbursement, the Schedule VII item, the measurable output the project is designed to achieve, and the implementation route used, is far less costly to capture contemporaneously than to reconstruct at the time of CSR-2 filing or statutory audit. Where a single project genuinely spans two Schedule VII items, as several of the illustrations above note, the better practice is to record and, where meaningful, apportion expenditure between both rather than forcing the project into a single category for administrative convenience.

4.3 For NGOs and Implementing Partners

A funding proposal framed against the specific Schedule VII item it engages, and where relevant against the liberal-interpretation principle in MCA General Circular No. 14/2021, is materially easier for a corporate CSR committee to evaluate than one framed only in general cause-based terms. Implementing agencies should maintain current CSR-1 status where required, evidence the applicable Rule 4(1) eligibility conditions, and map project budgets and outputs to the relevant Schedule VII subject rather than seeking unrestricted corpus support.

4.4 A Note on Pending Reform

The Corporate Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on 23 March 2026 and referred to a Joint Committee. The Committee's report was presented to the Lok Sabha on 3 August 2026. As at 21 August 2026, the Bill remains pending and has not altered the current Section 135/Schedule VII framework.

V. Conclusion

Schedule VII is broad by design, and MCA General Circular No. 14/2021 confirms that its entries should be interpreted liberally to capture the essence of the subjects enumerated. Breadth, however, is not the same as absence of boundary. Thirteen heads now span health, education, livelihood, women's empowerment, environment, heritage, sports, research, rural and slum development, disaster management, defence welfare, specified fund contributions and, most recently, the Social Stock Exchange ZCZP route. Eligibility still turns on the correct Schedule VII nexus, the precise fund or recipient conditions where applicable, the Rule 2(1)(d) exclusions, implementation requirements and, for capital-intensive projects — Rule 7(4).

The practical discipline is therefore to map the project to Schedule VII, test all exclusions, identify whether the company is using the activities route, a permitted fund route or the ZCZP route, confirm the implementing-agency and capital-asset conditions, and document that reasoning at approval and utilisation stages. That approach is materially safer than relying on labels such as "education", "environment" or "relief" without examining how the expenditure is actually structured.