CSR (corporate social responsibility) meaning in simple words: the 2% rule
CSR: the Indian rule that makes bigger or profitable companies spend at least 2% of their average profit on social causes, such as education or health.
The story
two people, one chai stall
Sameer wants to sponsor a cricket tournament. Riya has a better idea, and a legal reason.
RiyaWe crossed ₹5 crore of profit, so CSR applies to us now. The law says we must spend on social causes.
SameerHow much?
Riya2% of our average profit over the last three years. ₹8 crore, ₹10 crore and ₹12 crore average out at ₹10 crore. 2% of that is ₹20 lakh.
SameerCan it be the cricket tournament?
RiyaOnly if it's on the approved list, like training young athletes. A sponsorship banner with our logo doesn't count.
SameerWhat about the night school near our first stall? Half our staff studied there.
RiyaEducation is on the list. That works. And since it's under ₹50 lakh, the board can approve it without forming a CSR committee.
SameerAnd if we don't spend it all?
RiyaThen the leftover goes to a government fund, and we explain why in the annual report.
The grown-up version
same idea, exact words
Section 135 applies to a company that, in the immediately preceding financial year, had a net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. Its Board must spend at least 2% of the average net profit of the three immediately preceding financial years, calculated under Section 198, on activities listed in Schedule VII. If the obligation is ₹50 lakh or less, the company need not form a CSR committee and the Board takes on its work. Unspent amounts must be transferred to a Schedule VII fund or, for ongoing projects, to an Unspent CSR Account. The Corporate Laws (Amendment) Bill, 2026 proposes raising the ₹5 crore net-profit trigger to ₹10 crore; as of November 2026 it is not yet law.
Formula
CSR spend ≥ 2% × average net profit (Section 198) of the last three financial years
Which rule asks for itSection 135 and Schedule VII, Companies Act, 2013; Companies (Corporate Social Responsibility Policy) Rules, 2014.
Spot it in the wild
a real annual report, a real page
- The legal minimum: 2% of the last three years' average profit, ₹24.44 crore.
- What it actually spent: ₹25.25 crore, a little more than required.
Don't mix it up
the usual confusions
CSR ≠ donation
A donation is voluntary. CSR is a legal duty with a minimum amount, approved projects and a report in the annual report.
CSR ≠ ESG
ESG is how a company runs its whole business: emissions, workers, governance. CSR is one specific spend on social projects.
CSR ≠ profit before tax
The 2% uses net profit worked out under Section 198, which is close to profit before tax but with set adjustments. It isn't the same as the P&L's net profit after tax.
Three quick sips
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Hindi mein
कॉर्पोरेट सामाजिक दायित्व (CSR)
CSR वह क़ानून है जिसके तहत बड़ी या मुनाफ़े वाली कंपनियों को अपने औसत मुनाफ़े का कम से कम 2% समाज के कामों पर ख़र्च करना होता है।
Sources
- Companies Act, 2013, India Code
- JPC report summary, Corporate Laws (Amendment) Bill, 2026, PRS Legislative Research