In today’s evolving corporate landscape, businesses are expected to contribute not only to the economy but also to the society in which they operate. This is where Corporate Social Responsibility (CSR) comes into play. But an important question many business owners and professionals ask is: what is the applicability of CSR, and which companies are required to follow it?

Understanding the applicability of CSR is essential, especially in India, where CSR is not just a voluntary act but a legal requirement for certain companies under the Companies Act, 2013. Let’s explore what this means, who needs to comply, and why it matters for your business.

What Is CSR?

Corporate Social Responsibility (CSR) refers to a company’s obligation to manage its business processes in a way that produces a positive impact on society. This includes initiatives related to education, health, environment, rural development, gender equality, and more.

CSR aims to ensure that companies operate ethically and contribute to sustainable development while being accountable to the public and their stakeholders.

Applicability of CSR Under the Companies Act, 2013

In India, the applicability of CSR is clearly defined under Section 135 of the Companies Act, 2013. According to the law, CSR provisions apply to companies that meet any of the following criteria during the immediately preceding financial year:

1. Net worth of ₹500 crore or more, or
   
2. Turnover of ₹1,000 crore or more, or
   
3. Net profit of ₹5 crore or more
   

If a company meets any one of these thresholds, CSR becomes mandatory for it.

Key CSR Compliance Requirements

If your company falls under the CSR criteria, here’s what you need to do:

• Form a CSR Committee: A committee of the board must be formed with at least three directors, including one independent director.
  
• Allocate CSR Budget: Companies must spend at least 2% of their average net profit (from the last three years) on CSR activities.
  
• Choose Projects: The activities must fall under areas specified in Schedule VII of the Companies Act, such as:
  
  • Education and skill development
    
  • Healthcare and sanitation
    
  • Environmental sustainability
    
  • Eradicating hunger and poverty
    
  • Rural and slum area development
    
  • Promoting sports, art, and culture
    
• Reporting: Companies must disclose their CSR policy and expenditure in the annual report and also file details with the Ministry of Corporate Affairs.
  

Which Companies Are Most Affected?

The applicability of CSR primarily affects:

• Large public and private companies
  
• Indian subsidiaries of foreign corporations
  
• PSUs (Public Sector Undertakings)
  

Startups, micro-enterprises, and small businesses typically do not fall under CSR requirements unless they cross the specified thresholds.

Why Is Understanding CSR Applicability Important?

Knowing whether CSR applies to your business helps you:

Avoid penalties and legal issues
Plan financial and operational strategies
Improve brand reputation and stakeholder trust
Contribute meaningfully to social causes

Companies that fail to comply with CSR norms may be required to transfer the unspent amount to a government-specified fund and can face additional scrutiny.

 Recent Updates and Amendments

Over time, there have been several changes in CSR rules to improve transparency and accountability:

• Unspent CSR amounts must be transferred to a special account or government fund.
  
• Companies are encouraged to adopt impact assessment strategies for projects above ₹1 crore.
  
• CSR implementation partners must be registered with the Ministry of Corporate Affairs.
  

These updates reinforce the government’s aim to ensure that CSR is not treated as a checkbox activity but as a strategic and impactful function of modern businesses.

 Going Beyond Compliance

While CSR is a legal mandate for some companies, many organizations go beyond compliance to create lasting impact. By aligning CSR strategies with business goals and community needs, companies can drive both social good and corporate success.

Organizations that actively engage in CSR activities also benefit from:

• Better employee engagement
  
• Stronger community relations
  
• Enhanced investor confidence
  
• Competitive brand positioning
  

 Final Thoughts

The applicability of CSR is not just a legal guideline—it’s a call for businesses to become responsible partners in nation-building. Understanding when and how CSR applies to your company helps you comply with the law and create value for the society around you.

As consumers and investors increasingly support businesses that care, adopting and embracing CSR can become one of the most powerful tools for sustainable growth.

So, if your company meets the CSR applicability criteria, it’s time to act—responsibly and strategically.