CSR in India — Schedule VII, the 2% Spend, and What Changed in 2024-26

CSR is the chapter of the Companies Act that quietly gets amended the most. Every CFO thinks they understand the 2% rule. Most CS teams still get the carry-forward calculation wrong. This is the full, current, 2026 picture — eligibility, spend, the new CSR-2 form, ongoing project rules, impact assessment, and the mistakes the MCA is currently issuing notices on.

Who has to spend

Section 135(1): a company in any preceding financial year with

• Net worth ≥ ₹500 crore, OR
• Turnover ≥ ₹1,000 crore, OR
• Net profit ≥ ₹5 crore

One financial year of breaching any threshold pulls the company in for the next three financial years.

How much

2% of the average net profit of the immediately preceding three financial years, computed under Section 198. Section 198 is not PAT — it excludes capital profits, certain provisions, depreciation differentials. Almost every CFO who calculates 2% off PAT is wrong.

What you can spend it on

Schedule VII categories — eradicating hunger, education, gender equality, environment, technology incubators in academic institutions, war veterans, contributions to PM CARES / state relief funds, slum redevelopment, sanitation, rural development, livelihood enhancement, and a few more. The category list has been amended five times since 2014. Read the current version, not the one your policy was drafted from.

What changed in 2021–2024

• Mandatory transfer of unspent amounts. Unspent against an ongoing project ⇒ Unspent CSR Account within 30 days of FY end, used within 3 years. Unspent against any non-ongoing CSR ⇒ Schedule VII fund within 6 months.
• CSR-2 form. Annual reporting on CSR spend, filed by 31-December of the following FY. Independent of the board report.
• Impact assessment. Mandatory for companies with average CSR obligation ≥ ₹10 crore in the preceding 3 FYs, for projects ≥ ₹1 crore. By an independent agency. Up to 2% of CSR obligation can be charged back as cost.
• Penalty regime under Section 135(7). Twice the amount required to be transferred, or ₹1 crore, whichever is less, on the company. Plus 1/10 of that on each officer in default, capped at ₹2 lakh.

The five most common CSR mistakes

• Spending on non-Schedule VII activities. Office sustainability initiatives, employee wellness, ESG consulting — none of these count.
• Treating brand-aligned spend as CSR. A pharma company funding cancer research counts. A pharma company funding a marathon to promote its brand may not. The test in Schedule VII is the activity, not the company's strategic interest.
• “Ongoing project” without board approval as such. If you want carry-forward into the Unspent CSR Account, the board has to designate it as an ongoing project at the start of the year. You cannot retrofit.
• Missing CSR-2. The most-missed annual form across listed companies. Default fee is ₹100 per day, and the new portal flags it on filing dashboard.
• Impact assessment underspecified. The impact assessment report has to be in the public domain. Most companies file a glossy PDF that does not actually answer “what changed because of this spend.” Auditors and rating agencies are starting to call this out.

The CS playbook

1. Q1 of FY: CSR committee approves the annual action plan, identifies ongoing projects, signs MOUs with implementing agencies (themselves CSR-1 registered).
2. Every quarter: Spend vs plan. Identify slippage early. Q3 is the last chance to course-correct without triggering the unspent regime.
3. FY close + 30 days: Compute unspent on ongoing projects, transfer to Unspent CSR Account. Compute unspent on completed-or-not-ongoing, plan transfer to Schedule VII fund within 6 months.
4. FY close + ~90 days: CSR Committee adopts the CSR report, included in Board's Report.
5. By 31-December: File CSR-2.
6. Impact assessment cycle: Where applicable, commission early in the project lifecycle, not at the end.

How Delta Filings handles CSR tracking

We track CSR-2 deadlines, ongoing project designations, unspent amount movements between the three buckets, and Schedule VII categorisation on every project line. For companies with multi-state CSR programs across implementing agencies, the cross-tab view of “what we said we'd do vs what we've spent” is the single artefact the CSR committee chair asks for at every meeting.

The strategic note

CSR has crossed ₹35,000 crore a year in aggregate spend. The MCA's enforcement focus is moving from “did you spend” to “did you spend on the right things, with the right impact, reported in the right form.” The CS who treats CSR as a board-report paragraph will fall behind in the next eighteen months. The CS who treats it as a multi-year programme with a real impact assessment scaffolding will not.