Corporate Social Responsibility is not optional in India once your subsidiary hits a certain financial threshold. Many multinational groups and Indian companies with foreign arms overlook this until compliance notices arrive. The rules are strict, the filing windows are tight, and the penalties for non-compliance can be substantial. If your Indian subsidiary—or your group’s Indian entity—crosses the net profit line, you need to move from awareness to action now.

This guide walks you through the CSR obligation trigger, how to calculate your spend requirement, which activities qualify, and the common pitfalls that catch even experienced finance teams. The underlying statute is Section 135 of the Companies Act, 2013, and the rules have settled into a predictable shape, though the rules currently stand as they are and should be verified with your adviser before each financial year.

CSR compliance touches accounting, governance, and reporting all at once. That overlap is why many cross-border groups find it helpful to involve a chartered accountant early, rather than scrambling to retrofit records after year-end.

The Threshold: When CSR Becomes Mandatory

Your Indian subsidiary must comply with CSR if it meets any one of these three conditions in the financial year:

  • Net worth of ₹500 crore or more
  • Revenue from operations of ₹1,000 crore or more
  • Net profit of ₹5 crore or more

The net profit threshold is the one that catches most cross-border entrants. A profitable tech subsidiary, a manufacturing arm, or a service delivery centre can easily cross ₹5 crore net profit within a few years. Once you cross it in any financial year, CSR obligations apply immediately for that year and subsequent years—unless you dip below the threshold again.

The threshold applies to the financial year in which the condition is met, not the year the subsidiary is incorporated. So a subsidiary incorporated in April 2024 that turns profitable by March 2025 must file CSR in that first year if the profit threshold is breached.

The CSR Spend Obligation

How Much Must You Spend?

Once the threshold is crossed, your company must spend at least 2% of the average net profits of the preceding three financial years on CSR activities. If your subsidiary is new, average the years available.

The calculation is mechanical but requires accuracy. Take the net profit figure from audited financial statements, exclude certain extraordinary items, and average across three years. Then apply 2%. Many finance teams use a rolling forecast to anticipate the obligation a year ahead, especially in multinational groups where capital allocation is planned months in advance.

What Counts as CSR Spend

Eligible CSR activities fall under specific schedules in the Act. They include education, health, sanitation, poverty alleviation, environmental sustainability, skill development, heritage conservation, and certain women’s welfare programmes. Importantly, donations to a political party, candidate or election campaign do not qualify. Nor do activities that primarily benefit your own employees or their families.

Spend must be incurred within India. If your subsidiary donates to a trust or NGO, the amount can count only if the recipient uses it for qualifying CSR work in India. Many multinationals set up or partner with established CSR foundations to simplify fund deployment.

Carry-Forward of Unspent Amounts

If you cannot deploy the full 2% in a given year, you can carry the unspent balance forward for up to five years. However, you must spend it within those five years or it lapses. This flexibility helps in years of rapid expansion or when identifying high-impact projects takes time, but it is not a permanent grace period.

Board Oversight and CSR Committee

Your board must establish a CSR Committee if the net worth, revenue or profit thresholds are met. The committee must have at least three directors, including at least one independent director (in a public company) or at least one director (in a private company). In practice, many foreign subsidiaries embed their CSR governance into their existing audit or risk committees where the board structure allows.

The committee’s responsibilities include:

  • Formulating a CSR policy aligned with Schedule VII of the Act
  • Recommending CSR spend and projects for board approval
  • Monitoring implementation
  • Submitting an annual CSR report to the board

For a subsidiary with a lean board, these tasks are administrative rather than burdensome. The policy is a one-time document with annual updates. The report is a structured form that summarises spend, projects and outcomes.

Filing and Disclosure Requirements

The CSR Report

Every compliant company must file a CSR report with its annual financial statements. The report is attached to the Board’s Report and becomes public. It includes:

The composition of the CSR Committee, the CSR policy, the amount spent against the 2% obligation, the list of projects or programmes, outcomes where measurable, and—critically—any shortfall and the reason for it. If you spent less than 2%, you must explain why and detail any carry-forward balance.

Timing

The CSR report must be filed with the Registrar of Companies as part of your annual filing, typically within 30 days of the annual general meeting. For Indian subsidiaries, this aligns with the March year-end and the AGM window in June or July. Foreign subsidiaries on different fiscal years must still comply in India based on their Indian financial year, which typically runs April to March unless exempted.

Common Compliance Missteps

The most frequent error is confusing CSR obligation with CSR expenditure. An obligation to spend 2% does not mean you have already spent it. You must track every rupee deployed, obtain invoices and project reports, and reconcile them to the target. Vague donations or unverified grants will not pass scrutiny if audited.

Second, many groups assume CSR in the parent country discharges India CSR. It does not. An Indian subsidiary must spend on CSR activities in India. Your global group CSR strategy may overlap, but your Indian subsidiary’s 2% is a separate legal obligation tied to its own profit.

Third, timing mismatches create unnecessary carry-forwards. If you know your subsidiary will cross the threshold, begin identifying projects by quarter three of the financial year so deployment can happen before year-end. Scrambling in March often means deferring spend to the next year and building up carry-forward balances.

Finally, documentation is underestimated. Maintain vendor invoices, project completion certificates, beneficiary acknowledgements and outcome reports. Auditors and the Registrar’s office both review CSR files, and a well-documented spend is defensible; a vaguely reported spend raises questions.

Cross-Border Considerations

If you are a foreign company running an Indian subsidiary or an Indian company expanding overseas, CSR creates an asymmetry: only the Indian entity triggers the obligation. Your overseas arms do not have an Indian CSR duty. This can complicate group-wide CSR strategy but also clarifies accountability—your India team owns the India CSR compliance.

For cross-border tax and compliance work, the CSR obligation often surfaces during subsidiary setup or the first profitable year. Integrating it into your financial planning and audit calendar from the start avoids last-minute scrambles.

Next Steps

If your Indian subsidiary is approaching or has just crossed the threshold, start with a profit review to confirm your 2% obligation amount for the current and next financial year. Engage your board or leadership to agree on a CSR policy and project pipeline. Document your CSR Committee composition (or board resolution confirming CSR responsibility) and draft a schedule of spend and projects for the remaining months of the financial year. Finally, set up a simple tracking sheet—company name, project name, amount, date of spend, beneficiary, outcome—and review it monthly.

CSR compliance is straightforward once you understand the trigger and the mechanics. The risk lies in silence and delay. If you need structured guidance tailored to your group’s footprint, our team can help you align CSR obligation with audit and reporting cycles. Reach out via WhatsApp with your subsidiary details and financial year-end, and we can map out a practical roadmap.

Get in Touch

Questions about your subsidiary’s CSR obligation or next steps? Message us on WhatsApp at +91 9810 555 783. AeTx handles CSR compliance as part of our annual audit and monthly compliance services for cross-border entities.

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