What is Corporate Social Responsibility?

Corporate Social Responsibility (CSR) refers to the ethical obligation of businesses to contribute to sustainable economic development while improving the quality of life of their workforce, their families, the local community, and society at large. It moves beyond the narrow pursuit of profit to incorporate social, environmental, and ethical considerations into corporate operations and decision-making.

India became one of the first countries in the world to mandate CSR through legislation. Section 135 of the Companies Act, 2013 requires every company with a net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or net profit of Rs. 5 crore or more during the immediately preceding financial year to constitute a CSR Committee of the Board consisting of three or more directors, of whom at least one shall be an independent director.

Companies meeting these thresholds must spend at least 2% of their average net profits of the three immediately preceding financial years on CSR activities as specified in Schedule VII of the Act. Schedule VII lists eligible activities including eradicating hunger and poverty, promoting education, gender equality, environmental sustainability, healthcare, rural development, and protection of national heritage. Any unspent CSR amount must be transferred to a special Unspent Corporate Social Responsibility Account within 30 days of the financial year end, to be spent within three financial years, failing which the amount must be transferred to a Fund specified in Schedule VII (such as the PM National Relief Fund or PM CARES Fund).

Key Features

# Feature Details
1 Mandatory Spending Minimum 2% of average net profits of preceding 3 years
2 CSR Committee Board committee of 3+ directors (including 1 independent director)
3 Schedule VII Activities Education, healthcare, environment, poverty alleviation, gender equality, heritage
4 Compliance Reporting Annual CSR report to be included in the Board's Report
5 Unspent Amount Rules Transfer to special account; spend within 3 years or transfer to government fund
6 Exclusions Activities benefiting only employees and their families do not qualify
7 Geographic Preference Preference for local areas and areas around operations
8 Penalty for Non-Compliance Penalties under Section 135(7) including fines on company and officers

Application in Governance / Case Studies

Tata Group has historically been a pioneer in CSR in India, long before it became mandatory. Through the Tata Trusts (which hold ~66% equity in Tata Sons), the group has invested in transformative institutions — Indian Institute of Science (IISc, Bangalore), Tata Memorial Hospital (Mumbai), and the Tata Institute of Social Sciences (TISS). Their approach represents the trusteeship model that Mahatma Gandhi advocated.

Infosys Foundation focuses on healthcare, education, and rural development, running programmes including free hospital services, library networks, and mid-day meal schemes across Karnataka and other states. Infosys has consistently exceeded the 2% CSR spending threshold.

The National CSR Portal maintained by the Ministry of Corporate Affairs tracks CSR spending across India. India's total CSR expenditure has grown from approximately Rs. 10,000 crore in 2014-15 to over Rs. 26,000 crore annually, reflecting the impact of the mandatory framework. However, critics argue that mandatory CSR is essentially a tax on corporate profits rather than genuine social responsibility, and that it shifts welfare responsibility from the state to the private sector.

The 2021 amendment made it an offence for companies to fail to transfer unspent CSR amounts, with penalties including fines up to Rs. 1 crore and imprisonment of officers for up to 3 years.

UPSC Exam Corner

Prelims: Key Facts

  • CSR mandated under Section 135, Companies Act, 2013
  • Threshold: Rs. 500 crore net worth / Rs. 1,000 crore turnover / Rs. 5 crore net profit
  • Minimum spending: 2% of average net profits of preceding 3 years
  • Activities listed in Schedule VII of the Companies Act
  • CSR Committee must have minimum 3 directors, including 1 independent director
  • Unspent amounts must be transferred within 30 days of financial year end
  • Employee-only benefit activities are excluded from CSR

Mains: Probable Themes

  1. Evaluate India's mandatory CSR regime under the Companies Act, 2013
  2. Is mandatory CSR a tax on business or a tool for inclusive development?
  3. Discuss the ethical foundations of Corporate Social Responsibility
  4. How can CSR complement government welfare programmes in achieving SDGs?
  5. Compare voluntary and mandatory approaches to CSR with global examples

Sources: Section 135 — Companies Act 2013, ClearTax — CSR Under Section 135