Corporate Social Responsibility (CSR) is no longer an optional or philanthropic effort for businesses operating in India. Since the introduction of the CSR Act 2013, it has become a mandatory compliance requirement for many companies. While CSR globally is often voluntary, India stands out as one of the few nations where it is governed by law.
This article aims to demystify the applicability of CSR, explain how the CSR Act 2013 works, and discuss the broader corporate social responsibility of business in today’s socially conscious and sustainability-driven economy.
What Is Corporate Social Responsibility?
CSR refers to the responsibility that businesses have toward society and the environment. It includes any effort by companies to operate in ways that enhance rather than degrade society and the planet. The corporate social responsibility of business can range from environmental conservation to community development, education, healthcare initiatives, and much more.
In simple terms, CSR is about businesses giving back to the community while operating ethically and responsibly. However, in India, CSR is not just a matter of goodwill — it is a legal requirement for companies that meet certain thresholds.
A Look at the CSR Act 2013
The CSR Act 2013, formally known as Section 135 of the Companies Act, 2013, introduced a regulatory framework for CSR in India. This section makes it compulsory for companies meeting specific criteria to spend a portion of their profits on CSR activities.
Key Features of the CSR Act 2013:
- Applicable companies must form a CSR committee within the board of directors.
- These companies must allocate at least 2% of their average net profits from the previous three financial years toward CSR.
- CSR activities must fall within specified areas listed under Schedule VII of the Companies Act, such as education, health, environmental sustainability, and rural development.
- A detailed report of CSR activities and expenditure must be included in the annual board report.
- Non-compliance must be explained, and penalties may be applicable.
This act transformed CSR from a voluntary action to a structured, reportable legal responsibility.
Applicability of CSR: Who Must Comply?
Understanding the applicability of CSR is critical for businesses operating in India. According to the CSR Act 2013, companies that meet any one of the following financial criteria during a financial year are required to comply:
- Net worth of ₹500 crore or more
- Annual turnover of ₹1,000 crore or more
- Net profit of ₹5 crore or more
Once a company qualifies, it must spend at least 2% of the average net profits from the preceding three years on eligible CSR activities. If a company fails to spend this amount, it must disclose the reasons in its annual board report. In some cases, non-compliance may lead to financial penalties.
It’s important to note that the CSR requirements apply to both private and public companies, including subsidiaries and foreign companies with operations in India.
Why Is CSR Important for Businesses?
While compliance is one side of the story, understanding the corporate social responsibility of business as a strategic advantage is equally important. Companies that actively invest in CSR see various benefits beyond fulfilling a legal requirement:
- Enhanced brand image: Consumers increasingly prefer socially responsible brands.
- Investor attraction: Ethical companies attract better and more sustainable investment.
- Improved employee morale: CSR programs create a sense of pride and engagement among staff.
- Stronger community relations: A positive relationship with local communities leads to smoother operations and better stakeholder support.
- Long-term sustainability: CSR aligns business operations with global sustainability goals and national priorities.
Focus Areas for CSR Initiatives
The CSR Act 2013 outlines specific focus areas for CSR activities. These include:
- Promoting education, especially among disadvantaged groups
- Ensuring environmental sustainability and conservation
- Providing healthcare and sanitation
- Supporting gender equality and women empowerment
- Eradicating poverty, hunger, and malnutrition
- Disaster relief and pandemic response
Companies are encouraged to design CSR strategies that align with both their core values and the needs of the community.
Conclusion
The applicability of CSR under the CSR Act 2013 is a vital part of the legal and ethical framework for businesses operating in India. Companies that fall under the specified financial criteria must not only comply with the law but also approach CSR as a long-term investment in sustainable development.
Understanding the corporate social responsibility of business is not just about following regulations — it’s about making a lasting impact on society and building a brand that is trusted, responsible, and future-ready.
