CSR Schedule VII for FY 2025-26 and Form CSR-1 Registration: The 2 Percent Average Net Profit Trigger, the Eligible Activities List, and the Implementing Agency Workflow

Abstract

Corporate Social Responsibility under Section 135 of the Companies Act, 2013 has moved from a comply-or-explain regime to a strict spend-or-transfer regime through the Companies (Amendment) Act, 2019 and the Companies (Amendment) Act, 2020. Every company crossing the net worth, turnover, or net profit threshold must spend at least 2 percent of average net profits on Schedule VII activities. Unspent amounts must be transferred to the Unspent CSR Account or to a Schedule VII fund within prescribed timelines. Implementing agencies must register through Form CSR-1 before receiving CSR contributions. Impact assessment is mandatory for larger CSR programmes. This article walks through the FY 2025-26 CSR architecture covering the threshold triggers, the 2 percent computation, Schedule VII activities, the Form CSR-1 workflow, the unspent CSR mechanics, and the impact assessment requirement.

Related: MCA Compliance · Section 8 Company Registration · CSR Advisory

Introduction

The 2013 Companies Act introduced India's first statutory CSR mandate, an unusual policy choice that aligned spending obligations with profitability thresholds rather than treating philanthropy as voluntary. The original regime was comply-or-explain. Companies that fell short of the 2 percent target could disclose the reasons in the Board's Report without further consequence. The 2019 and 2020 amendments tightened the framework by introducing the Unspent CSR Account mechanism, the penalty regime, the Form CSR-1 registration requirement for implementing agencies, and the impact assessment obligation for larger programmes.

For FY 2025-26, the CSR framework is in steady state. The compliance discipline is high, the penalty exposure for non-compliance is material, and the reporting in the Board's Report and Form AOC-4 is granular. The single highest-leverage shift for boards is to plan the CSR programme as an ongoing project portfolio with a multi-year deployment horizon, allowing use of the Unspent CSR Account route for amounts that cannot be spent in the year of accrual.

The legislative framework

Section 135(1) of the Companies Act, 2013 establishes the threshold. Every company having net worth of five hundred crore rupees or more, or turnover of one thousand crore rupees or more, or net profit of five crore rupees or more during the immediately preceding financial year, must constitute a CSR Committee.

Section 135(5) requires the Board to ensure that the company spends, in every financial year, at least 2 percent of the average net profits of the three immediately preceding financial years pursuant to the CSR Policy.

Section 135(6) requires unspent amounts relating to ongoing projects to be transferred to the Unspent CSR Account within 30 days from the end of the financial year, with a three-year spending window.

Section 135(7) prescribes the penalty for failure to spend or transfer, twice the amount of the unspent CSR obligation or one crore rupees, whichever is less, plus a penalty on every officer in default.

Schedule VII lists the eligible activities.

Companies (CSR Policy) Rules, 2014, Rule 4(2) requires implementing agencies to register on the MCA portal through Form CSR-1.

Rule 8(3) mandates impact assessment for larger CSR programmes.

The 2 percent computation

The 2 percent computation is on the average net profits of the three immediately preceding financial years. Net profit is defined under Section 198 of the Companies Act, with specified adjustments. The Section 198 net profit is not the same as the profit before tax in the financial statements or the tax-base profit, the company must run a separate computation.

For FY 2025-26, the CSR obligation is computed as:

CSR obligation = 2 percent of (average of Section 198 net profits for FY 2022-23, FY 2023-24, and FY 2024-25)

Where a company has not completed three financial years, the average is computed on the financial years for which data is available.

Schedule VII eligible activities

Schedule VII lists eleven categories of permitted CSR activities. The categories are broad but not unlimited. KAMRIT clients run a standard Schedule VII matrix at programme design stage to ensure every project maps to a specific Schedule VII clause.

The categories include:

1. Eradicating hunger, poverty, and malnutrition; promoting healthcare including preventive healthcare and sanitation
2. Promoting education including special education and employment-enhancing vocational skills
3. Promoting gender equality, empowering women, and setting up old age homes
4. Ensuring environmental sustainability, ecological balance, and protection of flora and fauna
5. Protection of national heritage, art, and culture
6. Measures for the benefit of armed forces veterans, war widows, and their dependents
7. Training to promote rural, nationally recognised, paralympic, or Olympic sports
8. Contribution to the PM National Relief Fund or any other fund set up by the Central Government
9. Contributions to incubators or research and development projects in the field of science, technology, engineering, and medicine funded by the Central or State Government
10. Rural development projects
11. Slum area development

Activities outside Schedule VII do not qualify even if they are charitable in nature.

The Form CSR-1 implementing agency workflow

Every implementing agency receiving CSR funds must register through Form CSR-1 on the MCA portal. The form requires:

• PAN of the entity
• Certificate of registration as Section 8 company, registered trust, or registered society
• 12A and 80G registrations under the Income Tax Act
• Names and details of the governing body
• Bank account details for CSR receipts
• A digital signature of the authorised signatory

On approval, the MCA issues a CSR Registration Number which must be quoted in the CSR contribution agreement and in the annual CSR report of the contributing company.

The contributing company must verify the CSR Registration Number of the implementing agency before transferring funds. A transfer to an unregistered agency does not count as a CSR spend.

The Unspent CSR Account mechanism

Where the company has identified ongoing projects but cannot spend the full CSR allocation within the financial year, the unspent amount must be transferred to an Unspent Corporate Social Responsibility Account opened with a scheduled commercial bank. The transfer must happen within 30 days from the end of the financial year.

The amount in the Unspent CSR Account must be spent on the ongoing project within three financial years from the date of transfer. Any amount remaining unspent after three years must be transferred to a Schedule VII fund.

Where the unspent amount does not relate to an ongoing project, the company must transfer the amount directly to a Schedule VII fund (such as the PM National Relief Fund) within six months from the end of the financial year.

Impact assessment under Rule 8(3)

Rule 8(3) requires impact assessment for companies with average CSR obligation of ten crore rupees or more in the three immediately preceding financial years. Every project of one crore rupees or more completed at least one year before must undergo impact assessment by an independent agency.

The cost of impact assessment can be included in the CSR spend, up to 2 percent of the total CSR expenditure or fifty lakh rupees, whichever is higher.

The impact assessment report should be disclosed in the Board's Report and submitted to the CSR Committee.

Talk to KAMRIT

KAMRIT advises companies on the full CSR compliance architecture including the Section 198 net profit computation, the Schedule VII project mapping, the Form CSR-1 verification of implementing agencies, the Unspent CSR Account setup, the impact assessment workflow, and the AOC-4 and Board's Report disclosure. Talk to KAMRIT before the financial year-end to plan your FY 2025-26 CSR deployment, identify ongoing projects, and prevent the penalty exposure under Section 135(7).

References

1. Companies Act, 2013, Section 135 and Section 198.
2. Schedule VII to the Companies Act, 2013.
3. Companies (CSR Policy) Rules, 2014, Rule 4 and Rule 8.
4. MCA portal Form CSR-1 workflow.
5. Companies (Amendment) Act, 2019 and 2020.