CSR and Social Governance · CSR Policy

Formulation of CSR Policy and Schedule VII Activities

Updated 11 October 2026 · Fact-checked

A CSR Policy is a written plan, formulated and recommended by the CSR Committee and approved by the Board under Section 135. It states the Schedule VII activities the company will undertake and the amount to spend. The Board discloses its contents in the Board's report and places it on the company's website, if any.

Understand Formulation of CSR Policy and Schedule VII Activities

A company covered by Section 135 cannot spend on CSR in an ad hoc way. The Act first asks for a CSR Policy. This is the document that tells everyone what the company will do for society, and how.

The process has three steps. First, the CSR Committee formulates the policy and recommends it to the Board. Section 135(3) says the policy must indicate the activities to be undertaken by the company in areas or subjects specified in Schedule VII. The Committee also recommends the amount of expenditure on those activities and monitors the policy from time to time.

Second, the Board acts on the recommendation. Under Section 135(4), the Board takes the Committee's recommendations into account, approves the policy, and discloses its contents in its report. It also places the policy on the company's website, if any, in the manner prescribed. The Board must also ensure that the activities in the policy are actually undertaken.

Third, the policy is linked to spending. Section 135(5) requires the company to spend at least two per cent of the average net profits of the three immediately preceding financial years in pursuance of its CSR Policy. The company must give preference to the local area and areas around it where it operates.

Schedule VII is the list of permitted subject areas. A policy that lists activities outside Schedule VII is defective, and spending on them will not count as CSR. Where the amount to be spent does not exceed fifty lakh rupees, Section 135(9) says no Committee is needed, and the Board itself performs the Committee's functions, including formulating the policy. The detailed content of the policy and the full wording of the Schedule VII items are in the CSR Rules and Schedule VII. Revise those from the study material, as they are not set out in the text of the section.

Key rules to remember

Who formulates the policy: CSR Committee formulates and recommends → Board approves; Section 135(3)(a) and 135(4)(a). If the amount to be spent is up to ₹50 lakh, the Board performs the Committee's functions (Section 135(9)).
Content of the policy: Activities in areas or subjects in Schedule VII + recommended expenditure + monitoring; Section 135(3). The Committee recommends the amount of expenditure on the activities.
Board's duties on the policy: Approve policy + disclose contents in Board's report + place on website, if any + ensure activities are undertaken; Section 135(4). The website display is in the manner prescribed.
Minimum CSR spend: At least 2% × average net profit of the 3 immediately preceding financial years; Section 135(5). Net profit is calculated under Section 198. Preference goes to the local area and areas around it.
Committee composition disclosure: Composition of CSR Committee is disclosed in the Board's report; Section 135(2), read with Section 134(3).
Default penalty on company: Lower of (2 × amount required to be transferred) and ₹1 crore; Section 135(7), for default in Section 135(5) or (6).
Default penalty on officer: Lower of (1/10 of amount required to be transferred) and ₹2 lakh; Section 135(7), for every officer in default.

How to solve Formulation of CSR Policy and Schedule VII Activities questions

Use this method for any question on framing a CSR Policy or on Schedule VII activities. Answer in the order provision, facts, conclusion.

1Identify what is asked: who formulates the policy, what it contains, whether an activity is permitted, or how it is disclosed.
2State the rule from Section 135 in plain words. Name the sub-section, for example 135(3) for the Committee and 135(4) for the Board.
3Check whether the company needs a Committee. If the amount to be spent is not more than ₹50 lakh, the Board does the Committee's work under Section 135(9).
4Test each activity in the facts against Schedule VII. Ask whether it falls under a listed subject area, and whether it benefits the public rather than only the company.
5Check the process: Committee recommendation, Board approval, disclosure of contents in the Board's report and display on the website, if any.
6Check the spend link: the policy must support spending of at least 2% of the three-year average net profit, with preference to the local area.
7Write a clear conclusion in one or two lines, and add a practical drafting or compliance point such as a Board resolution or website upload.

Quickest way: Four-question check for CSR Policy answers

When to use it: Use when a case question gives a company, a list of proposed activities and asks if the policy is valid.

Who? Committee formulates and recommends, Board approves.
What? Schedule VII activities, the expenditure recommended, and a monitoring mechanism.
Where shown? Board's report and the company's website, if any.
How much? At least 2% of the average net profit of the three preceding years, with local area preference.

Common mistakes in Formulation of CSR Policy and Schedule VII Activities

Saying the CSR Committee approves the CSR Policy.
Students mix up the Committee's role with the Board's role.
Fix: Remember: the Committee formulates and recommends, the Board approves. Section 135(3) and 135(4) are separate.
Writing that the full policy must be printed in the Board's report and also on the website.
The word disclose is read loosely.
Fix: The Act says the Board discloses the contents of the policy in its report and places the policy on the website, if any, in the prescribed manner.
Treating every social spend as CSR.
Students assume any charity counts.
Fix: Only activities falling in the subjects in Schedule VII count. Always map the activity to the Schedule before concluding.
Insisting that a company with a small CSR obligation must form a Committee.
Section 135(1) is remembered but Section 135(9) is forgotten.
Fix: If the amount to be spent under Section 135(5) does not exceed ₹50 lakh, the Committee is not required and the Board discharges its functions.
Stating the 2% on the current year's profit.
Confusion with the thresholds in Section 135(1).
Fix: The spend is at least 2% of the average net profit of the three immediately preceding financial years, computed under Section 198 and excluding prescribed sums.

Worked examples

Example 1

Sundaram Textiles Ltd is covered by Section 135. Its CSR Committee has drafted a CSR Policy listing education for rural girls, a tree plantation drive and a sponsorship of its own brand advertisement. Advise the Board on approving and disclosing the policy.

Show the solution

Provision: under Section 135(3)(a) the policy must indicate activities in areas or subjects specified in Schedule VII. Under Section 135(4)(a) the Board approves it after considering the Committee's recommendations.
Facts: education and tree plantation fall in subject areas that Schedule VII covers, namely education and environmental sustainability. Advertising the company's own brand is not a social activity and does not fit Schedule VII.
Conclusion on content: the Board should remove the brand advertisement item before approval. Spending on it would not count towards the CSR obligation.
Disclosure: the Board must disclose the contents of the approved policy in its report and place it on the company's website, if any, in the prescribed manner.
Compliance point: record the approval by a Board resolution, and ensure the policy also states the recommended expenditure and monitoring arrangement.

Answer: The Board may approve the policy only after deleting the brand advertisement item, which is not a Schedule VII activity. It must then disclose the policy's contents in its report and place it on the website, if any.

Example 2

Kaveri Foods Ltd has an average net profit of ₹8 crore for the three preceding financial years, as calculated under Section 198. Its CSR obligation is therefore below the level that needs a Committee. Who formulates its CSR Policy, and what is the minimum amount to be spent?

Show the solution

Compute the minimum spend under Section 135(5): 2% × ₹8,00,00,000 = ₹16,00,000.
Check Section 135(9): the amount to be spent is ₹16 lakh, which does not exceed ₹50 lakh.
Result: the requirement to constitute a CSR Committee does not apply. The Board of Directors discharges the Committee's functions.
Therefore the Board itself formulates the CSR Policy, recommends the expenditure and monitors the policy.
The Board must still approve the policy, disclose its contents in its report and place it on the website, if any.

Answer: The minimum CSR spend is ₹16,00,000. As this is below ₹50 lakh, no Committee is needed and the Board formulates and approves the CSR Policy itself, with the same disclosures.

Exam tips

Quote the sub-section number with each point: 135(3) for the Committee, 135(4) for the Board, 135(5) for spending and 135(9) for the Board doing the Committee's work.
In case questions, test every proposed activity against Schedule VII and say clearly which items fail.
Add one practical drafting point, such as a Board resolution approving the policy or a website upload, to earn the compliance marks.
Do not quote Schedule VII items from memory if you are unsure. Name the subject area in general terms, such as education, health or environment, and stay accurate.

Practice questions from CSR Policy

Formulation of CSR Policy and Schedule VII Activities in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Formulation of CSR Policy and Schedule VII Activities: frequently asked questions

Who approves the CSR Policy of a company?

The Board approves it, after taking into account the recommendations of the CSR Committee. The Committee only formulates and recommends the policy. This is set out in Section 135(3) and 135(4).

Is it compulsory to put the CSR Policy on the website?

The Board must place the policy on the company's website, if any, in the prescribed manner. It must also disclose the contents of the policy in its report. If the company has no website, the website requirement does not arise.

What does a CSR Policy have to contain?

Under Section 135(3), it must indicate the activities the company will undertake in areas or subjects specified in Schedule VII. The Committee also recommends the amount of expenditure on those activities and monitors the policy. The CSR Rules add further detail that you should revise from the study material.

Does a small company need a CSR Committee to frame the policy?

If the amount to be spent under Section 135(5) does not exceed ₹50 lakh, the Committee requirement does not apply. The Board then discharges the Committee's functions, including framing the policy.