CSR and Social Governance · Guidelines on CSR

Schedule VII CSR Activities and CSR Policy Rules

Updated 11 October 2026 · Fact-checked

Schedule VII to the Companies Act, 2013 lists the areas in which a company can spend its CSR money, such as health, education, environment and rural development. The CSR Policy Rules add what is excluded and how to implement through agencies. To solve a question, match the activity to an item, check exclusions, then check the implementing route.

Understand Schedule VII Activities and CSR Policy Rules

Section 135 tells a company that qualifies on net worth, turnover or net profit to spend at least two per cent of its average net profit of the three preceding financial years on CSR. The CSR Policy must indicate the activities to be undertaken in areas or subjects specified in Schedule VII. So Schedule VII is the menu. If an activity is not covered by it, the spend does not count as CSR.

Schedule VII has twelve broad items. They cover hunger, poverty, health, sanitation and safe drinking water; education and vocational skills; gender equality, women, orphans and old age homes; environment, animal welfare and conservation; national heritage, art and culture; armed forces veterans and their dependents; rural, Paralympic and Olympic sports; contributions to specified Government relief funds; funded technology incubators and research; rural development; slum area development; and disaster management. Read the items as a broad list. The wording is wide, so the Board's job is to fit the project to the words.

The Companies (Corporate Social Responsibility Policy) Rules, 2014 work as the operating manual. They define CSR activities and state what is excluded. In general, these do not count: activities in the normal course of business, activities outside India (with a narrow exception for training Indian sports personnel), contributions to political parties, activities that benefit only employees and their families, sponsorships that mainly serve marketing, and spending that merely meets a statutory obligation under another law. Always apply the exclusions after you match Schedule VII.

The Rules also deal with how the money is spent. A company may carry out CSR itself, or through an implementing agency such as a Section 8 company, a registered trust or a registered society, with the agency registered with the Registrar on Form CSR-1. An agency not set up by the company, or by the Central or a State Government, must have a track record of three years in similar activities. Administrative overheads are capped at five per cent of the total CSR expenditure for the year. Companies may also pool resources with other companies, and the Board and the CSR Committee stay accountable for monitoring.

Section 135 itself sets the money trail. Preference goes to the local area and areas around it where the company operates. Unspent money for an ongoing project goes within thirty days from the end of the financial year to the Unspent CSR Account, and must be spent within three financial years. Other unspent money goes to a Fund specified in Schedule VII within six months of the expiry of the financial year.

Key rules to remember

Minimum CSR spend: CSR spend ≥ 2% × average net profit of the three immediately preceding financial years; Net profit is calculated as per section 198 and excludes the sums prescribed. A company that has not completed three years since incorporation uses the immediately preceding years it has.
Test for counting an activity: Counts as CSR = falls within a Schedule VII item + not excluded by the CSR Rules + implemented through a permitted route; Apply all three tests in this order in your answer.
Administrative overheads cap: Admin overheads ≤ 5% of total CSR expenditure of the financial year; The cap applies to total CSR expenditure of the year, not to the obligation.
Implementing agency conditions: Section 8 company / registered trust / registered society + Form CSR-1 registration + 3-year track record (if not set up by the company or Government); The agency must be eligible and registered before it receives CSR funds.
Unspent amount, ongoing project: Transfer to Unspent CSR Account within 30 days from the end of the financial year; spend within 3 financial years from transfer; On failure, transfer to a Schedule VII Fund within 30 days of completion of the third financial year.
Unspent amount, other than ongoing project: Transfer to a Schedule VII Fund within 6 months of the expiry of the financial year; The Board report must also give reasons for not spending.
Penalty for default (sub-sections (5) and (6)): Company: lower of 2 × amount required to be transferred or ₹1 crore. Officer in default: lower of 1/10 of that amount or ₹2 lakh; Taken from section 135(7).

How to solve Schedule VII Activities and CSR Policy Rules questions

Use this order for any question asking whether a spend is valid CSR or how to implement a project. Answer in the form: provision, facts, conclusion.

1Identify the company and confirm that section 135 applies on net worth, turnover or net profit in the immediately preceding financial year.
2Name the activity in the facts and match it to a specific Schedule VII item. Quote the item in your own words.
3Test the activity against the exclusions in the CSR Rules: normal course of business, outside India, political party, employees only, marketing, statutory obligation.
4Check where the benefit goes. Local area gets preference, and the benefit must reach the community and not the company or its staff.
5Decide the implementation route: directly, through the company's own foundation or Section 8 company, or through another registered agency with Form CSR-1 and the required track record. Note the five per cent overhead cap.
6Check the money trail: ongoing project or not, Unspent CSR Account or Schedule VII Fund, and the time limits.
7Conclude clearly: eligible or not eligible, with the reason, and add the practical compliance step such as a Board resolution or a disclosure in the Board report.

Quickest way: Three-gate check

When to use it: Use it for short-note and one-line-decision questions where time is tight.

Gate 1: write the matching Schedule VII item in one line. No item means no CSR.
Gate 2: write one exclusion check. State that the activity is not in normal business, not for employees only, not a political contribution and not outside India.
Gate 3: name the route (direct or registered agency with CSR-1) and the timeline for any unspent amount.
Close with a one-sentence conclusion that repeats the gate results.

Common mistakes in Schedule VII Activities and CSR Policy Rules

Treating every charitable or social spend as CSR.
Students go by the meaning of the word 'social' instead of the statute.
Fix: Anchor to a Schedule VII item first. If you cannot name one, say the spend is not eligible.
Forgetting the exclusions after matching Schedule VII.
The activity looks like health or education, so students stop checking.
Fix: Always run the exclusions: business as usual, employees only, political contributions, marketing and outside India.
Saying any NGO can receive CSR funds.
Students overlook the registration and track record conditions.
Fix: State that the agency must be a Section 8 company, registered trust or registered society, and must hold Form CSR-1 registration. State the three-year track record condition where it applies.
Mixing up the two unspent-amount routes.
Both involve transfers with different limits and destinations.
Fix: Remember: ongoing project goes to the Unspent CSR Account within 30 days. Other unspent goes to a Schedule VII Fund within six months.
Applying the five per cent overhead cap to the CSR obligation.
Students read the cap loosely.
Fix: Apply it to the total CSR expenditure of the year, as in the Rules.
Giving the penalty as a fixed sum.
Students recall only the ₹1 crore and ₹2 lakh figures.
Fix: State both limbs: the company pays the lower of twice the amount or ₹1 crore, and the officer in default pays the lower of one-tenth of the amount or ₹2 lakh.

Worked examples

Example 1

Arvind Textiles Ltd, a qualifying company, plans three spends this year: (a) funding a village drinking water scheme near its factory in Tiruppur, (b) a donation to a political party, and (c) a training programme for its own workers' children only. State which count as CSR.

Show the solution

(a) Safe drinking water is within the first Schedule VII item on hunger, poverty, health, sanitation and safe drinking water. The village is near the factory, so the local-area preference is met. No exclusion applies.
(b) A political party contribution is excluded under the CSR Rules and has no Schedule VII item. It is not CSR.
(c) Education may fall within a Schedule VII item, but a benefit restricted to employees and their families is excluded. It is not CSR. A programme open to children of the surrounding community would qualify.

Answer: Only (a) counts as CSR. (b) and (c) fail on the exclusions.

Example 2

Meera Pharma Ltd has an average net profit of ₹50 crore for the three preceding financial years. It spends the full amount through a registered trust, Shiksha Trust, formed 18 months ago and not set up by the company, and wants to use ₹8 lakh for the trust's administration. Advise on the CSR amount, the agency and the overhead.

Show the solution

Obligation: 2% × ₹50,00,00,000 = ₹1,00,00,000 (₹1 crore).
Agency: a registered trust is a permitted type, and it must hold Form CSR-1 registration. Because it was not set up by the company or the Government and is only 18 months old, the three-year track record condition is not met. The company should not route funds through it.
Overhead: if the company spends ₹1 crore, the cap is 5% × ₹1,00,00,000 = ₹5,00,000. The ₹8 lakh proposed exceeds this cap by ₹3,00,000.
Advice: choose an eligible agency with three years' track record and CSR-1, or implement directly, and limit administrative overheads to ₹5 lakh. Record the decision by Board resolution on the CSR Committee's recommendation.

Answer: The obligation is ₹1 crore. Shiksha Trust does not meet the track record condition, and administrative overheads cannot exceed ₹5,00,000.

Exam tips

Begin every answer with the Schedule VII item number or its description. Examiners reward the link between the facts and the item.
In case-based questions, list the exclusions one by one against the facts. Do not write 'excluded' without saying which exclusion applies.
For implementing agency questions, give a checklist: type of entity, Form CSR-1, track record, overhead cap, monitoring by the Board.
When money is involved, show the two per cent calculation and the five per cent overhead step in a line each. It secures method marks.
End with a practical point, such as the Board resolution, the Board report disclosure or the website disclosure of the policy.

Practice questions from Guidelines on CSR

Schedule VII Activities and CSR Policy Rules in other exams

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

Schedule VII Activities and CSR Policy Rules: frequently asked questions

What are the main CSR activities in Schedule VII?

Schedule VII has twelve broad items. They include hunger, health, sanitation and safe drinking water, education and skills, gender equality, environment, heritage and culture, armed forces veterans, sports, relief funds, research funding, rural development, slum development and disaster management.

Which activities are excluded from CSR expenditure?

Under the CSR Rules, normal business activities, activities outside India (with a narrow sports training exception), political party contributions, activities benefiting only employees and their families, marketing sponsorships and spends meeting a statutory obligation under another law do not count.

How can a company implement CSR through an implementing agency?

It can use a Section 8 company, a registered trust or a registered society. The agency must register with the Registrar on Form CSR-1, and if it was not set up by the company or the Government it must have a three-year track record in similar activities.

Does the CSR Committee decide the Schedule VII activities?

The Committee formulates and recommends the CSR Policy, indicating the activities, and recommends the amount. The Board approves the policy and must ensure that the activities are undertaken. Where the amount to be spent is up to fifty lakh rupees, the Board discharges the Committee's functions.

Is the Schedule VII list an open list?

It is a list of specified areas or subjects, and the policy must indicate activities in those areas. The wording of the items is broad, so many projects fit, but an activity with no matching item cannot be counted.