Environmental, Social and Governance (ESG) - Principles and Practice · Corporate Social Responsibility (CSR)

Schedule VII CSR Activities and Implementation Modes

Updated 11 October 2026 · Fact-checked

Schedule VII lists the areas in which a company may spend its CSR money under section 135. A company can undertake these activities directly or through an implementing agency such as a registered trust, society or section 8 company. Agencies need CSR-1 registration. Political contributions are not CSR.

Understand Schedule VII Activities and Implementation Modes

Section 135 of the Companies Act, 2013 makes certain companies spend at least two per cent of average net profits of the three immediately preceding financial years on CSR. The law does not leave the choice of activity entirely open. The CSR Committee must recommend a CSR Policy that indicates activities to be undertaken in areas or subjects specified in Schedule VII.

So Schedule VII answers the question: what can we spend on? Broadly, it covers themes such as eradicating hunger, poverty and malnutrition, health care and sanitation, education, gender equality and women empowerment, environmental sustainability and animal welfare, protection of national heritage, art and culture, support to armed forces veterans, rural development, sports, slum area development and contributions to specified funds. Treat this as a theme list. In the exam, name the theme that fits the facts and do not claim an exact item number unless you are sure of it.

Then there is the second question: how can we spend it? The Board must ensure the activities in the CSR Policy are undertaken by the company. In practice, a company may carry out projects directly through its own team, or through an implementing agency. Such agencies are commonly a section 8 company, a registered public trust or a registered society, which may be set up by the company itself, by the company with others, or by an outside body. A company may also collaborate with other companies on a project, provided each reports its own share separately.

The rules on registration, the CSR-1 form and the exact conditions come from the CSR Rules, not from section 135 itself. Keep this split in mind. The Act sets the duty, the committee, the spending level, the unspent-amount transfer and the penalty. The Rules fill in details on eligible activities, agencies and reporting.

A few things never count as CSR. Section 182 allows political contributions, with Board resolution and disclosure, but these are a separate matter and are not CSR spending. Spending that mainly benefits the company's own employees, or that is a normal part of business, is not meant to qualify. Section 135 also asks the company to give preference to the local area and areas around it where it operates.

Key rules to remember

Minimum CSR spend: CSR spend ≥ 2% × average net profit of the three immediately preceding financial years; Net profit is calculated under section 198, excluding sums prescribed. If the company has not completed three years since incorporation, use the immediately preceding years available.
Activities test: Eligible activity = falls within an area or subject specified in Schedule VII and is included in the Board-approved CSR Policy; Section 135(3)(a) links the policy to Schedule VII areas or subjects.
Local area preference: Preference to the local area and areas around where the company operates; This is a proviso to section 135(5). It is a preference, not a ban on spending elsewhere.
Implementation modes: Direct by company, or through implementing agency (section 8 company, registered trust or registered society), or jointly with other companies; The CSR Rules govern agencies and CSR-1 registration. Write this as a Rules point, without quoting a rule number you are unsure of.
Unspent amount, ongoing project: Transfer within 30 days from end of financial year to Unspent CSR Account; spend within 3 financial years; else transfer to a Schedule VII Fund within 30 days of the third year ending; Section 135(6).
Unspent amount, other than ongoing project: Transfer to a Fund specified in Schedule VII within six months of expiry of the financial year; Section 135(5), second proviso, with reasons in the Board's report.
Penalty: Company: twice the amount to be transferred or ₹1 crore, whichever is less. Officer in default: one-tenth of that amount or ₹2 lakh, whichever is less; Section 135(7).
Committee relaxation: If CSR amount ≤ ₹50 lakh, no CSR Committee; Board performs its functions; Section 135(9).

How to solve Schedule VII Activities and Implementation Modes questions

Use this order for any case question on Schedule VII activities or how the company carried out its CSR.

1Check that section 135 applies: net worth ₹500 crore or more, turnover ₹1,000 crore or more, or net profit ₹5 crore or more in the immediately preceding financial year.
2Identify the activity in the facts and match it to a Schedule VII theme such as education, health, environment, rural development or sports.
3Check that the activity is in the CSR Policy approved by the Board on the CSR Committee's recommendation.
4Identify the mode: direct, implementing agency, or joint with other companies. Note who runs the project.
5If an agency is used, check it is a registered trust, registered society or section 8 company and holds CSR-1 registration under the CSR Rules.
6Rule out non-CSR items such as political contributions, employee-only benefits and ordinary business activity.
7Check the local area preference and any unspent amount, and apply section 135(5) or 135(6).
8Conclude clearly: eligible or not, and what the company must do.

Quickest way: Theme, mode, exclusion check

When to use it: Use when the question lists a spending item and asks if it counts as CSR.

Name the Schedule VII theme in one line. If none fits, say it is not eligible.
Name the mode and check the agency is registered with CSR-1.
Scan for exclusions: political party, employees only, business-linked spending.
Add the section 135 duty: Board approval and local area preference.
Write the conclusion in one sentence.

Common mistakes in Schedule VII Activities and Implementation Modes

Treating a political contribution as CSR spend.
Both are donations by a company and both involve the Board.
Fix: Remember section 182 is a separate regime with its own Board resolution and disclosure rules. Political contributions do not count towards the two per cent.
Counting employee welfare or normal business spending as CSR.
Students see 'social benefit' and assume it qualifies.
Fix: CSR must fall under a Schedule VII theme and benefit the intended beneficiaries. Benefits only for employees or routine business costs do not fit.
Saying any NGO can receive CSR funds.
Students ignore the registration requirement.
Fix: State that the implementing agency must be a registered trust, society or section 8 company with CSR-1 registration under the CSR Rules.
Quoting exact Schedule VII item numbers from memory.
Students try to look precise.
Fix: Name the theme in words. A wrong item number loses marks, a right theme earns them.
Mixing the two unspent-amount routes.
Both are in section 135 and both mention a Schedule VII Fund.
Fix: Ongoing project: Unspent CSR Account within 30 days, then three years. Otherwise: Fund within six months of year end.
Assuming local area preference means spending only locally.
The word 'preference' is read as 'only'.
Fix: The proviso requires preference, not exclusivity. Spending elsewhere is possible if justified.

Worked examples

Example 1

Surya Textiles Ltd, with net profit of ₹8 crore last year, plans CSR spending as follows: (a) funding a school building in a village near its plant through a registered trust, (b) ₹20 lakh to a registered political party, (c) a staff picnic for its own employees. Which items can count as CSR?

Show the solution

Section 135 applies as net profit is ₹5 crore or more in the immediately preceding year.
Item (a): education is a Schedule VII theme, and the village is in the local area where the company operates, which section 135(5) says to prefer. Using a registered trust is an accepted mode, provided the trust holds CSR-1 registration and the project is in the Board-approved CSR Policy.
Item (b): a political contribution falls under section 182, which has its own rules for Board resolution and disclosure. It is not a CSR activity.
Item (c): a picnic for own employees benefits only staff and is not within a Schedule VII theme.

Answer: Only item (a) counts as CSR, subject to the trust's CSR-1 registration and the project being in the CSR Policy. Items (b) and (c) do not count.

Example 2

Meera Pharma Ltd's CSR obligation for the year is ₹60 lakh. It spends ₹40 lakh on a rural drinking water project run by an unregistered charitable body, and ₹20 lakh through its own team on sanitation in a nearby town. Advise on the compliance position.

Show the solution

Both themes, water and sanitation, relate to Schedule VII areas such as health, sanitation and rural development, so the activities are eligible by subject.
The ₹20 lakh spent directly by the company is an accepted mode, if the project is in the CSR Policy.
The ₹40 lakh was routed through an unregistered body. Under the CSR Rules an implementing agency must be registered and hold CSR-1 registration, so this mode is defective.
As the obligation is ₹60 lakh, which is above ₹50 lakh, section 135(9) relief does not apply and a CSR Committee is needed.
If the ₹40 lakh does not count, the amount is unspent. If it is not an ongoing project, the unspent amount goes to a Schedule VII Fund within six months of year end, with reasons in the Board's report. If it is an ongoing project, it goes to the Unspent CSR Account within 30 days. Default attracts the penalty in section 135(7).

Answer: The ₹20 lakh direct spend is valid. The ₹40 lakh is not properly implemented because the agency is unregistered. The company should use a registered agency with CSR-1 registration, or deal with the shortfall under section 135(5) or 135(6) to avoid penalty under section 135(7).

Exam tips

Tie every activity to a Schedule VII theme in words, then state the mode. Examiners reward this two-step link.
Keep the Act and the Rules separate in your answer. Section 135 sets duty and penalty. The Rules handle agency registration and reporting.
In case studies, always test for exclusions: political party, employees only, ordinary business.
Learn the two unspent-amount routes as a pair and write the time limits exactly.
Finish with a clear conclusion and a compliance step, such as Board resolution or reporting in the Board's report.

Practice questions from Corporate Social Responsibility (CSR)

Schedule VII Activities and Implementation Modes 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 Implementation Modes: frequently asked questions

What is Schedule VII of the Companies Act, 2013?

It lists the areas or subjects in which a company's CSR activities may be undertaken. Section 135(3)(a) requires the CSR Policy to indicate activities in these areas. Themes include health, education, environment, rural development and sports.

Can a company spend CSR money on political contributions?

No. Political contributions fall under section 182, which has its own Board resolution and disclosure requirements. They do not count as CSR spending under section 135.

Is CSR-1 registration compulsory for implementing agencies?

Under the CSR Rules, an agency such as a registered trust, society or section 8 company must be registered with the CSR-1 form to receive CSR funds. Check the Rules for the exact conditions, as section 135 itself does not set them.

Can CSR funds be spent on employee welfare?

Spending that benefits only the company's own employees is not meant to qualify as CSR. The activity must fall within a Schedule VII theme and be in the Board-approved CSR Policy.

Can two companies undertake a CSR project together?

Yes, companies may collaborate on a project, and each reports its own share separately. Each must still follow the Schedule VII and Board-approval requirements.