Corporate Social Responsibility was once largely a matter of corporate choice. In India, it has gradually evolved to become an important part of the corporate governance framework. As the Government strengthens accountability around CSR expenditure, the response has understandably been mixed. The larger question is not whether CSR should be governed, but how that governance can create greater social impact without weakening the initiative, innovation and community connect that good CSR requires.

2% CSR Mandate: How Much Regulation Is Too Much?

Every board meting season, the same question resurfaces in Indian boardrooms: are we spending our CSR 2% wisely, or are we just spending it? A decade after Section 135 of the Companies Act, 2013 made India the only country in the world with a mandatory CSR law, that question has stopped being rhetorical. 2026 has brought the most significant rethink of the mandate since it was introduced — and it's worth asking, plainly, whether the regulation has done its job, or simply outgrown it.

The mandate, in brief

Under Section 135, every company crossing a prescribed net worth, turnover or net profit threshold must spend at least 2% of its average net profit from the preceding three financial years on CSR activities listed in Schedule VII. It applies uniformly to all public or private, Indian or a foreign subsidiary, the moment a single threshold is crossed. Companies must report the CSR policy, committee composition, the computed 2% figure, actual spend, and any shortfall, as part of their statutory filings.

On paper, it's elegant. A fixed percentage, a public disclosure, a committee to own it. In practice, it has spawned an entire compliance industry and a fair amount of box-ticking.

What's changing in 2026

Two regulatory initiatives this year indicates that the government senses the imposed mandate needs recalibration.

First, who has to comply is narrowing

The Corporate Laws (Amendment) Bill, 2026 proposes increasing the net profit threshold that triggers mandatory CSR from ₹5 crore to ₹10 crore effectively exempting a many of smaller companies from the 2% requirement. The stated intent is purely deregulatory, to reduce the compliance burden that mid-sized firms have carried since 2014. As of now, though, the bill is only proposed, and the existing ₹5 crore threshold remains legally binding until it's actually enacted — a useful reminder that "reform is coming" and "reform has arrived" are very different planning assumptions.

Second, how compliance can be met is widening.

In May 2026, the Ministry of Corporate Affairs notified the Companies (CSR Policy) Amendment Rules, 2026, aimed at upgrading CSR implementation and aligning it with newer financial instruments. The headline change: companies can now route part of their CSR spend through Zero Coupon Zero Principal (ZCZP) instruments issued by not-for-profits listed on India's Social Stock Exchange — a financial instrument that carries no interest and no repayment obligation, structured purely as a mechanism to channel and track social capital.

That's a meaningful shift in philosophy. For a decade of experimentation, CSR compliance has mostly meant grant-making through trusts and foundations. A market-linked, SEBI-regulated instrument turns it into impact investing with a paper trail, which is either a genuine upgrade in accountability, or one more structure for compliance teams to now understand, depending on who you ask inside the organization.

Meanwhile, the bill also proposes extending the window to transfer unspent CSR funds for ongoing projects from 30 to 90 days — a small, practical concession to how slowly on-ground projects actually move.

So — how much regulation is too much?

Is there a honest answer? it depends which decade of the mandate you're looking at.

The case that 2% was never "too much." A fixed, low percentage of profit, disclosed publicly, with no penal consequence for genuine shortfall (only for non-disclosure) is a light-touch design by regulatory standards. It didn't cap corporate discretion on where to spend — only ensured that something got spent, visibly. For an economy where private philanthropic infrastructure was thin in 2014, that forcing function arguably built an entire CSR ecosystem — implementation agencies, impact measurement firms, dedicated CSR heads — that didn't meaningfully exist before.

The case that it became too much.

The complaint was never really about the 2% figure. It was about what surrounded it, viz., rigid Schedule VII categorization (while the development overlapped grossly), board-level committee overhead for companies barely above the ₹5 crore threshold (few companies took very seriously while others met the mere compliance), and a reporting format detailed enough to absorbing real bandwidth often challenging in smaller firms with no dedicated CSR function neither a functionary. Raising the threshold to ₹10 crore is, in effect, ministries silent admission that the compliance cost was disproportionate at the margin, that a company with ₹5–10 crore in net profit was putting massive effort proving it spent 2% than the 2% itself was worth in social impact.

The more interesting tension: prescriptiveness versus outcomes. The ZCZP move signals a regulator less interested in how much is spent and more interested in how well it can be tracked and verified. That's arguably the more important axis than the 2% figure itself. A rigid 2% with weak tracking is worse regulation than a flexible 1.5% with real accountability — but that's not a trade Indian policy has been willing to make explicitly. Instead, it has kept the fixed percentage and layered on new instruments to improve traceability around it. Whether that ends up as thoughtful evolution or incremental complexity will depend entirely on execution over the next two reporting cycles.

What this means if you're planning FY 2026–27

• Don't budget against the ₹10 crore threshold immediately, It's still a bill, not a law. Until it's enacted, the ₹5 crore threshold is currently governing your obligation.

• Revisit your CSR committee's mandate now, not later. Every company under mandatory CSR is expected to revisit its CSR policy, board approvals and implementation channels before the next annual reporting cycle in light of the new rules, this isn't optional housekeeping.

• Understand ZCZP before dismissing it as niche. The instrument is only usable where issued by NPOs listed on a SEBI-recognised Social Stock Exchange, subject to new procedural and percentage limits, it won't replace your existing implementation partners, but it's a credible parallel track worth evaluating, particularly for companies wanting more measurable impact reporting to show the board.

• Treat "less regulation" and "less work" as separate questions. A higher threshold removes obligation for some; for everyone still inside it, the compliance bar via better tracking instruments is quietly going up, not down.

The real question isn't 2%

Regulation earns its keep when the cost of compliance is proportionate to the outcome it buys. India's CSR mandate has spent a decade proving that a hard percentage can move real capital toward social outcomes — over ₹1 lakh crore cumulatively by most industry estimates. The 2026 changes suggest policymakers are finally tuning the mechanism, not just debating the number. For boards and CSR committees, that's the shift worth watching — not whether 2% survives, but whether the next version of this law finally rewards impact over paperwork.

The strategic question

The debate was never really about the 2% figure. It's about whether a fixed percentage? layered with prescriptive process, it can be, asked as "iI CSR the right way to buy social outcomes or whether flexible spend with strong traceability (the direction ZCZP points toward) gets better results per rupee? The 2026 changes suggest regulators are tuning the mechanism rather than the number itself.

Action items for FY 2026–27

Do not budget against the ₹10 crore threshold — it is proposed, not enacted. • Revisit your CSR policy, board approvals and implementation channels before the next annual reporting cycle, in light of the new rules. • Evaluate ZCZP as a parallel track — it won't replace existing implementation partners, but merits assessment for measurable impact reporting. • Separate deregulation from reduced workload — for companies still inside the mandate, tracking and reporting expectations are moving up, not down. 

cle-subscribe-bar