Schedule VII of the Companies Act, 2013: What Every CSR Team Needs to Know in 2026

Author : relific tech | Published On : 11 Aug 2026

Schedule VII is the list that decides whether a year of corporate social spending actually counts. For companies bound by Section 135 of the Companies Act, 2013, matching an activity to this list isn't a formality — it's the line between compliant CSR expenditure and a shortfall that can trigger real financial penalties. As of mid-2026, that list has grown to thirteen entries, and a lot has changed since most companies last reviewed their CSR policy documents.

Who Actually Has to Comply

Section 135 pulls in any company that met at least one of three thresholds in the immediately preceding financial year: net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. Once a company crosses that line, it must spend at least 2% of its average net profit — calculated over the three preceding financial years under Section 198, on a pre-tax basis — on eligible CSR activity.

A few applicability details trip people up. Section 8 companies aren't exempt; the law opens with "every company." Group structures don't get to net things off either — each entity is tested independently, so a subsidiary can be obligated even if its parent isn't, and vice versa. Newer companies (under three years old) still qualify if they clear a threshold, with the 2% calculated on whatever financial years are available. And a CSR Committee isn't mandatory below ₹50 lakh in prescribed spend; the full Board simply takes on the Committee's responsibilities instead.

Why the List Exists

A mandatory spending rule with no definition of eligible spending would have been unworkable — boards could have called almost anything "CSR." So Parliament attached Schedule VII as the answer to "spend on what." The Ministry of Corporate Affairs has taken a two-sided approach to interpreting it: the outer boundary is firm — spending outside the Schedule simply doesn't count — but within that boundary, the Ministry has directed that entries be read generously enough to capture the underlying intent of each category, not just its literal wording. In practice, few disputes concern whether a rural school programme qualifies. The genuine grey areas sit at the edges: a skilling programme that mostly feeds the sponsoring company's own hiring pipeline, a hospital wing that also treats paying patients, an environmental upgrade that happens to be a regulatory requirement anyway.

The Thirteen Categories

The newest addition, subscription to zero-coupon, zero-principal (ZCZP) instruments issued on the Social Stock Exchange, was inserted through a gazette notification dated 27 May 2026. Alongside the twelve long-standing categories — covering health and nutrition, education and livelihoods, gender equality and welfare of vulnerable groups, environmental sustainability, heritage and culture, veteran welfare, sports training, contributions to specific central government funds, government-backed research and incubation, rural development, notified slum redevelopment, and disaster management — this brings the total to thirteen distinct routes for compliant spend.

A useful way to think about it: the boundary of the list is strict, but the interior of each entry is broad. Education and livelihoods, for example, comfortably covers everything from school infrastructure and teacher training to vocational institutes, entrepreneurship support, and assistive technology for people with disabilities. The health and sanitation entry stretches from mobile medical units and maternal health programmes to piped water schemes and faecal sludge management. Environmental sustainability takes in afforestation, wetland restoration, animal welfare, and air and water quality work.

Some entries are narrower by design. Contributions to central funds only count if the fund is specifically named in the Schedule — a state government relief fund or district foundation doesn't qualify, however similar it looks to PM CARES or the Swachh Bharat Kosh. Slum area development applies only to areas formally notified as slums by a competent authority; informal settlements that were never officially declared fall outside this entry, though the same work can often be routed through the gender-equality-and-inequality entry instead. Sports funding covers training and athlete development, not stadium sponsorships or jersey branding.

The New ZCZP Route

The item (xiii) addition changes the mechanics of CSR delivery rather than its subject matter. For twelve years, companies had exactly two channels: execute projects directly, or route funds through a registered implementing agency. The ZCZP route adds a third — a regulated securities-market channel where a Not-for-Profit Organisation registered on the Social Stock Exchange issues instruments that companies can subscribe to.

Four operational conditions apply. Spending through this route cannot exceed 10% of a company's total CSR expenditure for the year. Companies that use it are exempt from conducting their own impact assessment of the funded projects — that responsibility shifts to the issuing NPO. Projects funded this way must wrap up within three financial years of issuance. And if the listing is terminated with money left over, the issuing NPO has to transfer the unspent balance to a Schedule VII fund and report to SEBI. Any CSR policy approved before June 2026 won't contemplate this route at all, which makes updating it a genuine Board-level item rather than a minor edit.

Matching the List Isn't Enough

This is where experienced teams still get caught out. Fitting an activity into a Schedule VII category is necessary, but a separate negative list under Rule 2(1)(d) of the CSR Policy Rules can disqualify it regardless. Six categories are excluded outright: spending that falls within the company's normal course of business, activities carried out outside India (with a narrow exception for training Indian athletes), political contributions, activities designed exclusively for employee benefit, sponsorships bought primarily for marketing value, and anything already legally required of the company, such as pollution-control upgrades mandated by an operating consent.

The employee-benefit exclusion has a nuance worth remembering: an activity aimed at the public that happens to incidentally benefit employees and their families doesn't fail this test. What matters is the design intent, not whether an employee happens to benefit. Similarly, the marketing exclusion doesn't ban all reputational upside — brand goodwill as a side effect of genuine CSR work is fine; brand-building as the actual purpose is not.

Running every proposed project through a seven-question checklist before committing budget helps avoid disputes later: Does it fit a Schedule VII entry? Is it outside normal business operations? Is all of it within India? Is it not exclusively for employees? Is it not a marketing purchase? Is it not already a legal obligation? Is it not a political contribution? A project has to clear all seven gates to count.

Where the Money Actually Goes

Statutory eligibility and real-world spending patterns are two very different pictures. National CSR spending reached a record ₹40,794 crore in FY 2024-25, a 17% increase over the previous year, pushing cumulative decade-long CSR investment past ₹2.61 lakh crore. Nearly 29,500 companies contributed across more than 72,000 projects.

Two thematic heads dominate: education and healthcare together accounted for roughly 55% of national spend in FY 2024-25, and the top five thematic areas took about three-quarters of the total. By contrast, some statutory categories are barely used — government-linked technology incubators and R&D projects, despite being the most precisely drafted entry in the entire Schedule, attracted under ₹2 crore nationally in one recent year, and notified slum development drew well under ₹40 crore. Administrative overhead also shows up as a larger line item than most individual Schedule VII categories in project-level disclosures, a reminder that the 5% cap on overheads needs careful tracking, since an implementing partner's management costs count as project cost, not administrative overhead, and can't be conflated in year-end reconciliation.

The Cost of Getting Classification Wrong

Section 135(7) treats CSR shortfalls as a civil penalty matter. The company faces a penalty of twice the unspent amount or ₹1 crore, whichever is lower, and every officer in default faces one-tenth of that amount or ₹2 lakh, whichever is lower — calculated separately for each financial year of default, not capped across years combined. In one recent enforcement order, a company that had already voluntarily transferred its full shortfall amount before the penalty order was issued still faced the full penalty; paying up late doesn't erase the liability, and multiple years of non-compliance can multiply the exposure well beyond what a single ₹1 crore cap might suggest.

Unspent money also runs on strict clocks. Amounts tied to an ongoing project must move into a separate Unspent CSR Account within 30 days of the financial year's end; everything else must be transferred to a Schedule VII fund within six months. Companies can't spend unspent amounts on new CSR activity during that intervening window, and simply disbursing funds to an implementing partner doesn't count as "spent" unless the partner actually utilises the money.

The Bigger Picture

Schedule VII has been amended nine times since 2014, and no item has ever been removed — only added to, most recently to bring in SDG-linked research categories and the ZCZP route. A CSR policy that transcribes the list verbatim from a few years ago is likely already out of date. The companies that manage this well tend to share one habit: they decide the Schedule VII classification for each project at the point of Board approval, rather than reconstructing it under pressure when the annual filing deadline approaches. Getting the classification right early is what keeps the compliance story — and the cash — where it needs to be.