CSR through the Social Stock Exchange: how the 10% ZCZP limit works

Companies that must spend on corporate social responsibility (CSR) have a new channel. The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026, notified by the Ministry of Corporate Affairs as G.S.R. 415(E) dated 27 May 2026, let a company carry out part of its CSR through zero coupon zero principal (ZCZP) instruments issued by not-for-profit organisations registered on a Social Stock Exchange. A companion notification, G.S.R. 416(E), adds “Subscription to zero coupon zero principal instruments on Social Stock Exchange” to Schedule VII of the Companies Act, 2013 as item (xiii).

The route has a limit: spending on these instruments cannot exceed 10% of the company’s total CSR expenditure for that financial year. At the same time, the company need not carry out an impact assessment of the projects they fund, and two monitoring requirements in rule 4 fall away. Who must spend, and how much, is unchanged.

The bottom line: ZCZP instruments can take at most one-tenth of a year’s CSR spending. Because the limit is tied to what the company actually spends, not to its 2% obligation, boards should fix the total budget first and size the subscription with some headroom.

What changed

G.S.R. 415(E) adds two definitions to rule 2(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 (the CSR Rules) and inserts a new rule 4A. Both notifications came into force on publication in the Official Gazette; the Gazette issues carrying them are dated 27 May 2026. Our earlier update summarises the text.

Point	Before	Now
How CSR can be carried out	By the company itself or through the entities listed in rule 4(1)	Also through ZCZP instruments (rule 4A(1))
Schedule VII	Items (i) to (xii)	Item (xiii): subscription to ZCZP instruments on Social Stock Exchange
Limit	None for this route	ZCZP expenditure cannot exceed 10% of total CSR expenditure for the financial year
Impact assessment	Required under rule 8(3) for qualifying projects	Not required for projects funded by ZCZP instruments the company subscribed to (rule 4A(2))
CFO certificate on use of funds; Board monitoring of ongoing projects	Apply under rule 4(5) and 4(6)	Do not apply to the ZCZP route (rule 4A(4))
Duties of the issuer	Not applicable	Project of not more than three succeeding financial years from issue; unspent amount to a Schedule VII fund when listing ends; compliance report to SEBI (rule 4A(3))

A “Not for Profit Organization” has the meaning in regulation 292A(e) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (the ICDR Regulations), which lists certain trusts, societies and section 8 companies and any other entity SEBI specifies. A “zero coupon zero principal instrument” is an instrument declared as a security and issued, under SEBI’s regulations, by such an organisation registered with the Social Stock Exchange segment of a recognised stock exchange.

CSR basics: who must spend, how much and by when

The new route sits on top of section 135 of the Companies Act, 2013 and the rest of the CSR Rules, which the amendment leaves as they were.

Who must spend

Section 135(1) covers every company with a net worth of ₹500 crore or more, or turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more during the immediately preceding financial year. Any one test is enough. Rule 3(1) of the CSR Rules applies this to holding and subsidiary companies, and to foreign companies with a branch or project office in India, that meet the criteria. It also requires a company having any amount in its Unspent CSR Account to constitute a CSR Committee and comply with section 135(2) to (6).

The CSR Committee needs three or more directors, at least one independent, or two or more directors where the company need not appoint an independent director. Under section 135(9), where the amount to be spent does not exceed ₹50 lakh, no committee is needed and the Board does its work.

How much

The Board must ensure that the company spends, in every financial year, at least 2% of the average net profits made during the three immediately preceding financial years, or the years completed if it is younger. Net profit is calculated under section 198 and, under rule 2(1)(h), excludes profits of overseas branches and dividends from Indian companies that are covered by and comply with section 135. Preference goes to the local area and areas around it where the company operates.

The annual report on CSR in Annexure II to the CSR Rules works out the “total CSR obligation” as 2% of average net profit, plus any surplus from earlier CSR activities, minus any set-off.

Set-off, unspent amounts and penalties

• Excess spending can be set off against the requirement for up to the immediately succeeding three financial years. It cannot include CSR surplus, and the Board must pass a resolution (rule 7(3)).
• An unspent amount not relating to an ongoing project goes to a fund specified in Schedule VII within six months of the end of the financial year (section 135(5)).
• An unspent amount for an ongoing project goes, within thirty days from the end of the financial year, to an Unspent Corporate Social Responsibility Account in a scheduled bank. It must be spent within three financial years of the transfer; any balance goes to a Schedule VII fund within thirty days of the end of the third year (section 135(6)).
• An “ongoing project” is a multi-year project with timelines not exceeding three years, excluding the year in which it began (rule 2(1)(i)).
• Default under section 135(5) or (6) attracts a penalty on the company of twice the amount to be transferred or ₹1 crore, whichever is less, and on each officer in default of one-tenth of that amount or ₹2 lakh, whichever is less (section 135(7)).

Two other limits share the new cap’s base. Administrative overheads cannot exceed 5% of total CSR expenditure for the year (rule 7(1)). Impact assessment costs can be booked as CSR expenditure up to 2% of total CSR expenditure or ₹50 lakh, whichever is higher (rule 8(3)(c)).

How the ZCZP route works

The mechanics sit partly in the CSR Rules and partly in Chapter X-A of the ICDR Regulations, which governs the Social Stock Exchange:

1. Registration. A not-for-profit must register with a Social Stock Exchange before raising funds through it (regulation 292F). Corporate foundations, political or religious organisations and trade associations, among others, are not eligible to be identified as social enterprises (regulation 292E(3)).
2. Issue for a specific project. ZCZP instruments may be issued only for a specific eligible project or activity, to be completed within the duration stated in the fund raising document (regulation 292J). They carry no coupon, and no principal is payable on maturity (regulation 292I).
3. Subscription. The company subscribes. Rule 4A(1) treats this as carrying out CSR, and Schedule VII item (xiii) names the subscription itself as a CSR activity.
4. Project delivery. The organisation must run a project lasting not more than three succeeding financial years from the issue (rule 4A(3)(a)).
5. End of listing. Listing ends when the object is achieved and a certificate is filed with the exchange, or when the stated tenure expires (regulation 292P). The organisation must then transfer any unspent amount to a Schedule VII fund and report compliance to SEBI (rule 4A(3)(b)).

In practice, the company’s money is committed when it subscribes, and the follow-through duties sit with the issuer.

How it fits with the existing CSR rules

The limit follows actual spending

Rule 4A(1) says the expenditure on these instruments “shall not exceed ten percent of the total Corporate Social Responsibility expenditure of such company for that financial year”. The base includes the subscription itself. In practice, a company spending exactly its obligation can put at most 10% of that obligation into ZCZP instruments; one spending more can put in more; and if actual spending falls below plan, the limit falls with it.

Rule 4 applies, minus two sub-rules

Under rule 4A(4), rule 4 applies to the ZCZP route except sub-rules (5) and (6). Those require the Board to satisfy itself that disbursed funds were used as approved, with a certificate from the Chief Financial Officer or the person responsible for financial management, and to monitor ongoing projects against approved timelines and year-wise allocations. Neither applies to a subscription.

How the rest of rule 4 fits is less clear. Rule 4(1) lists who may carry out CSR for a company, such as section 8 companies, registered public trusts and registered societies holding the income-tax exemptions or registrations it specifies, and rule 4(2) requires them to register in form CSR-1. Read literally, the issuer would need to fit rule 4(1) and hold a CSR Registration Number. The notification does not say so expressly, so confirm this with your adviser.

Impact assessment, set-off and unspent amounts

Rule 8(3)(a) requires a company with an average CSR obligation of ₹10 crore or more in the three immediately preceding financial years to have an independent agency assess projects with outlays of ₹1 crore or more. Rule 4A(2) removes this for projects funded by ZCZP instruments the company subscribed to, and only for them. Rule 7(3) and section 135(5) and (6) are unchanged: in practice, spending above the obligation can create excess for set-off, and any shortfall must be transferred on the usual timetable.

Who is affected

• Companies covered by section 135(1), as applied by rule 3(1).
• Their boards and CSR Committees, which approve the CSR Policy and annual action plan.
• Not-for-profits registered on a Social Stock Exchange, which take on the duties in rule 4A(3).

Companies below all three thresholds are not affected, unless they hold money in an Unspent CSR Account. The route is optional.

Worked example

A company is planning CSR for 2026-27. For 2025-26, its net worth is ₹420 crore, turnover ₹650 crore and net profit ₹38 crore. Net profits for 2024-25 and 2023-24 are ₹32 crore and ₹26 crore. It has no CSR surplus or set-off. The Board would like to put ₹10 lakh into ZCZP instruments.

Step	Working	Result
1. Does section 135 apply?	Net worth and turnover are below ₹500 crore and ₹1,000 crore; net profit of ₹38 crore is above ₹5 crore	Yes, on the net profit test
2. Average net profit	(₹38 crore + ₹32 crore + ₹26 crore) ÷ 3	₹32 crore
3. CSR obligation	2% of ₹32 crore	₹64 lakh
4. CSR Committee	₹64 lakh exceeds ₹50 lakh	Required
5. ZCZP limit if it spends exactly ₹64 lakh	10% of ₹64 lakh	₹6.4 lakh
6. Planned ZCZP of ₹10 lakh	₹10 lakh minus ₹6.4 lakh	Over the limit by ₹3.6 lakh

The company can cut the subscription to ₹6.4 lakh and spend the other ₹57.6 lakh on other CSR activities. Or it can raise total CSR expenditure to at least ₹1 crore, ten times the planned ₹10 lakh. In that case the ₹36 lakh spent above the 2% requirement becomes excess it can set off over the next three financial years, with a Board resolution. The administrative overheads limit would be ₹3.2 lakh at ₹64 lakh of spending and ₹5 lakh at ₹1 crore.

Headroom matters. Suppose the company subscribes ₹6.4 lakh early in the year but its total CSR expenditure ends at ₹60 lakh. The limit is then ₹6 lakh, so the subscription is ₹40,000 over it, and ₹4 lakh of the obligation is unspent and must be transferred.

Calculate your CSR obligation and ZCZP limit

Enter the preceding year’s net worth, turnover and net profit, earlier years’ net profits, any CSR surplus or set-off, your planned total CSR expenditure and the ZCZP amount you have in mind. The calculator shows whether section 135 applies, the obligation in the Annexure II format, the ZCZP limit and whether your plan fits.

What to do now

1. Confirm that section 135 applies, using the previous year’s net worth, turnover and net profit, with net profit calculated under section 198 and rule 2(1)(h).
2. Work out the obligation: 2% of average net profit, plus any CSR surplus, minus any set-off backed by a Board resolution.
3. If the company wants to use ZCZP instruments, have the CSR Committee (or the Board, where no committee is needed) recommend changes to the CSR Policy and annual action plan.
4. Fix the total CSR budget first, then keep the subscription comfortably below 10% of it.
5. Check the issuer: its Social Stock Exchange registration, the project and its duration, and whether it fits rule 4(1) and holds a CSR Registration Number.
6. Agree with your auditors how the subscription will appear in the annual report on CSR and the accounts.
7. Track spending through the year and diarise the transfer deadlines for any unspent amount.

Key dates

When	What	Source
27 May 2026	Date of G.S.R. 415(E) and G.S.R. 416(E) and of the Gazette issues carrying them; both in force on publication	Rule 1(2), G.S.R. 415(E); paragraph 2, G.S.R. 416(E)
Within thirty days from the end of the financial year	Unspent amounts for ongoing projects to the Unspent CSR Account	Section 135(6)
Within six months of the end of the financial year	Other unspent amounts to a Schedule VII fund	Section 135(5)
Within thirty days of the end of the third financial year after transfer	Any Unspent CSR Account balance to a Schedule VII fund	Section 135(6)
Up to three succeeding financial years from issue	Maximum duration of a ZCZP-funded project	Rule 4A(3)(a)

What the rules don’t say yet

• How a subscription should be shown in the Annexure II annual report on CSR, which has no separate line for it.
• Whether “total CSR expenditure” in rule 4A includes administrative overheads and impact assessment costs, as the Annexure II “Total amount spent for the Financial Year” does.
• Whether an amount set off from earlier years, or transferred to the Unspent CSR Account, counts towards total CSR expenditure for the 10% limit. Our calculator leaves set-off out and treats any shortfall as unspent.
• What follows if ZCZP spending ends up above 10% because total spending fell short.
• How rule 4(1) and 4(2) apply to an issuer reached through a listed instrument.
• Accounting and income-tax treatment, which neither notification deals with.

Frequently asked questions

Does a ZCZP subscription count towards the 2% CSR obligation?

Yes, within the limit. Rule 4A(1) lets a company carry out CSR activities through these instruments, and Schedule VII item (xiii) lists the subscription as a CSR activity. Expenditure on them cannot exceed 10% of total CSR expenditure for the year.

Is the 10% limit worked out on the obligation or on actual spending?

On the company’s total CSR expenditure for that financial year, as rule 4A(1) words it. If the company spends exactly its obligation, the two are the same.

Does the company get its money back?

No. Under regulation 292I(2) of the ICDR Regulations, ZCZP instruments are issued without any coupon and no principal is payable on maturity.

Can a company subscribe to instruments issued by its own CSR foundation?

Regulation 292E(3) of the ICDR Regulations says corporate foundations are not eligible to be identified as a social enterprise, and only a not-for-profit social enterprise registered on a Social Stock Exchange can issue these instruments. Chapter X-A does not define “corporate foundation”, so check the specific case with the exchange and your adviser.

What happens to money the not-for-profit does not spend?

When the listing ends, the organisation must transfer the unspent amount to a fund included in Schedule VII and submit a compliance report to SEBI (rule 4A(3)(b)). That duty is the issuer’s, not the company’s.