Last year the Indian government passed the Indian Companies Act, a law which went into effect on April 2014 requiring Indian companies to contribute 2 percent of their annual profits to social and charitable causes.

India’s Ministry of Corporate Affairs recently released a circular that clarifies which companies fall under the law’s purview, as well as what qualifies as a corporate social responsibility (CSR) contribution.

Companies worth more than $80 million will be required to establish a CSR committee that formulates a CSR policy to contribute at least 2 percent of profits to causes such as the eradication of extreme poverty and hunger, the promotion of gender equality and education, environmental sustainability and government-run funds for socio-economic development such as the Prime Minister’s National Relief Fund. The Indian Companies Act also states that companies that refuse to comply must explain their reason for doing so in their annual financial statements.

India’s CSR mandate, often referred to as the “2 percent requirement,” makes India the first country in the world to require that qualifying companies make obligatory corporate social responsibility expenditures.

Key Aspects of India’s Corporate Social Responsibility Mandate Clarified (India Briefing)

Staff contact: Ariel Meyerstein