How to Route CSR Spending Through Social Stock Exchange ZCZP Instruments Under the 2026 Amendment Rules

Kaustav Chowdhury
3 days ago
5 min read

On 27 May 2026, the Ministry of Corporate Affairs (MCA) notified the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026, opening a new channel for CSR expenditure. Companies subject to mandatory CSR under Section 135 of the Companies Act, 2013 can now route a portion of their CSR funds through the Social Stock Exchange (SSE) by subscribing to zero coupon zero principal (ZCZP) instruments issued by registered not-for-profit organizations (NPOs). This guide covers how the new rules work and the step-by-step process for using this route.

What Are ZCZP Instruments?

A ZCZP instrument is a financial security issued by an NPO registered on the Social Stock Exchange segment of a recognized stock exchange (currently the BSE and NSE). Unlike conventional bonds or debentures, it carries no interest (zero coupon) and the principal is not returned (zero principal). In substance, subscribing to a ZCZP instrument is a structured donation: the subscriber's money is deployed by the NPO for a specific social project, and the instrument is delisted once the project is completed or the tenure expires. ZCZP instruments are issued in dematerialized form, are non-transferable until maturity, have a minimum issue size of Rs 50 lakh, and a minimum application size of Rs 1,000.

The CSR Amendment Rules, 2026: What Changed

The amendment, notified through Gazette Notifications G.S.R. 415(E) and G.S.R. 416(E) dated 27 May 2026, made three key changes. First, a new item (xiii) was inserted into Schedule VII, recognizing ZCZP subscriptions on a Social Stock Exchange as a permissible CSR activity.

Second, a new Rule 4A was added to the Companies (CSR Policy) Rules, 2014, defining "Not for Profit Organization" by reference to Regulation 292A(e) of the SEBI (ICDR) Regulations, 2018. Third, Rule 4 applies to the ZCZP route except sub-rules (5) and (6), meaning SSE-listed NPOs need not separately register on the CSR-1 portal.

Step-by-Step: Routing CSR Spending Through ZCZP Instruments

The process for a company seeking to use this route involves several stages.

Confirm CSR applicability under Section 135. A company is subject to mandatory CSR if, in the preceding financial year, it had net worth of Rs 500 crore or more, turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more. (The Corporate Laws (Amendment) Bill, 2026, proposes raising the net profit threshold to Rs 10 crore, but remains before a Joint Parliamentary Committee.)

Calculate the CSR budget. The company must spend at least 2 percent of its average net profit over the three immediately preceding financial years. Of this total, up to 10 percent may be deployed through ZCZP instruments in a given financial year.

Identify eligible NPOs on the SSE. The NPO must be registered on the SSE segment of BSE or NSE, have existed for at least three years, hold valid 12A/12AA/12AB registration under the Income Tax Act, and satisfy SEBI's social intent criteria (at least 67 percent of average revenues or expenditure in eligible social activities).

Select a ZCZP instrument aligned with Schedule VII activities, which include poverty eradication, education, healthcare, environmental sustainability, and rural development.

Subscribe to the ZCZP instrument through the SSE platform. The instrument is held in dematerialized form in the subscriber's demat account. A valid [digital signature certificate](how-to-get-a-digital-signature-certificate-dsc-online-in-india-types-process-and-fees) may be required for electronic processing.

Record the expenditure in the company's annual CSR report filed with the [Registrar of Companies](how-to-register-a-company-in-india-mca-spice-process-and-fees).

The 10 Percent Cap and How to Calculate It

Rule 4A imposes a clear ceiling: expenditure on ZCZP instruments cannot exceed 10 percent of total CSR expenditure for the relevant financial year. For example, if a company's mandatory CSR spend for FY 2026-27 is Rs 2 crore, it may subscribe to ZCZP instruments worth up to Rs 20 lakh. The remaining amount must be spent through conventional channels.

This cap ensures the SSE route remains supplementary. Companies with larger obligations may find ZCZP useful for diversifying their CSR portfolio while supporting NPOs in the formal ESG and sustainability reporting ecosystem.

Project Duration Limits and Unspent Fund Obligations

The NPO issuing a ZCZP instrument must complete the funded project within three succeeding financial years from the date of issuance. If the NPO has unspent funds upon termination of listing, it must transfer the unspent amount to a fund specified in Schedule VII of the Companies Act, 2013 (such as the PM National Relief Fund, PM CARES Fund, Swachh Bharat Kosh, or Clean Ganga Fund) and submit a compliance report to SEBI.

For the subscribing company, the CSR expenditure is recognized at the time of subscription, not when the NPO spends the funds. The company's CSR obligation is fulfilled upon subscribing, even if the NPO's project spans multiple years.

Impact Assessment Exemption

Companies subscribing to ZCZP instruments are exempt from conducting impact assessments of the projects funded through them. Under standard CSR rules, companies with a CSR obligation of Rs 10 crore or more must conduct mandatory impact assessments through independent agencies. The ZCZP exemption removes this burden, as the SSE framework already imposes social audit and impact reporting requirements on the issuing NPO.

How This Differs from Direct CSR Spending

In direct CSR, the company selects a project, engages an implementing agency, and handles monitoring and compliance reporting. With ZCZP instruments, this operational burden shifts to the NPO and the SSE framework.

The NPO must submit annual impact reports audited by registered social auditors, make periodic disclosures about fund utilization, and comply with SEBI's listing norms. This dual regulatory framework provides accountability not present in standard CSR implementation, though the trade-off is reduced direct control for the subscribing company.

Compliance Reporting to SEBI

Companies must continue meeting their standard CSR reporting obligations under the Companies Act, 2013, including annual disclosure in the Board's report. The ZCZP subscription should be separately identified in the CSR report.

On the NPO side, obligations include filing annual impact reports with the SSE, submitting utilization statements, and undergoing social audits by auditors registered with the self-regulatory organization designated by SEBI (currently ICAI). Upon termination of listing, the NPO must file a final compliance report and transfer any unspent funds to a Schedule VII fund. Subscribers who encounter irregularities may file a complaint with SEBI through the SCORES portal.

Key Takeaways

The Companies (CSR Policy) Amendment Rules, 2026, notified on 27 May 2026, allow companies to route up to 10 percent of their annual CSR expenditure through ZCZP instruments on the Social Stock Exchange

ZCZP instruments are non-interest-bearing, non-refundable securities issued by registered NPOs for specific social projects listed on the SSE

Eligible NPOs must be registered on the SSE, have at least three years of existence, hold valid 12A/12AA/12AB registration, and satisfy SEBI's 67 percent social intent threshold

The funded project must be completed within three succeeding financial years from the date of issuance of the ZCZP instrument

Companies subscribing to ZCZP instruments are exempt from conducting separate impact assessments under the CSR rules

Unspent funds upon termination of listing must be transferred to a Schedule VII fund, and a compliance report must be filed with SEBI

Standard CSR reporting obligations under the Companies Act, 2013 continue to apply alongside SEBI's SSE disclosure requirements