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MCA Notifies Companies CSR Policy Amendment Rules 2026 With Revised Impact Assessment and Reporting Requirements

  • Writer: Kaustav Chowdhury
    Kaustav Chowdhury
  • 11 minutes ago
  • 5 min read

The Ministry of Corporate Affairs (MCA), on May 27, 2026, notified the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026, introducing significant changes to how companies may discharge their CSR obligations under Section 135 of the Companies Act, 2013. The most notable change is the introduction of a new Rule 4A, which for the first time permits companies to route a portion of their CSR expenditure through the Social Stock Exchange (SSE) ecosystem by subscribing to zero coupon zero principal (ZCZP) instruments issued by eligible Not for Profit Organisations (NPOs). The amendment also revises impact assessment requirements and modifies reporting obligations, marking a shift in the regulatory approach from expenditure tracking to outcome measurement.


Background: CSR Under the Companies Act and the Social Stock Exchange


Section 135 of the Companies Act, 2013, requires every company meeting specified thresholds of net worth, turnover or net profit to spend at least two percent of its average net profits over the three immediately preceding financial years on CSR activities listed in Schedule VII. The CSR framework has undergone several rounds of amendments since its introduction, progressively tightening compliance requirements while expanding the range of permissible activities.


The Social Stock Exchange, introduced by SEBI through amendments to the ICDR and LODR Regulations in 2022, provides a platform for NPOs to raise funds by listing ZCZP instruments. These instruments carry no coupon (interest) and no principal repayment obligation. Investors subscribing to ZCZP instruments effectively make a donation that is routed through the exchange's regulated framework, with the NPO required to use the funds for specified social impact projects and to report on outcomes. Until the 2026 amendment, however, there was no formal regulatory linkage between the CSR framework under the Companies Act and the SSE ecosystem under SEBI regulations.


Key Changes Introduced by the 2026 Amendment


The centrepiece of the amendment is the new Rule 4A, which permits companies to undertake CSR activities by subscribing to ZCZP instruments issued by NPOs registered on the SSE segment of a recognised stock exchange. However, this route is subject to a cap: a company may use ZCZP instruments for no more than 10 percent of its total CSR expenditure for the relevant financial year. This ceiling ensures that the SSE channel supplements rather than replaces direct CSR implementation.


The amendment also revises the impact assessment framework. Companies that discharge their CSR obligation through ZCZP instruments are exempted from undertaking impact assessment of any project funded by such instruments. The rationale is that the SSE framework already imposes its own disclosure and reporting requirements on the issuing NPO, including mandatory social audit, outcome reporting and delisting consequences for non compliance. Requiring a separate impact assessment under the CSR Rules would create duplicative compliance obligations.


The issuing NPO must undertake projects with a duration not exceeding three succeeding financial years from the date of issuance of the ZCZP instrument. Upon termination of listing, any unspent funds must be transferred to a fund specified under Schedule VII of the Companies Act, and a compliance report must be submitted to SEBI. Schedule VII has been amended to include subscription to ZCZP instruments on the Social Stock Exchange as a permissible CSR activity.


Regulatory Convergence: Companies Act Meets SEBI Framework


The amendment represents a significant convergence between two regulatory regimes that have historically operated independently. The Companies Act's CSR framework, administered by the MCA through the Registrar of Companies, and SEBI's SSE regulations, administered through recognised stock exchanges, now share a direct operational link. This convergence raises practical compliance questions. Companies opting for the ZCZP route must ensure compliance with both sets of regulations: the CSR Rules for eligibility, cap calculations and annual reporting, and the SEBI framework for instrument subscription, NPO due diligence and outcome verification.


The 10 percent cap is designed to manage the transition. By limiting ZCZP subscriptions to a fraction of total CSR expenditure, the MCA ensures that companies continue to maintain direct engagement with CSR projects through implementing agencies or in house programmes. The cap also protects against the risk of companies using the SSE route purely as a compliance exercise, subscribing to instruments without meaningful engagement with the underlying social impact projects. Over time, the cap may be revised based on experience with the mechanism and the maturity of the SSE ecosystem.


Implications for Companies, NPOs and the CSR Ecosystem


For companies approaching the Section 135 threshold, the amendment offers a new channel for CSR compliance that combines the rigour of capital market regulation with the flexibility of supporting diverse social impact projects. Companies in sectors such as technology, financial services and manufacturing, which may lack in house CSR implementation capacity, may find the SSE route attractive. For NPOs already listed or seeking listing on the SSE, the amendment creates a new source of funding from CSR obligated companies, potentially expanding the pool of capital available for social impact projects. However, NPOs will need to meet the compliance burden of both the SSE listing requirements and the expectations of CSR contributing companies.


For the broader CSR ecosystem, the amendment signals a shift toward outcome based accountability. The combination of the SSE's disclosure framework and the CSR Rules' reporting requirements creates multiple layers of oversight, moving the system away from a model where CSR compliance was measured primarily by the quantum of expenditure. The exemption from impact assessment for ZCZP funded projects, while reducing compliance burden, places the onus of outcome verification on the SSE framework and the stock exchange, rather than on the contributing company.


Key Takeaways


  • The MCA has notified the Companies (CSR Policy) Amendment Rules, 2026, introducing Rule 4A to permit CSR spending through ZCZP instruments on the Social Stock Exchange.

  • Companies may allocate up to 10 percent of their total CSR expenditure for a financial year through the ZCZP route.

  • Projects funded through ZCZP instruments are exempt from the impact assessment requirement under the CSR Rules, as the SSE framework provides its own oversight mechanism.

  • Issuing NPOs must complete projects within three financial years and transfer unspent funds to Schedule VII funds upon delisting.

  • Schedule VII of the Companies Act now expressly includes subscription to ZCZP instruments on the SSE as a permissible CSR activity.

  • Companies using the ZCZP route must ensure dual compliance with both MCA CSR Rules and SEBI SSE regulations.


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