Centre allows companies to route up to 10% of CSR funds through Social Stock Exchange

The Ministry of Corporate Affairs has issued a notification permitting companies to channel a part of their Corporate Social Responsibility (CSR) spending through the Social Stock Exchange (SSE). Under the new rule, a company can invest up to 10 per cent of its annual CSR budget by subscribing to "zero coupon zero principal" instruments issued by registered Not-for-Profit Organisations (NPOs) on the SSE. The change is being seen as one of the most important reforms to India's CSR framework since the law itself came into force.

Under Section 135 of the Companies Act, 2013, every company with a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more in a financial year must spend at least 2 per cent of its average net profit of the previous three years on CSR activities. Permitted activities are listed in Schedule VII of the Act, which covers areas such as education, health, sanitation, rural development, environment protection and women empowerment.

The corporate affairs ministry has now added a new entry in Schedule VII — "subscription to zero coupon zero principal instruments on Social Stock Exchange". A zero coupon zero principal instrument is a special category of security where the investor does not get back interest (coupon) or the original amount (principal). In effect, it is a donation routed through the stock exchange ecosystem, but in a transparent and regulated form because it is supervised by the Securities and Exchange Board of India (SEBI).

The Social Stock Exchange is a separate platform within recognised stock exchanges like the BSE and the NSE. It allows registered NPOs and for-profit social enterprises to raise funds for verified social welfare projects. The SSE was first announced in the 2019-20 Union Budget by Finance Minister Nirmala Sitharaman and was rolled out in 2022 after SEBI issued detailed guidelines.

To make the new CSR option workable, the government has also amended the CSR Policy Rules, 2014. The amendments add formal definitions for "Not-for-Profit Organisation" and "zero coupon zero principal instrument". Companies will be able to count their subscriptions to such instruments as CSR spending, subject to the 10 per cent cap on total CSR expenditure for that financial year.

Officials and industry experts say the move achieves three things at once. First, it gives companies a simpler and more credible way to spend CSR funds. Second, it gives NPOs working in sectors like education, health and rural livelihoods access to a wider pool of capital, with built-in regulatory oversight from SEBI. Third, it pushes Indian social finance closer to global practices where social bonds and impact investing are well established.

For students preparing for exams, this is a useful case study in the changing nature of corporate regulation in India, the working of SEBI, and the way the government is trying to combine market mechanisms with social welfare goals.