MCA facilitates Corporate Social Responsibility (CSR) through Zero Coupon Zero Principal Instrument by expanding the scope of Schedule VII of the Companies Act, 2013

**Executive Summary** The Ministry of Corporate Affairs (MCA) has expanded the scope of Corporate Social Responsibility (CSR) by allowing companies to subscribe to “Zero Coupon Zero Principal Instruments” on the Social Stock Exchange. Effective through notifications dated May 27, 2026, these amendments to Schedule VII of the Companies Act, 2013, and the CSR Policy Rules, 2014, aim to facilitate transparent funding for public welfare projects. CSR-mandated companies must ensure that expenditure on these instruments does not exceed 10% of their total annual CSR budget. **Key Points / Main Content** * **Regulatory Amendments** * A new item, no. (xiii), has been added to Schedule VII of the Companies Act, 2013, to include "Subscription to zero coupon zero principal instruments on Social Stock Exchange." * Amendments to the Companies (Corporate Social Responsibility Policy) Rules, 2014, introduce definitions for ‘Not for Profit Organization’ (NPO) and ‘Zero Coupon Zero Principal Instrument’ under Rule 2. * The criteria for CSR implementation through these instruments are now governed under the newly introduced Rule 4A. * **Investment and Compliance Limits** * Expenditure by CSR-mandated companies on these instruments is capped at 10% of their total CSR expenditure for any given financial year. * The amendment is designed to provide significant ease of compliance for companies while promoting national priorities for sustainable development. * **Implementation through NPOs** * NPOs are authorized to issue Zero Coupon Zero Principal Instruments on the Social Stock Exchange (SSE). * The issuance must be in accordance with regulations set by the Securities and Exchange Board of India (SEBI). * The responsibility for project execution and subsequent project evaluation rests entirely with the NPO raising the funds. **Impact Analysis** **CSR-Mandated Companies** **Impact** Companies gain a new, regulated channel for fulfilling CSR obligations with simplified compliance procedures. However, their financial participation in this specific instrument is restricted to a minority portion of their total CSR budget. **Action Required** Companies must ensure any subscription to these instruments adheres to the 10% expenditure cap and follows the implementation criteria enumerated in Rule 4A. **Not-for-Profit Organizations (NPOs)** **Impact** NPOs can now raise funds for public welfare projects in a more transparent and regulated manner via the Social Stock Exchange. They bear increased accountability for the success and assessment of funded projects. **Action Required** NPOs must comply with SEBI regulations for issuing instruments and establish robust mechanisms for project execution and evaluation as mandated by the new rules. **Social Stock Exchange (SSE)** **Impact** The SSE will see increased activity and volume as it becomes a primary platform for the subscription of CSR-linked Zero Coupon Zero Principal Instruments. **Action Required** The exchange must facilitate the listing and trading of these instruments in alignment with the amended MCA rules and SEBI regulations.

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