1. What is the key change introduced by the amendment?
The amendment permits a company to carry out CSR activities by subscribing to zero coupon zero principal (ZCZP) instruments issued by eligible Not for Profit Organizations (NPO’s) registered on the Social Stock Exchange segment of a recognised stock exchange. This is now expressly recognised both under the CSR Rules through new Rule 4A and under Schedule VII through newly inserted item (xiii).
2. From when is the amendment effective?
The notifications provide that they shall come into force from the date of their publication in the Official Gazette i.e.27 May 2026.
3. What is a Zero Coupon Zero Principal Instrument?
As per Rule 2(1)(l) “zero coupon zero principal instrument” means an instrument declared as a security that is issued by a Not for Profit Organization registered with the Social Stock Exchange segment of a recognised Stock Exchange in accordance with the regulations made by the Securities and Exchange Board of India.”
It is called “zero coupon” because no interest is payable to the subscriber, and “zero principal” because the amount subscribed is not repayable.
4. What is a Not for Profit Organization for this purpose?
The amendment states that “Not for Profit Organization” shall have the same meaning as provided under Regulation 292A(e) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Therefore, for CSR purposes, the company will have to look at the SEBI Social Stock Exchange framework to identify whether the issuing entity qualifies as a Not for Profit Organization.
5. Whether the NPO issuing ZCZP instruments should have a three-year track record as per Rule 4(1)(d) of CSR Rules?
Yes, where the NPO is covered under Rule 4(1)(d), it should have an established track record of at least three years in undertaking similar activities. Therefore, before subscribing to a ZCZP instrument, the company should verify whether the issuing NPO satisfies the applicable Rule 4(1) eligibility conditions, including the three-year track record requirement, wherever applicable.
6. Whether the NPO issuing ZCZP instruments should have registration under section 12A and approval under section 80G of the Income-tax Act?
Yes. Since Rule 4A makes Rule 4 applicable to CSR implementation through ZCZP instruments, the NPO issuing the ZCZP instrument should satisfy the applicable eligibility conditions under Rule 4(1). Accordingly, where the NPO is covered under Rule 4(1)(d), it should be a Section 8 company / registered public trust / registered society and should be either exempt under the specified provisions of section 10(23C) or it is registered under section 12A and approved under section 80G of the Income-tax Act, 1961.
7. Is CSR-1 registration still relevant for the Not for Profit Organization?
The company should therefore verify both:
(i) SSE registration of the NPO; and
(ii) CSR-1 registration under Rule 4(2).
8. Can a company spend its entire CSR obligation through zero coupon zero principal instruments or is there any monetary limit?
The amendment caps such expenditure at 10% of the total CSR expenditure of the company for that financial year. Therefore, this route cannot be used for the entire CSR obligation.
For example, if the company’s total CSR obligation is 1 crore. Out of that CSR expenditure for the financial year is Rs. 50 lakhs, the amount spent through zero coupon zero principal instruments should not exceed Rs. 5 lakhs.
9. Is impact assessment required for projects funded through ZCZP instruments?
A company that has subscribed to a zero coupon zero principal instrument is exempted from undertaking impact assessment of any project funded by such instrument. This exemption is specifically provided under Rule 4A(2). The rational being, the NPOs are subject to Social Audit as specified in SEBI regulations.
10. Is the Board required to certify utilization of funds and monitor project timelines for CSR implemented through ZCZP instruments?
The requirements relating to Board confirmation of fund utilization, CFO certification, and Board monitoring of ongoing projects under Rule 4(5) and Rule 4(6) will not apply to CSR through ZCZP instruments.
11. What is the maximum duration of a project funded through a ZCZP instrument and who is responsible for ensuring this?
The Not for Profit Organization issuing the ZCZP instrument and raising funds through it is required to undertake a project having a duration of not more than three succeeding financial years from the date of issue of such instrument.
Accordingly, the obligation to ensure that the project duration remains within the prescribed limit is cast on the Not for Profit Organization issuing the ZCZP instrument. The subscribing company may verify this condition at the time of subscription, but the Rules place this specific requirement on the NPO.
12. What happens to the unspent amount with the Not for Profit Organization, and who is responsible for transferring it?
On termination of listing of the ZCZP instrument, if any amount remains unspent with the Not for Profit Organization, the NPO is required to transfer such unspent amount to any fund included in Schedule VII to the Companies Act, 2013 and submit a compliance report to SEBI.
This statutory obligation rests entirely and exclusively upon the issuing NPO; there is no secondary or monitoring obligation cast upon the investing company to ensure or verify that the NPO executes this transfer.
13. Can a company route subscription to ZCZP instruments through its implementing agency?
No. The subscription to ZCZP instruments should be made by the CSR-obligated company itself.
14. For the purpose of computing applicability of impact assessment should the amount subscribed to ZCZP instrument considered.?
Yes. While Rule 4A(2) of the Companies (CSR Policy) Rules, 2014 expressly exempts a company from undertaking a separate impact assessment for projects funded specifically through Zero Coupon Zero Principal (ZCZP) instruments, the amount subscribed must still be included when calculating the company’s total annual CSR obligation. Because the threshold for mandatory impact assessment under Rule 8(3) is determined on the basis of the company’s average total CSR obligation over the three immediately preceding financial years, all permitted forms of CSR deployment including ZCZP subscriptions must be factored into this aggregate computation to assess whether the statutory threshold has been crossed.
15. Does the impact assessment exemption apply to all CSR projects of the company?
No. The exemption from undertaking an impact assessment applies strictly and exclusively to the specific project funded through the Zero Coupon Zero Principal (ZCZP) instrument, as provided under Rule 4A(2) of the Companies (CSR Policy) Rules, 2014. This carve-out cannot be construed as a general or blanket exemption; the company remains statutorily mandated to conduct impact assessments for its other qualifying CSR projects if the aggregate thresholds under Rule 8(3) are met.
16. Should the amount subscribed to ZCZP instruments be considered while calculating the limit for administrative overheads?
Yes. Since the subscription to Zero Coupon Zero Principal (ZCZP) instruments on a Social Stock Exchange constitutes an eligible mode of CSR deployment under Rule 4A of the Companies (CSR Policy) Rules, 2014, the subscription amount forms an integral part of the company’s total CSR expenditure for the financial year. Accordingly, this amount must be included in the total CSR expenditure base utilized to compute the permissible 5% limit for administrative overheads under Rule 7(1).
17. Whether compliance with Sections 179 and 186 is required for subscription to ZCZP instruments, since ZCZP instruments are treated as securities?
Compliance with Sections 179(3)(c) and 186 of the Companies Act, 2013 is not triggered by the subscription to ZCZP instruments. While ZCZP instruments are classified as “securities” under the Securities Contracts (Regulation) Act, 1956, the subscription is fundamentally in the nature of Corporate Social Responsibility (CSR) expenditure under Rule 4A of the Companies (CSR Policy) Rules, 2014. Because ZCZP instruments carry no interest or coupon and the principal amount is non-refundable, the transaction does not possess the essential characteristics of an “investment” or a “loan” as contemplated under Section 186. Consequently, the board resolutions and limits prescribed under Sections 179 and 186 for loans, guarantees, or investments are not applicable.
18. Whether Annual Action plan needs to be amended?
If the existing Annual Action Plan is framed broadly and the proposed activity or expenditure falls within its overarching scope, a formal amendment is not required. It is recommended to review the language of the approved plan to assess whether it inherently covers the proposed execution.
19. Whether CSR policy needs to be amended?
Amendment of the CSR Policy is not required if the existing policy is framed broadly and the proposed activity falls within its overarching scope. It is recommended to review the language of the approved CSR Policy to assess whether it inherently covers the proposed execution; a formal amendment by the Board, upon recommendation of the CSR Committee, becomes necessary only if the proposed project deviates from the policy’s guiding principles or falls outside the specified focus areas.