💰 Economy & FinanceMAINS · GS2.10 · GS3.8

CSR funds can now flow through Social Stock Exchange instruments

The Ministry of Corporate Affairs has expanded Schedule VII so companies can subscribe to ZCZP instruments issued by non-profits on the Social Stock Exchange.

What happened

The Ministry of Corporate Affairs (MCA) has added a new item — item (xiii) — to Schedule VII of the Companies Act, 2013: "Subscription to zero coupon zero principal instruments on Social Stock Exchange."
Schedule VII is the statutory menu of activities on which a company may legitimately spend its Corporate Social Responsibility (CSR) money. The new entry means a company can now count money put into a Zero Coupon Zero Principal (ZCZP) instrument as valid CSR spend.
To make the route workable, MCA simultaneously amended the Companies (CSR Policy) Rules, 2014 — inserting definitions of "Not for Profit Organization" and "Zero Coupon Zero Principal Instrument" in Rule 2, and laying down the criteria for CSR implementation through the instrument in a new Rule 4A.
These Not-for-Profit Organisations (NPOs) issue the ZCZP instrument on the Social Stock Exchange (SSE) in line with SEBI regulations.
A guardrail was built in: the amount a CSR-mandated company channels into such instruments cannot exceed 10% of its total CSR expenditure for that financial year.
The change was effected through Gazette notifications G.S.R. 415(E) and G.S.R. 416(E), dated 27 May 2026, placed on the MCA website.

Background & context

Three pieces of law sit behind this announcement, and the aspirant should be able to name all three. India was the first major economy to make CSR statutory rather than voluntary, doing so through Section 135 of the Companies Act, 2013. That section requires a company crossing any one of three thresholds — net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in a financial year — to constitute a CSR Committee and to spend, in every financial year, at least 2% of its average net profits of the preceding three financial years on CSR. Schedule VII enumerates the permitted heads of CSR activity, and the Companies (CSR Policy) Rules, 2014 supply the operational machinery — what counts, how it is reported, and how unspent amounts are treated. The current amendment touches two of these three pillars at once: it adds a line to Schedule VII and rewrites parts of the 2014 Rules.

The second strand is the Social Stock Exchange (SSE). The SSE is not a separate building or company; it is a distinct segment of an existing recognised stock exchange (it operates as a separate segment on the BSE and the NSE) created so that social enterprises and non-profits can raise funds in a transparent, disclosure-bound marketplace. The concept was announced in the Union Budget for 2019–20, the framework was developed by a SEBI working group and technical group, and SEBI notified the enabling regulations in 2022. Only two kinds of participants list on the SSE: Not-for-Profit Organisations (NPOs) and For-Profit Social Enterprises (FPEs); both must demonstrate that social intent and impact are their primary goal. The SSE matters because it brings audit, disclosure and an annual impact report to a charitable-funding space that was historically opaque.

The third strand is the instrument itself — the Zero Coupon Zero Principal (ZCZP) instrument, the specific security through which a registered NPO raises money on the SSE. The name is literal and is the single most testable fact here. "Zero coupon" means the instrument pays no interest; "zero principal" means the face value is not repaid to the subscriber at maturity. Economically, then, subscribing to a ZCZP is closer to a donation than to a bond or a loan — the subscriber parts with the money permanently in exchange for a verified social outcome, not a financial return. Because nothing comes back, ZCZPs are not equity, not debt, and not a loan; SEBI classifies them as a distinct category of security available only on the SSE. Until this amendment, a CSR-mandated company could donate directly to a non-profit but could not treat a subscription to a ZCZP as CSR; the new Schedule VII item (xiii) closes precisely that gap and connects the corporate CSR pipeline to the SEBI-regulated SSE plumbing.

For Prelims

New Schedule VII entry: item (xiii) — "Subscription to zero coupon zero principal instruments on Social Stock Exchange."
Parent statute: Companies Act, 2013. CSR mandate flows from Section 135; permitted activities are listed in Schedule VII; mechanics are in the Companies (CSR Policy) Rules, 2014.
Who notifies: the Ministry of Corporate Affairs (MCA) amends Schedule VII and the CSR Rules; SEBI regulates the SSE and the ZCZP instrument. Two regulators, two roles — MCA on the CSR side, SEBI on the market side.
ZCZP, decoded: "Zero coupon" = pays no interest; "zero principal" = no repayment of face value. It is donation-based, issued only by registered NPOs on the SSE.
The 10% cap: spend routed through ZCZP instruments cannot exceed 10% of a company's total CSR for the financial year — so this is a supplementary channel, not a replacement for direct CSR.
Rule changes: definitions of "Not for Profit Organization" and "Zero Coupon Zero Principal Instrument" added to Rule 2; implementation criteria placed in a new Rule 4A of the 2014 Rules.
Notification trail: Gazette G.S.R. 415(E) and G.S.R. 416(E), dated 27 May 2026.
CSR thresholds (Section 135): applies to a company with net worth ≥ ₹500 cr, or turnover ≥ ₹1,000 cr, or net profit ≥ ₹5 cr; obligation is to spend ≥ 2% of average net profit of the preceding three years.
The SSE belongs to a set: it is a segment of a recognised stock exchange (live on BSE and NSE), conceived in Budget 2019–20, enabled by SEBI regulations in 2022. Two eligible participant types — NPOs and For-Profit Social Enterprises.

For UPSC: Schedule VII (Companies Act 2013) now permits CSR to fund ZCZP instruments — donation-type securities (no interest, no principal back) issued only by NPOs on the SEBI-regulated Social Stock Exchange — subject to a 10% of annual CSR cap.

What it is NOT

A ZCZP is not a bond and not a loan — no interest accrues and the face value is never returned; it is donation-like in substance.
The Social Stock Exchange is not a standalone exchange — it is a separate segment within recognised exchanges (BSE/NSE), not a new corporate entity.
This change does not raise or lower the 2% CSR obligation under Section 135 — it only adds a permitted destination and caps that destination at 10% of the year's CSR.
ZCZP instruments are not issued by ordinary companies or for-profit firms — only by registered Not-for-Profit Organisations on the SSE.
SEBI does not amend Schedule VII; that is the MCA's domain. SEBI's role is regulating the SSE segment and the instrument.

Why it matters

The reform addresses a structural mismatch in India's CSR ecosystem. India's listed and large companies generate a large, statutorily mandated pool of CSR funds every year, yet much of it flows through bilateral, lightly disclosed donations whose social impact is hard to audit. On the other side sit credible non-profits that struggle to access organised capital and to prove, in a standardised way, that their work delivers measurable outcomes. By letting CSR money subscribe to ZCZP instruments, the government effectively routes part of that corporate pool onto a regulated, disclosure-bound marketplace where the recipient NPO must register, raise on an exchange segment, and report impact. The 10% cap is the calibrating mechanism — it opens a new channel while keeping the bulk of CSR in conventional, direct programmes, so the experiment cannot crowd out existing welfare spending.

For the SSE itself, the amendment supplies demand. A marketplace for social finance is only as useful as the capital willing to flow through it; tapping the mandatory CSR pool gives the SSE a built-in, recurring subscriber base and improves the odds that ZCZP issuances by genuine NPOs actually get funded. For the aspirant, the deeper point is the example of regulatory convergence: a corporate-governance instrument (CSR under the Companies Act, administered by MCA) is deliberately wired into a capital-markets instrument (the SSE and ZCZP, regulated by SEBI), so that two arms of the state push private money toward audited social outcomes. It is a clean illustration of "government policies and interventions" being designed to nudge private capital, with transparency built in by design rather than left to goodwill.

For Mains

Anchor

A direct prompt on CSR design or social-sector financing can be built around this: "The integration of CSR with the Social Stock Exchange marks a shift from charity to accountable social investment." Examine the 2026 Schedule VII amendment as the anchoring case.

Exemplification

In any answer on governance, transparency, or innovative public-purpose financing, the ZCZP-on-SSE route is a crisp, current example of channelling private money through a regulated, disclosure-bound market rather than opaque donation.

Substantiation

The 2% mandate (Section 135), the 10% cap on ZCZP routing, and the dual-regulator design (MCA + SEBI) supply concrete numbers and structure to flesh out an otherwise abstract argument about social finance.

Problematisation

The reform implicitly admits two gaps it tries to fix — weak auditability of conventional CSR donations, and the funding drought faced by credible non-profits — useful to frame the "problem" half of a CSR or civil-society question.

Deploys into: government policies and interventions for development (GS2.10); CSR and accountable social finance; the role of SEBI and the Social Stock Exchange in mobilising capital for the social sector; industrial/financial-market policy and instruments of inclusive growth (GS3.8).

Source

Ministry of Corporate Affairs · 2026-05-29 · PRID 2266792 · PIB source ↗