Can CSR Funds Be Used to Buy Carbon Credits in India? What the Rules Actually Say in 2026

The question every CSR committee is asking

Companies covered by Section 135 of the Companies Act must spend 2% of average net profits on CSR. Many of the same companies now carry net-zero or carbon-neutrality commitments that require purchasing carbon credits. The obvious question follows: can the CSR budget pay for the credits?

The short answer: buying credits to offset your own emissions is generally not a valid use of CSR funds — but funding plantation and environmental projects is, if the structure is clean.

What Schedule VII allows

Schedule VII item (iv) explicitly covers ensuring environmental sustainability, ecological balance, protection of flora and fauna, and conservation of natural resources. Afforestation, watershed restoration and biodiversity projects sit comfortably inside it — which is why corporate plantation drives are among the most common environmental CSR activities in India.

Why offsetting is different

The CSR framework rests on a principle the MCA has repeated across its rules and FAQ circulars: CSR cannot be an activity undertaken in the ordinary course of business, and the spend should not primarily generate a commercial benefit for the company.

When a company buys a carbon credit and retires it against its own footprint, it acquires something it uses for its own claims — compliance positioning, marketing, investor communication. That is a business benefit, not philanthropy. The same logic runs in reverse: if a plantation is funded from the CSR budget and the company then claims or sells the carbon credits the project generates, the CSR project has produced a commercial return, which compromises its CSR character.

Three structures that work

1. Pure CSR plantation. Fund community or urban afforestation under Schedule VII. Measure survival rates, biodiversity and community benefit. Report it under CSR and in your BRSR narrative. Claim no credits.

2. Commercial carbon project. Fund credit purchases from the sustainability or operations budget — not CSR. Credits are verified under recognised standards, owned by the company, and retired against its net-zero targets with registry proof.

3. Split structure. CSR pays for a community plantation whose benefits — including any future credits — vest with the community. Separately, the company purchases credits from an unrelated verified project for its offsetting claims. Both ledgers stay clean.

Practical notes for the CSR committee

• Document intent at board level: CSR policy language should describe environmental and community outcomes, not offsets or credits.

• If a CSR project could generate credits later, decide ownership upfront. Credits retired in the beneficiaries’ name — or never claimed — preserve the project’s CSR character.

• For BRSR, plantation counts in your environment disclosures either way; offset claims additionally require verified credits and registry retirement proof.

This article is general information, not legal advice — structures should be confirmed with your company secretary or counsel before board approval.

Csquare works on both sides of this line: CSR-grade Miyawaki afforestation projects with survival reporting, and verified carbon credit procurement for corporate net-zero claims. If you are planting this monsoon, see our monsoon 2026 plantation guide or get in touch.