What is the 10% cap on ZCZP instruments for CSR spending?

Under Rule 4A(1) of the Companies (CSR Policy) Amendment Rules, 2026, a company's CSR expenditure through Zero Coupon Zero Principal (ZCZP) instruments cannot exceed 10% of its total CSR expenditure for that financial year. This means a company cannot route its entire CSR budget through ZCZP instruments — the remaining 90% or more must be deployed through other permissible CSR channels such as direct implementation, implementing agencies, or Section 8 companies.

What is the Social Stock Exchange (SSE) and how does it relate to CSR?

The Social Stock Exchange (SSE) is a dedicated segment within a SEBI-recognised stock exchange in India designed to help social sector organisations — primarily Not for Profit Organisations (NPOs) — raise capital from mainstream investors. Under the MCA's CSR Amendment Rules 2026 (G.S.R. 415(E)), companies can now deploy a portion of their mandatory CSR funds by subscribing to ZCZP instruments issued by SSE-listed NPOs. The SSE connection brings SEBI-level disclosure norms, transparency standards, and accountability to CSR spending — replacing informal CSR fund deployments with a regulated, exchange-governed channel.

Do companies need to conduct an impact assessment for CSR projects funded via ZCZP instruments?

No. Rule 4A(2) of the Companies (CSR Policy) Amendment Rules, 2026 specifically exempts companies from conducting an independent impact assessment for any CSR project funded through a ZCZP instrument. This exemption removes a significant compliance and cost burden from subscribing companies — normally, companies with a CSR obligation of ₹10 crore or more are required to commission an independent impact assessment for projects above ₹1 crore. This obligation does not apply when the funding is channelled through a ZCZP instrument.

What happens to unspent funds when a ZCZP instrument project ends?

When a ZCZP instrument's project ends and the listing of the instrument is terminated, the issuing NPO must transfer any unspent amount to a fund specified in Schedule VII to the Companies Act, 2013. The NPO must also submit a compliance report to SEBI confirming the transfer. This obligation is set out in Rule 4A(3) of the Companies (CSR Policy) Amendment Rules, 2026. The unspent amount cannot be retained by the NPO or returned to the subscribing company.

Which companies are eligible to use the ZCZP route for CSR under MCA Rules 2026?

Any company that has a mandatory CSR obligation under Section 135 of the Companies Act, 2013 can use the ZCZP route for up to 10% of its annual CSR expenditure. Section 135 applies to companies with: net worth of ₹500 crore or more, or turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more during the immediately preceding financial year. There is no additional eligibility filter for the ZCZP route — any Section 135-qualifying company can subscribe, provided the NPO is validly registered on the Social Stock Exchange.

What is the MCA notification G.S.R. 415(E) and what does it change for CSR?

G.S.R. 415(E) is the gazette notification issued by the Ministry of Corporate Affairs (MCA) on 27 May 2026, amending the Companies (Corporate Social Responsibility Policy) Rules, 2014. It introduces a new Rule 4A permitting companies to fulfil part of their Section 135 CSR obligation by subscribing to Zero Coupon Zero Principal (ZCZP) instruments issued by NPOs listed on India's Social Stock Exchange (SSE). It also inserts a formal definition of ZCZP instruments into Rule 2 of the CSR Rules. MCA exercised powers under Section 135 and sub-sections (1) and (2) of Section 469 of the Companies Act, 2013 to issue this notification.

What is the minimum issue size of a Zero Coupon Zero Principal instrument?

The minimum issue size for a Zero Coupon Zero Principal (ZCZP) instrument issued by an NPO on India's Social Stock Exchange (SSE) is ₹50 lakh. This means an NPO must raise at least ₹50 lakh per ZCZP issuance. Additionally, a minimum subscription of 75% of the proposed fundraising amount must be achieved for the issuance to proceed — if subscriptions fall below 75%, the NPO must detail how the shortfall will be managed. ZCZP instruments are issued exclusively in dematerialised (Demat) form and are non-transferable.

What is the minimum investment in a ZCZP instrument on the Social Stock Exchange?

The minimum investment (application size) for a Zero Coupon Zero Principal (ZCZP) instrument on India's Social Stock Exchange (SSE) is ₹1,000. This was reduced from ₹10,000 by SEBI through a circular issued on 19 March 2025, based on recommendations of the Social Stock Exchange Advisory Committee. The reduction was made to enhance retail participation in social impact investments and increase the flow of funds to NPOs working in sectors such as education, healthcare, and rural development. The revised ₹1,000 minimum applies with immediate effect from the date of SEBI's March 2025 circular.

Zero Coupon Zero Principal Instrument for CSR Funding

Q: What is a Zero Coupon Zero Principal (ZCZP) instrument in India?

A Zero Coupon Zero Principal (ZCZP) instrument is a financial security issued by a Not for Profit Organisation (NPO) registered with the Social Stock Exchange (SSE) segment of a recognised stock exchange in India. It pays no periodic interest (zero coupon) and returns no capital at maturity (zero principal). The entire subscribed amount goes toward a social cause. It is formally classified as a security under Regulation 292A(e) of SEBI's ICDR Regulations, 2018, and its definition has been inserted into Rule 2 of the Companies (CSR Policy) Rules, 2014 by the MCA's gazette notification G.S.R. 415(E) dated 27 May 2026.

Q: Can a company use a ZCZP instrument for its CSR obligation under the Companies Act?

Yes. As of 27 May 2026, a company can use a Zero Coupon Zero Principal (ZCZP) instrument to discharge a portion of its CSR obligation under Section 135 of the Companies Act, 2013. This is permitted under the newly inserted Rule 4A of the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026, notified by the Ministry of Corporate Affairs (MCA) via G.S.R. 415(E). The subscription amount qualifies as CSR expenditure, subject to a cap of 10% of the company's total CSR expenditure for that financial year.

Notification Ref.
G.S.R. 415(E)

Background & Context

Under the Companies Act, 2013, every qualifying company must spend at least 2% of its average net profits over the preceding three financial years on Corporate Social Responsibility (CSR) activities. The regulatory framework governing deployment of these funds — the Companies (Corporate Social Responsibility Policy) Rules, 2014 — has now received a significant update.

The Ministry of Corporate Affairs (MCA), exercising powers under Section 135 and sub-sections (1) and (2) of Section 469 of the Companies Act, 2013, issued a gazette notification dated 27th May 2026 (G.S.R. 415(E)) to formally amend these Rules, paving the way for CSR expenditure through a new financial instrument issued by Not for Profit Organisations (NPOs) listed on Social Stock Exchanges (SSEs).

“A company may carry out Corporate Social Responsibility activities through a zero coupon zero principal instrument issued by a Not for Profit Organisation registered with the Social Stock Exchange segment of a recognised Stock Exchange.” — Rule 4A, Companies (CSR Policy) Amendment Rules, 2026

What is a Zero Coupon Zero Principal Instrument?

The amendment inserts a formal definition into Rule 2 of the CSR Rules. A Zero Coupon Zero Principal (ZCZP) Instrument is a financial security with the following characteristics:

Issued by a Not for Profit Organisation (NPO) registered with the Social Stock Exchange (SSE) segment of a recognised Stock Exchange in India.
Declared as a security under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 — specifically as defined under Regulation 292A(e).
Zero Coupon — meaning it pays no periodic interest or dividend to the investor/subscriber.
Zero Principal — meaning there is no repayment of invested capital at maturity. The money goes entirely to the social cause.

Key Provisions of the Amendment

Rule 4A(1) CSR Through ZCZP Instrument — Permitted

A company may carry out its CSR activities by subscribing to a zero coupon zero principal instrument issued by an NPO registered with the Social Stock Exchange. This is subject to the condition that the expenditure on such instruments shall NOT exceed 10% of the company’s total CSR expenditure for that financial year.

Rule 4A(2) Impact Assessment Exemption for Subscribers

Companies subscribing to a ZCZP instrument are exempted from conducting an independent impact assessment of any project funded by that instrument. This removes a significant compliance burden from CSR-funding companies, shifting accountability to the NPO and SSE regulatory framework.

Rule 4A(3) Obligations of the Issuing NPO

The NPO issuing the ZCZP instrument must: (a) Undertake a project with a duration of not more than three successive financial years from the date of issue of the instrument; and (b) On termination of listing of such instrument, transfer any unspent amount to a fund included in Schedule VII to the Companies Act, and submit its compliance report to SEBI.

Rule 4A(4) Applicability of Rule 4 Sub-rules

Sub-rules (5) and (6) of Rule 4 of the principal CSR Rules shall also apply to implementation of CSR activities through the ZCZP instrument, ensuring that standard governance safeguards remain in place.

Why This Matters: The Social Stock Exchange Connection

India’s Social Stock Exchange (SSE) was operationalised under SEBI’s framework to bring formal capital market discipline to social sector fundraising. By linking CSR expenditure to SSE-listed NPOs via the ZCZP mechanism, the MCA achieves several policy goals simultaneously:

Transparency: NPOs must meet SEBI’s listing requirements, including disclosure norms, before they can issue ZCZP instruments.
Accountability: Unspent funds at the end of a project must be transferred to Schedule VII funds — no diversion is possible.
Reduced Burden on Companies: Companies are freed from impact assessment obligations for ZCZP-funded projects.
Mainstream CSR Capital: Corporate India can now route CSR funds into the regulated social capital market rather than managing projects directly.

Practical Implications for Companies

Important Note on the 10% Cap:
The ZCZP route is subject to a ceiling of 10% of the company’s total CSR obligation for a given year. Companies must ensure their overall CSR plan is structured to stay within this limit if using ZCZP instruments.

For companies — particularly listed entities and large private companies — this amendment opens a new, compliant channel to deploy CSR funds efficiently. Instead of setting up implementation agencies or managing projects in-house, they can subscribe to ZCZP instruments issued by SEBI-registered, SSE-listed NPOs.

The amendment is especially relevant for companies that:

Wish to support social sector organisations working in education, healthcare, rural development, or environment — without the administrative overhead of direct project implementation.
Are looking for a regulated, auditable channel for CSR spending that satisfies both Board and statutory auditor scrutiny.
Have historically struggled to utilise CSR budgets fully due to lack of on-ground implementation capacity.

Our View

This is a forward-looking amendment that aligns India’s CSR framework with the broader development of the Social Stock Exchange ecosystem. The SEBI-regulated SSE was always intended to bring market discipline to social funding, and this MCA notification now formally integrates SSE-listed instruments into the corporate compliance toolkit.

Companies should begin reviewing their CSR policies and Board-approved CSR plans to assess whether the ZCZP route is suitable for a portion of their annual CSR obligation. It is equally important to ensure that any NPO they wish to fund is duly registered on the SSE and has issued valid ZCZP instruments under the SEBI framework before any subscription is made and reported in the CSR disclosures.

Given the interplay between MCA’s CSR Rules, SEBI’s ICDR Regulations and the Companies Act’s Schedule VII, professional guidance is strongly recommended before deploying CSR funds through this new mechanism.

Need Guidance on CSR Compliance?

Our team of Company Secretaries at Lal Ghai & Associates can help you structure your CSR policy, identify eligible SSE-listed NPOs, and ensure full regulatory compliance.

www.lgassociates.org | +91-94636 40466 | info@lgassociates.org

This bulletin is prepared for general informational purposes. It does not constitute legal or professional advice. Readers should seek specific advice before acting on any matter covered herein.