ZCZPs Enter Schedule VII
For over a decade, Schedule VII of the Companies Act, 2013 has quietly defined the boundaries of India's Corporate Social Responsibility (CSR) universe. It is the list that tells a company what counts as a valid CSR activity. In May 2026, that list grew by one line item.
The Ministry of Corporate Affairs (MCA) has inserted a new item, (xiii), into Schedule VII: subscription to Zero Coupon Zero Principal (ZCZP) instruments listed on the Social Stock Exchange (SSE). On the surface, it's a single clause. In practice, it opens a SEBI-regulated, market-based channel for CSR money to flow into the non-profit sector, something India's CSR framework hasn't had before.
The Regulation: What Actually Changed?
Through two notifications — G.S.R. 415(E) and G.S.R. 416(E) — issued on 27 May 2026, the MCA amended both the Companies (Corporate Social Responsibility Policy) Rules, 2014 and Schedule VII of the Companies Act itself. Both notifications took effect immediately on publication in the Official Gazette.
The changes do three things:
Define “Not for Profit Organization” (NPO) for CSR purposes, aligned with the existing SEBI definition under Regulation 292A of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
Define “Zero Coupon Zero Principal Instrument” - a security issued by a registered NPO on the SSE segment of a recognised stock exchange, governed by SEBI regulations.
Insert a new Rule 4A into the CSR Policy Rules, laying out exactly how companies may implement CSR through ZCZP subscriptions.
Taken together, this creates a new, statutorily recognised implementation route for CSR that is distinct from direct implementation, implementing agencies, or collaborative CSR.
Rule 4 of the CSR Rules continues to apply to this route, with the exception of sub-rules (5) and (6). This means a Chief Financial Officer (CFO) sign-off or utilization certification is not required for Corporate Social Responsibility (CSR) funds deployed via ZCZP instruments. Further, the Board of Directors is also exempted from continuously monitoring project timelines and implementations for investments routed through ZCZPs. Accountability and tracking shift heavily onto the Social Stock Exchange (SSE) framework and SEBI regulations.
What Is a ZCZP, Exactly?
A Zero Coupon Zero Principal instrument is, by design, not a conventional financial instrument at all. As the name suggests, it carries no coupon (no interest payment) and no principal repayment obligation, that means there is no expectation of financial return for the subscriber. It exists purely as a mechanism to channel and track funding for a defined social outcome, traded electronically in demat form on the Social Stock Exchange.
Only entities that meet the NPO definition under the new Rule 2 can issue ZCZPs, and the funds raised must go toward a social project with a maximum duration of three years. This time-bound structure is a deliberate design choice. SSE-funded projects are meant to be outcome-oriented rather than open-ended grants, and the three-year cap is one of the amendment's key safeguards.
If a ZCZP's listing is terminated and any subscribed amount remains unspent with the NPO, Rule 4A(3)(b) requires that the unspent balance be transferred to a fund specified in Schedule VII, with a compliance report filed with SEBI. Notably, this obligation sits entirely with the issuing NPO. Companies that have subscribed to the instrument carry no secondary monitoring duty to verify the transfer.
The 10% Cap
The amendment does not open the floodgates. A company's CSR spend through ZCZP subscription is capped at 10% of its total CSR expenditure for that financial year. ZCZP is best understood as one additional channel within the existing CSR toolkit. Direct implementation, implementing agencies, and Schedule VII-listed activities remain very much in place. The route adds optionality rather than replacing anything.
Expenditure through ZCZP instruments must also be disclosed as part of the Board Report and the Annual CSR Report, in line with existing Companies Act and CSR Rules requirements.
What It Means for Companies?
For CSR-obligated companies, the practical implications fall into four buckets:
A new, market-regulated channel. Because ZCZPs sit within the SEBI-regulated SSE framework, companies get a transparent, exchange-traded way to fund vetted NPOs with governance and disclosure standards set by the exchange rather than negotiated case-by-case.
Execution risk shifts to the NPO. Responsibility for project execution and evaluation rests with the issuing NPO, not the funding company. This is a meaningful departure from direct-implementation CSR, where the company retains oversight obligations throughout.
No impact assessment needed: Rule 4A(2) exempts ZCZP-funded projects from the independent impact assessment otherwise required for large CSR projects. This waiver is narrowly scoped. It applies only to the specific project funded through the ZCZP, and standard impact assessment requirements continue to apply to a company's other CSR activities.
No routing through implementing agencies. Companies must subscribe to ZCZP instruments directly; the subscription cannot be routed through a CSR implementing agency.
For companies that have found direct CSR implementation administratively heavy, or that want measurable, project-linked deployment without building in-house execution capacity, this is a meaningfully lighter-touch option within the 10% ceiling.
What It Means for NPOs?
As of now, roughly 120 NPOs have registered on the NSE and BSE Social Stock Exchange platforms, but only about 10 have actually raised money through ZCZPs to date. That gap between registration and active fundraising reflects the real compliance load the SSE structure still demands and it's precisely where this amendment is likely to move the needle, by giving CSR-obligated companies a formal, Schedule VII-recognised reason to look at the SSE as a funding source.
For NPOs weighing whether to pursue this route, three things matter in sequence:
Now: Confirm eligibility as an NPO under the new Rule 2 definition before planning an SSE listing.
Next: Complete SSE registration, and put in place the governance, disclosure, and reporting infrastructure the ZCZP structure requires.
Ongoing: Build genuine project execution and evaluation capability. Rule 4A places that responsibility squarely with the NPO, not the subscribing company.
The Bigger Picture
This amendment doesn't change how much companies must spend on CSR, and it doesn't dilute the existing accountability architecture. If anything, the unspent-funds mechanism and the three-year project cap tighten it in places. What it does change is the plumbing: CSR capital now has a SEBI-regulated, exchange-traded route into the non-profit sector, sitting alongside the more familiar routes of direct implementation and implementing agencies.
For companies, it's worth evaluating early, both because of the compliance simplification it offers within the 10% cap, and because being an early, informed mover into SSE-linked CSR is itself a credibility signal to investors and stakeholders increasingly attentive to ESG execution, not just intent. For NPOs, the opportunity is real, but it rewards those who invest in the governance and reporting discipline the SSE expects.
Esgity Advisors works with companies and NPOs on CSR strategy, BRSR compliance, and ESG reporting. To discuss how the ZCZP-Schedule VII amendment fits into your CSR plan, reach out to us:
Esgity Advisors
1001, Bloomdesk Orion Business Park, Borivali West, Mumbai
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