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Section 8 Company Compliance In India

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Overview of Section 8 Company Compliance

  • The Companies Act, 2013 has made it mandatory for all the Section 8 Company Companies to adhere to Section 8 Compliance with the MCA (Ministry of Corporate Affairs).
  • The purpose of forming Section 8 Company is to promote, encourage, and nourish activities related to art, science, sports, commerce, charitable activities, etc. Section 8 Company can be categorized as a Non-Governmental Organization. These companies enjoy the liberty of being treated as ‘Limited Company’, though, word ‘Limited’ is not added at the end of their names. Concisely, Section 8 companies work in the direction of promoting needy communities and sectors in India. These Companies are not liable to give income or dividend to its members.

Benefits of Section 8 Company Compliance

Compliance as a Section 8 company in India comes with several benefits. Being a non-profit entity, these organizations enjoy certain privileges and advantages due to their commitment to promoting charitable, educational, scientific, or social welfare objectives. Here are some of the benefits of Section 8 company compliance:

1. Tax Exemptions: One of the significant benefits of compliance is the eligibility for various tax exemptions. Section 8 companies are exempt from paying income tax on their surplus income, provided the funds are used exclusively for the promotion of their objectives. Additionally, they can also enjoy exemptions on certain other taxes, such as property tax and stamp duty.

2. No Minimum Capital Requirement: Unlike other types of companies, a Section 8 company doesn’t have a minimum capital requirement. This allows organizations to start their operations without the need for a substantial initial investment.

3. Limited Liability: The liability of the members of a Section 8 company is limited to the amount they have contributed towards the company’s objectives. This feature protects the personal assets of the members in case of any liabilities or debts incurred by the organization.

4. Perpetual Existence: Section 8 companies enjoy perpetual existence, meaning their existence is not affected by the status of their members. They can continue to exist and function even if their founding members resign or pass away.

5. Brand Credibility: Being registered under the Companies Act and operating as a non-profit entity, Section 8 companies often enjoy higher credibility and trust among donors, supporters, and the public at large. This can facilitate fundraising efforts and attract more resources for the organization’s activities.

6. Foreign Funding: Section 8 companies are eligible to receive foreign contributions under the Foreign Contribution Regulation Act (FCRA). This allows them to access funding and support from international donors and organizations for their charitable activities.

7. Recognition: Compliance as a Section 8 company provides official recognition and legal status to the organization. This recognition can be valuable when dealing with government authorities, other institutions, and the public.

8. Special Privileges: Section 8 companies may receive certain special privileges, such as reduced fees for various registrations and compliances.

9. No Need for Share Capital: Unlike other types of companies, a Section 8 company doesn’t require the issuance of shares. This can simplify the organizational structure and management.

10. Impactful Social Contributions: By adhering to compliance requirements, Section 8 companies can focus on their core objectives and make a significant impact on society through their charitable, educational, scientific, or social welfare initiatives.

 

Documents Required for Annual Compliances of Section 8 Company

  • Financial statements (balance sheet, profit & loss account, cash flow statement)
  • Director’s report
  • Annual return (Form MGT-7)
  • Auditor’s report
  • Income tax return (Form ITR-7)
  • Statement of donations received
  • Register of members
  • Debenture holders
  • Register of directors
  • Key managerial personnel
  • Minutes of Annual General Meeting (AGM) and Board Meetings.

Penalties To Be Charged In Case Of Non-Compliance

  • A firm that fails to comply with the requirements of Section 187 of the Companies Act,2013 will be subject to a fine of ₹5 lakh, and each officer who fails to do so will be subject to a fine of ₹50,000.

Due Dates for Filling Section 8 Company Compliances

Section 8 Company should follow the annual compliances within the below mentioned time:

Form NoComplianceDue DateLast Date
AOC-4Directors ReportWithin 30 days of the Annual General Meeting29 October
MGT-7Annual ReturnsWithin 60 days of the Annual GeneralMeeting 28 November
Form ITR -6Income Tax Returns30 September30 September

Timeline

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Frequently Asked Questions (FAQs)

No, Section 8 companies, also known as not-for-profit companies, are not eligible for full tax exemption. While they do enjoy certain tax benefits under the Income Tax Act, they are not exempt from paying taxes altogether. For more detailed information get on call with our tax experts today.
 
Failing to file annual returns can lead to penalties and legal consequences for a Section 8 company. The Registrar of Companies (RoC) requires these companies to file their annual returns within the stipulated time frame.
 
Yes, the Goods and Services Tax (GST) is applicable to Section 8 companies like any other entity engaged in providing taxable goods or services. However, certain activities of Section 8 companies may be exempt from GST, depending on the nature of their operations and the specific exemptions provided by the tax authorities.
 
The annual compliance charge for a Section 8 company can vary and depends on several factors, including the company’s authorised capital, paid-up capital, and the state in which it is registered. Additionally, there may be additional charges for late filing or other specific compliance requirements. It is best to consult with a professional chartered accountant or company secretary to determine the exact compliance charges for a particular Section 8 company.
 

Section 8 companies must comply with legal obligations, including :

  • Filing annual returns
  • Holding board meetings
  • Maintaining financial records
  • Following Income Tax and GST regulations. Adherence to the Companies Act, 2013, and relevant laws ensures responsible operation and transparency in pursuit of their not-for-profit objectives.
As per the Companies Act, 2013, a Section 8 company is required to get its accounts audited annually. The audit is mandatory, regardless of the company’s turnover or financial performance. There is no specific turnover limit for the audit of a Section 8 company; all such companies must undergo an annual audit.
 
Section 8 companies, being not-for-profit organisations, may be eligible for certain exemptions under the Income Tax Act, 1961. These exemptions are typically related to their income, and they need to fulfil specific conditions to avail of such benefits. Consulting our tax advisor is recommended for specific guidance on tax exemptions for a Section 8 company.
 

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