Introduction
A Section 8 Company is a not-for-profit organization registered under the Companies Act, 2013, aimed at promoting charitable objectives such as education, arts, commerce, social welfare, environment protection, and similar causes. Unlike other companies, Section 8 companies do not distribute profits to their members but reinvest them to further their objectives. They play a pivotal role in the socio-economic development of society.
What is a Section 8 Company?
A Section 8 Company is a legal entity that:
- Is registered under the Companies Act, 2013 (or its predecessor, Companies Act, 1956).
- Has the primary objective of promoting non-profit activities like education, health, environment, research, or social welfare.
- Is prohibited from paying dividends to its members and must reinvest profits into the organization’s objectives.
Section 8 companies can operate as a private limited or public limited company and must obtain a license from the Registrar of Companies (RoC).
Key Features of a Section 8 Company
1-Objective
Formed with charitable purposes such as promoting science, education, religion, social welfare, or environmental protection.
2-Profit Utilization
Access to skilled professionals and specialized teams.
3-Tax Benefits
Profits are not distributed among members but are utilized solely for achieving the company’s objectives.
4-Formation
Access to skilled professionals and specialized teams.
5-Tax Limited Liability
Members’ liabilities are limited to the extent of their shareholding or guarantee.
Compliance Calendar for Section 8 Companies
Section 8 Companies must adhere to the compliance requirements under the Companies Act, 2013, and the Income Tax Act. Below is a typical compliance calendar:
Compliance/Form | Description | Due Date | Applicable Regulation |
Annual Return Filing (MGT-7) | Filing of annual return with RoC | Within 60 days of AGM | Section 92 of Companies Act, 2013 |
Certification of MGT-7 by PCS | Certification | Within 60 days of AGM | Section 92 of Companies Act, 2013 |
AOC-4 | Filing of audited financial statements | Within 30 days of AGM | Section 137 of Companies Act, 2013 |
Income Tax Return | Filing income tax returns | As per Income Tax schedule | Income Tax Act, 1961 |
Audit Report | Filing statutory audit report | Along with AOC-4 | Companies Act, 2013 |
FCRA Return (if applicable) | Filing of foreign contribution report, if registered under FCRA | By 31st December annually | Foreign Contribution (Regulation) Act, 2010 |
CSR Reporting (If Registered as CSR Entity) | Submission of CSR details | Annually | Section 135 of Companies Act, 2013 |
DIR-3 KYC | Director KYC filing for all DIN holders | By 30th September annually | Rule 12A of Companies (Appointment and Qualification of Directors) Rules, 2014 |
DPT-3 | Filing of return of deposits and exempted deposits | By 30th June annually | Rule 16 of Companies (Acceptance of Deposits) Rules, 2014 |
Additional Governance Requirements
1-Board Meetings:
- A minimum of four board meetings must be conducted annually, ensuring a gap of no more than 120 days between two meetings.
2-Maintenance of Registers:
- Mandatory maintenance of statutory registers like Register of Members and Register of Directors.
3-Auditor Appointment:
- Appointment of an auditor as per Section 139 of the Companies Act, 2013.
4-Annual General Meeting (AGM):
- Section 8 companies are required to hold an AGM annually within six months from the end of the financial year.
5-Accounts and Audit:
- Financial statements must be audited by a Chartered Accountant and presented during the AGM.
6-MSME Form I:
- Applicable if the company has outstanding payments to Micro, Small, or Medium Enterprises beyond 45 days.
Due Date:
- Half-Yearly Filing:
- For April-September: By 31stOctober.
- For October-March: By 30thApril.
7-BEN-2:
- Filing of significant beneficial ownership (if applicable).
Due Date:
- Within 30 days of acquiring beneficial ownership.
8-TDS Filings:
- Quarterly TDS returns, if the company deducts tax at source for employees, vendors, or others.
Due Dates:
- 31stJuly, 31st October, 31st January, and 31st
9-PF/ESI Returns (if applicable):
- Filing monthly Provident Fund (PF) and Employee State Insurance (ESI) contributions for employees.
10-GST Returns (if applicable):
- Filing GSTR-1, GSTR-3B, and annual returns if the company is registered under GST.
Key Points to Note
1-Incorporation
A license under Section 8 must be obtained from the Registrar of Companies (RoC) by submitting detailed objectives and business plans.
2-Tax Exemptions
Eligible for benefits under Section 80G and Section 12A of the Income Tax Act for donors and the company.
3-Revocation of License
Non-adherence to objectives or profit distribution can lead to the revocation of the Section 8 license.
4-Penalties for Non-Compliance
Stringent penalties are imposed on companies failing to adhere to compliance norms.
5-Foreign Contributions
If receiving foreign contributions, compliance under the FCRA Act is mandatory.
Summary
Section 8 Companies are the backbone of India’s charitable ecosystem, offering a structured way to undertake non-profit activities. By adhering to statutory and regulatory frameworks, they ensure transparency, trust, and accountability in their operations.
Conclusion
Section 8 Companies are instrumental in advancing social and charitable objectives. By maintaining strict compliance with applicable laws and leveraging tax benefits, they serve as a sustainable model for creating societal impact while adhering to the principles of good governance.