Section 8 is a non-profit organisation that supports education, art, sports, business, social welfare, charity, research, religion, the environment, and science, among other things. A Section 8 Company’s income and earnings are used only to achieve its goal, with no members obtaining a profit or dividend. Instead of generating a profit, such firms were established to benefit society through philanthropic gifts. Section 8 Company was formed under Section 25 of the Companies Act, which grants it many tax breaks and perks.
As a result, Form ITR 7 must be submitted under Section 8 Companies and Other Non-Profit Organisations.
The financial exemption of property, individuals, income, transactions, or people from taxes that would otherwise be placed on them is known as tax exemption. When a business achieves tax exemption, it benefits from lower rates, taxes, or taxes on a portion of any item. Non-profit organisations are often free from income taxes, property taxes, and multi-jurisdictional or cross-border situations.
Why does Section 8 Company get Tax Exemption?
In line with Notification No. G.S.R.466 (E) published by the Ministry of Corporate Affairs on June 5, 2015, with changes, the Central Government gives various exemptions to Section 8 firms. Notification published under G.S.R. 584 (E) on June 13, 2017. The fundamental reason Section 8 Companies are exempt from some taxes is that they solely operate for the public good. A Section 8 Company is entitled to various additional benefits because there are no personal earnings involved in its operations.
Section 8 corporation, like any other corporation, has members and directors, but unlike others, they serve more as volunteers and champions of the social cause. The directors of such firms are merely service providers who engage in activities such as promoting awareness about various topics and assisting the general public. In contrast to public and private enterprises that require cash to be started, the Section 8 Company relies on donations rather than loans.
List of Tax Exemptions to Section 8 Company
Section 8 Company is exempt from several income tax regulations since it is a Non-Profit Organisation (N.P.O.). Furthermore, they are eligible for a variety of additional deductions and tax benefits under Section 80G of the Income Tax Act of 1961. Consider the following list of benefits obtained by every Section 8 Company:
- Section 8 firms must pay less stamp duty than other companies.
- The contributors of Section 8 Company are entitled to a 50% tax credit under the Income Tax Act of 1961. It shall be valid for one to three years under Section 80G.
- Section 8 corporations are taxed in the same way as other organisations. Profits were taxed at a rate of 30%.
- If a Section 8 business is registered under Section 12AA (tax exemption) of the Income Tax Act, its profits are completely exempt, and no tax is charged on the firm.
- Every year, the Central Government issues some compliance to permit more favourable tax exemption circumstances for non-profit organisations.
What is Section 8 Company?
A Section 8 Company is a non-profit organisation dedicated to the advancement of charity activities, art, science, education, and sports. Profits from such businesses are used to further these goals and are not dispersed to the company’s members.
MUDS offers complete services for registering Section 8 corporations in India. Our skilled staff provides hassle-free and professional services to assist you in swiftly and efficiently establishing a Section 8 corporation. Contact us today to learn more about how we can help you register your Section 8 company in India.
Incorporating a Section 8 corporation in India has several benefits, some of which are listed here.
Tax Exemption
Section 8 corporations incorporated under section 12AA of the Income Tax Act are eligible for a 100% tax exemption if their profits are used for charitable purposes. This is a big benefit because such businesses’ profits are not taxed.
No Minimum Capital Requirement
They may modify their capital structure in response to their expansion, providing them with greater flexibility.
No Need for Paying Stamp Duty
Section 8 businesses, unlike public limited corporations, do not have a minimum capital requirement. They may modify their capital structure in response to their expansion, providing them with greater flexibility.
Separate Legal Entity
Section 8 corporations, like other registered companies, have their own legal identity and permanent life. This boosts their reputation while also giving them more autonomy and legal status.
Increased Credibility
Section 8 firms are subject to tight legal compliance requirements, which improves their legal position. Section 8 entities, unlike NGOs and trusts, adhere to severe compliances after registration, making them more trustworthy.
No Title Required
During the registration procedure, Section 8 corporations are permitted to pick whatever name they like. They are not needed to include the word “Section 8” after their name, unlike other registered constructions.
A Section 8 business in India has various advantages, such as tax exemption, no minimum capital need, no stamp duty, independent legal identity, improved credibility, and no title required. These benefits make Section 8 enterprises appealing to entrepreneurs who want to launch a business with a philanthropic or social purpose.
Eligibility Criteria
To form a Section 8 corporation in India, several qualifying conditions must be completed.
- A Section 8 Company can be formed by an Indian national or a Hindu Undivided Family (HUF).
- At least one director is required for the entity.
- The major goal of the Section 8 Company should be to promote art and science, sports, charity activities, education, or to provide financial help to low-income persons.
These qualifying requirements guarantee that the Section 8 Company functions to promote social welfare and to benefit society as a whole.
Specific legal requirements must be met before applying for the establishment of a Section 8 business in India.
Connect with MUDS for Section 8 Company Registration
Assume you want to escape the burden of the Section 8 registration business process’s difficult procedures and precise documentation. In that situation, you may rely on MUDS’ expert services and licensing support.
A Section 8 Company cannot accept deposits but can solicit donations from the general public. There are several ways to generate finances, including overseas contributions, equity funding, and domestic gifts.
- Foreign donations are only permitted with FCRA registration, which can be renewed for three years following registration.
- If immediate foreign contributions are necessary, the commissioner must be consulted first.
- Equity finance can be obtained by issuing new equity shares at a higher price. Domestic subsidies are unrestricted, but a sophisticated mechanism to prevent money laundering is essential.
Process
The following processes are involved in the formation of Section 8 corporations in India:
Step 1: DSC
- This certificate is necessary for online document submission to the Ministry of Corporate Affairs (MCA). Form DIR-3 is used to get the DIN and should be filed with the prospective directors’ DSC.
- DIR-3 and DSC forms will be utilized.
Step 2: DIN
- After acquiring the DSC, the potential directors must apply for a Director Identification Number (DIN). The DIN number is a one-of-a-kind identifying number provided by the MCA to persons seeking to be directors of a business in India.
- DIR-3 forms will be utilised.
Step 3: Reserve the Company Name
The next step is to reserve the prospective Company’s name with the MCA. The Section 8 company name must be distinct and not comparable to any other company name. The INC-1 is the form to be used.
Step 4: Incorporation Filing
Following the approval of the business name, the next stage is to apply for Section 8 business incorporation. The application for incorporation is submitted in Form INC-32, together with the Memorandum of Association (MOA) and Articles of Association (AOA) of the Company.
The following forms will be used: INC-32, MOA, and AOA.
Step 5: Obtain a License for Section 8 Company
After the incorporation application is accepted, the Section 8 Company must get a licence. The INC-12 form is used to receive the licence. It should be filed alongside the required documentation.
INC-12 is the form to be utilised.
Step 6: Obtain a Certificate of Incorporation
Following the receipt of the licence, the MCA provides a Certificate of Incorporation in Form INC-16. This document validates the Section 8 Company’s formation.
INC-16 is the form to be utilised.
Eligibility Criteria
In India, an individual or a HUF can establish a Section 8 corporation.
- Two or more individuals who will act as Directors or shareholders must comply with all of the Act’s Section 8 business incorporation criteria.
- The Section 8 corporation must have at least one director who is a resident of India.
- The goal must be one or more of the following: sports promotion, social welfare, scientific and artistic progress, education, and financial help to low-income groups.
- Founders, directors, and members of the board of directors of the corporation cannot be paid in cash or in kind.
- No profit should be given to the company’s members or directors, either directly or indirectly.
How to file ITR for Section 8 Companies
Filing an Income Tax Return (ITR) for a Section 8 Company in India is comparable to filing an ITR for any other company. However, Section 8 Companies must bear certain concerns and restrictions in mind while completing their ITR. Here’s a step-by-step approach to filing an ITR for a Section 8 company:
DSC
To file an ITR online, the Section 8 Company’s authorised signatory must have a Digital Signature Certificate (DSC). It is a legal necessity for businesses to file their tax returns electronically.
Gather Necessary Documents and Information:
Gather all essential financial papers, such as audited financial statements, the Profit and Loss (P&L) account, the Balance Sheet, and any other supporting documents needed for tax computation.
Compute Tax Liability:
Based on the financial accounts, the Section 8 Company must compute its taxable income.
File Form ITR-6:
Section eight Form ITR-6 is used by businesses to file their income tax returns.
Complete the ITR-6 Form:
Fill out Form ITR-6 with all essential information.
Verify the ITR:
Once the ITR is completed, use the authorised signatory’s digital signature (DSC) to validate the data.
File the ITR:
After verifying the ITR, file it online using the Income Tax Department’s e-filing site (https://www.incometaxindiaefiling.gov.in/).
Verification:
After submitting successfully, you will get an acknowledgement (ITR-V) to your registered email address.
Response to Notice (if applicable):
Respond immediately to any inconsistencies or enquiries from the Income Tax Department and provide any appropriate paperwork.
Maintain Records:
For future reference, save copies of all papers, financial statements, and the ITR-V receipt.
Conclusion
We hope we were able to answer any questions you had concerning the ITR requirements for Section 8 companies. Organizations that perform social activities, such as trusts, organizations, corporations with real estate used for charity and religious purposes, hospitals, educational institutions, and so on, are obliged to submit returns under the Income Tax Act. The aforementioned firms must file the ITR-7 Form with their Income Tax Returns.