“We Can’t help everyone, but..Everyone can help someone”
In India, all organizations does not exist only for profit motive. There are some organizations which occupy themselves for non-profit objective and charity purposes. Such organizations are usually called as Non-Government Organisations (NGOs).
A NGO is a Non-Profit Organization, which aims to works towards the progress of the under privileged sections of the society or towards the betterment of society
In India, a NGO can be registered under different formats and operate under different law depending on the activities one wish to undertake:
|In the form of||Applicable laws|
|a. Trust||India Trust Act,1882|
|b. Society||Societies Registration Act, 1860|
|c. Section 8 Company||Companies Act,2013|
However, Section 8 company format of a NGO is most popular form of NGO in India. It is easy to register, run or manage a Section 8 Company in comparison of a Trust and a Society.
While, trust and societies are registered under the State Government Regulations,
Section 8 Company is registered under Ministry of Corporate Affairs regulations.
What is Section 8 Company?
As per the legislative provision, A Section 8 Company means a company which is formed and registered under Central Government, Ministry of Corporate Affairs with the objective to-
- Promote the charitable objects in the field of:
|a. Commerce||f. Research|
|b. Art||g. Social Welfare|
|c. Science||h. Religion|
|d. Sports||i. Charity|
|e. Education||j. Protection of Environment, etc.|
- Such Company intends to apply its profits in promoting its objects and prohibits the payment of any dividend to its members.
- These companies may be permitted by the Central Government to drop the word “Limited” or “Private Limited”.
- Moreover, the name of Section 8 companies may include the words foundation, forum, association, federation, chambers, council, electoral trust etc. as a part of their name.
- A Section 8 Company is suitable for non-profit objective and it may be incorporated as a Private Limited Company or Public Limited Company.
- A prior license is to be obtained from the Central Government (this requirement is relaxed in case of fresh incorporation and licence will be issued along with certificate of incorporation itself) and the process of incorporation is almost similar to that of any other company registration in India.
- Minimum 2 Director are required if the company is to be incorporated as a private company, and the same requirement becomes 3 if the company is to be incorporated as a public limited company.
- The Director as well as Shareholder position can be held by the same person in the proposed Company. Further, at least one of the director shall be resident in India (i.e. his total period of Stay in India is 182 days or more).
Who can become members in Section 8 Company
Advantages of Registering a Section 8 Company
There are some major advantages which a Section 8 company will enjoy:
- Tax Benefits: Since, the Section 8 companies are a non-profit organization, therefore they are entitled to various tax exemption and deductions as prescribed under the Income Tax Act, 1961.
- Zero Stamp Duty: Unlike other companies, Section 8 companies do not need to pay stamp duty on the AOA and MOA of the private or public limited companies. Moreover incorporation fees is charged at nominal rate even.
- High Credibility: Section 8 companies are more credible than other NGOs like Trust or Societies. As they are licensed by Central Government, no changes can be made possible in the AOA and MOA of the company without obtaining prior approval from Central Government.
- No Minimum Capital: A section 8 company need nominal share capital amount to setup the entity.The members can directly use the funds from their own subscriptions or donations received from the general public.
- Exemption from the title “Limited”: Unlike other companies, like private and public company have to compulsory attach the title “Private Ltd” and “Limited” at the end of their names, the Section 8 Company is relaxed from using the word limited”.
Shortcomings of Section 8 Company
There are pros and cons of every particular thing. So with the advantages which a Section 08 company is entitled to, there are some shortcomings also associated there
- Amendment in AOA and MOA: A Section 8 Company cannot amend or alter the MOA and AOA without having the approval from the Registrar of Companies.
- Prohibition on distribution of Profits: The surplus amount earned by a section 8 company cannot be distributed amongst the members or promoters. All incomes must be applied to promoting the objects of the Company.
- Multiple rules and regulations: The central government has imposed several compliances on section 8 companies. All the rules and regulations must be included in the MOA and AOA.
- Limitation on the Objectives: The central Objective of Section 8 companies is restricted to use the income and profits of the company in promoting some particular areas as is the objects of the company only and not for any other purpose.
Procedures for Incorporation of Section 8 Company
- Obtain Digital Signature Certificate(DSC):
As the registration process is a complete online process and hence the electronic forms are used for registration which should be digitally signed, there is a requirement to obtain Digital Signature certificate of all the proposed director and promoters.
- Apply for Name Approval – “RUN Facility”
The application for reservation of the name of the proposed company shall be filed by the applicant of the company in the prescribed form and shall also comply with the provisions and rules as prescribed for reservation of name by the Companies Act.
(a proposal of 2 names shall be given in the prescribed form)
Note: The company name must be unique and should not be same or similar to an existing company, any LLP or Trademark.
- Incorporation of Company through new Form SPICE(INC-32):
After approval of name of the company, the application for the incorporation of Section 8 company must be submitted in a single form prescribed by MCA
The form must be submitted after attachment of following documents:
|a. Memorandum of Association (in INC-13 form)||f. Declaration from subscribers certifying MOA & AOA|
|b. Article of Association||g. Declaration by Applicant.|
|c. Consent from Directors|
|d. Declaration from professional certifying MOA & AOA|
Documents required for Incorporation
|a. PAN Card of directors and subscribers.|
b. AADHAR of directors and subscribers.c. Id & Address proof of subscribers & directors.
c. Id & Address proof of subscribers & directors.
c. Address proof of the registered office.
d. Utility bill/ NOC from the owner.
Note: An existing company can also apply for conversion into section 8 company after obtaining the license issued by the Central Government. Existing companies do not need to go through SPICE (INC-32) route, but for these companies application for license will be made in INC-12 Format.
Grant of License and Certificate of Incorporation
After verification of all the documents, Registrar of Companies grants license in INC-16 format along with a Certificate of Incorporation.
Tax Benefits to Section 8 Company
Tax Exemption to Section 8 Companies
The taxation of NGO/ Section 8 Company is same as other companies are taxed (i.e. a certain % of profits earned). However, a section 8 company becomes eligible to claim exemption on their “income” and “donations” which they receive from within/ outside India.
Why Section 8 Company qualifies to claim any exemption from taxes on its total Income?
Section 8 Company exclusively works towards the betterment of the society and serve public at large. Also, they are also not involved with any personal gain motive but exist for social objective. Therefore, they deserve to receive some added benefits in return.
Accordingly, a Section 8 Company shall be eligible for exemption from taxes on their incomes and donations received from the general public (includes foreign donations) under the provisions of Income Tax Act.
There are certain compulsory registration need to be obtained by a Section 8 Company to claim income tax exemption as well as receive foreign contributions:
Procedure for Registration under 12AA
The application for registration is to made to the jurisdictional Principal Commissioner or Commisioner of Income Tax( Exemption) in the prescribed form and in prescribed manner and within prescribed time.
Documents required for Registration
- Application for 12A Registration in Form 10A.
- Copy of PAN Card of the NGO.
- Detailed List of Trustees or members with their contact details along with copy of PAN.
- Notarised copy of the Registration Certificate and MOA /Trust Deed.
- Books of Accounts, Balance Sheet & ITR (if any), since inception or last 3years.
- Annual Activity Report.
Registration under Foreign Contribution(Regulation) Act,1976
- A trust desirous to obtain foreign contribution is required to obtain registration under the FCRA Act,1976.
- An application for registration shall be filed in prescribed form along with supporting documents on Online portal of FCRA Services.
- Documents required to be attached along with form
- Registration Certificate of Trust/ Association;
- Copy of Trust Deed;
- Activity Report for the last 3 years;
- Audited Statement of Accounts for the last 3 years;
- Photo of Chief Functionary Signatory and seal of the trust;
- An affidavit is also required to be upload of each key functionary;
- A declaration and Undertaking by the Chief Functionary.
- Without FCRA registration a charitable institution cannot receive foreign contribution and hence it is of utmost importance.
- An application for such approval shall be filed in prescribed form along with supporting documents on online portal of FCRA Services.