Tax Exemption to Section 8 Company
According to Companies Act 2013, Section 8 is a company that has a sole objective of promoting education, Art, Sports, Commerce, Social Welfare, Charity, Research, Religion, Environment, Science, and many other similar objects. The income and profits of a Section 8 Company get utilized for the promotion of its objective only, wherein; no member receives any part of profit or dividend. Such Companies got incorporated to serve the society by doing charity and not to earn the profit. Section 8 Company was registered under Section 25 of the Companies Act, which provides it with several tax exemptions and benefits.
Meaning of Tax Exemption
Tax exemption refers to the financial dispensation of property, persons, income, transactions, or people from taxes that otherwise would levied on them. Once an organisation acquires tax exemption, it provides a sense of relief from reduced rates, taxes, or tax on a portion of any item. Usually, the organisations that are running a non-profit business leverage tax exemption from income taxes, property taxes, and multi-jurisdictional or cross-border scenarios.
Browse through our articles on services provided at Swarit Advisors, and just let us know if we can help you with your Secretarial Compliances or Annual Compliance for all types of Companies.
Why does Section 8 get Tax Exemption?
The Central Government imparts many exemptions to Section 8 Company vide Ministry of Corporate Affairs Notification No. G.S.R.466 (E) dated 5th June 2015, along with amendments to the notification vide Notification No. G.S.R. 584 (E) dated 13th June 2017. The biggest reason for why Section 8 Companies get exempted from specific tax is because it exclusively works for the welfare of the public. No personal gains are involved in the operations of a Section 8 Company; therefore, it deserves to receive some added benefits in return.
Like any other company, Section 8 Company also has members and directors, but unlike others, they function more like volunteers and promoters of the social cause. The directors of such companies are mere service providers who indulge in the activities of spreading awareness about different aspects and helping the general public. In contrast to public and private companies that require capital to establish the business, the Section 8 Company depends upon the donations and not on the loans.
List of Tax Exemptions to Section 8 Company
Being a Non-Profit Organisation (N.P.O.), Section 8 Company is immune from some provisions of the income tax. Besides, they avail various other deductions and tax benefits under Section 80G of the Income Tax Act, 1961. Let’s look at the list of benefits that every Section 8 Company procures:
- Section 8 Company needs to pay less stamp duty as compared to other companies.
- Under the Income Tax Act, 1961, the donors of Section 8 Company may claim a 50% rebate against the donations they made. Under Section 80G, it shall be valid for a period of one to three years.
- The taxation over section 8 company is on par with other organisations. The profits got taxed by @30%.
- If Section 8 company got registered under section 12AA (tax exemption) of the Income Tax Act, then its profits shall be entirely exempted, and no tax will be levied on the company.
- Every year the Central Government issues some compliance to enable more favourable conditions to N.P.O.’s in terms of the tax exemption.
Besides the above perks, there is an array of benefits associated with Section 8 Company.
Advantages of Section 8 Company Registration
- The members of Section 8 Company may summon the general meeting by giving notice not less than 14 days instead of 21 days.
- It’s adequate for a Section 8 Company to conduct at least one meeting within every six calendar month instead of holding four meetings a year.
- Conditions governing the appointment of independent directors haVE also been relinquished.
- Any person can be appointed as Company Secretary even if he/she is not a member of the Institute of Company Secretaries of India.
- Recording of Board Meeting, Minutes of General Meetings, and other resolutions have been withdrawn. Nonetheless, the minutes of meetings shall get recorded within 30 days of the conclusion of the meeting when the company’s articles provide for confirmation by way of circulation of minutes.
- A Section 8 Company has a maximum limit of appointing 15 directors, and for appointing more than 15 directors, a special resolution has been withdrawn.
- Even a firm can be a member of Section 8 Companies.
- The bar to take upon the directorship in more than 20 companies has been relaxed.
- In case the Articles of Section 8 Company provides for the election of directors by Ballot, then the provisions of Section 160 will not be applicable. Whereas, in other cases, Section 160 will continue to apply.
- The credibility of Section 8 Company is more in contrast to other types of charitable organizations. The companies registered under Section 8 of the Companies Act are strictly regulated.
- The companies require a mandatory annual audit, as well as MOA and AOA, which can’t be altered at any stage or situation. Such tight rules and regulations on optimizing the profits and loss of the company make them more trustworthy.
Read also: How to register a Section 8 Company