If you’re looking to start a non-profit organization in India, registering as a Section 8 Company can offer you several tax benefits and legal advantages. Unlike traditional companies that operate for profit, a Section 8 Company is formed with the objective of promoting charitable activities such as education, art, culture, social welfare, or environmental protection. One of the major reasons why people choose Section 8 Company Registration is the tax relief it provides.
In this blog, we’ll explore the key tax benefits of registering a Section 8 Company, how to claim them, and why this structure is ideal for non-profit ventures.
What is a Section 8 Company?
A Section 8 Company is a non-profit organization formed under Section 8 of the Companies Act, 2013, to promote charitable objectives. Its main purpose is to promote activities that benefit society rather than earn profits for shareholders. Although it works like a private limited or public limited company in terms of structure, its profits must be reinvested in the company or used for charitable work.
Before we get into tax benefits, let’s understand that Section 8 Company Registration requires approval from the Central Government (via the Ministry of Corporate Affairs) and a clear outline of objectives in the Memorandum of Association (MOA).
Why Choose Section 8 Company Registration?
Here are some reasons why people prefer Section 8 Company over other types of NGO registrations like Trust or Society:
- Legal identity and limited liability
- Better credibility among donors and government bodies
- Ease of fundraising from corporate and foreign sources
- Key Tax Benefits of Section 8 Company Registration
Exemption Under Section 12A
Once the Section 8 Company is registered, it can apply for 12A Registration with the Income Tax Department. This allows the company to exempt its income from taxation, provided it is used solely for charitable or non-profit purposes.
Without 12A registration, even non-profit organizations would be liable to pay income tax. Therefore, this is a significant benefit for any Section 8 entity.
2. 80G Certificate for Donors
A registered Section 8 Company can also apply for an 80G Certificate. This benefit is not directly for the company, but it makes a huge difference when raising funds.
Donors contributing to your organization can claim tax deductions on their donations under Section 80G of the Income Tax Act. This encourages more people to donate and support your cause. It is especially helpful when raising funds from corporates or high-net-worth individuals.
3. No Minimum Capital Requirement
One lesser-known financial relief is that there is no minimum capital requirement for Section 8 Companies. Unlike private or public limited companies, where there’s a need to show capital investment, this allows even small-scale social entrepreneurs to start without any financial burden.
4. Reduced Stamp Duty
During the company registration process, Section 8 Companies are exempted from paying stamp duty on the Memorandum of Association (MOA) and Articles of Association (AOA). This provides a cost-saving at the time of registration itself.
5. GST Exemption on Certain Activities
While most businesses in India are required to go through GST Registration, Section 8 Companies may be exempt from GST on specific services related to education, health care, skill development, and charitable events.
However, if the annual turnover crosses the threshold limit or if the company provides taxable services, GST Registration becomes mandatory. The good news is that even then, NGOs can avail certain GST exemptions and input tax credits under applicable laws.
6. Foreign Contributions (FCRA)
A registered Section 8 Company can also apply for FCRA (Foreign Contribution Regulation Act) approval, which allows it to legally receive donations from foreign individuals or organizations. These foreign funds are also not taxed, provided they are used for the stated objectives.
This opens up a wide range of funding options and helps in expanding the reach of your non-profit work.
7. Corporate Funding and CSR Compliance
Under the Companies Act, 2013, companies with a certain turnover are required to spend 2% of their profits on Corporate Social Responsibility (CSR). Section 8 Companies are eligible to receive CSR funds from such businesses. These funds are treated as non-taxable income if they are used as per the charitable objectives defined in the MOA.
Tax Filing & Compliance for Section 8 Companies
Even though Section 8 Companies enjoy tax exemptions, they must comply with regular income tax filing and audit requirements. Here’s what is generally required:
- File Form ITR-7 annually
- Maintain proper books of accounts
- Get accounts audited by a Chartered Accountant
- Renew 12A and 80G certificates when required
- File annual reports with the Registrar of Companies (ROC)
Conclusion
Registering as a Section 8 Company provides not only a strong legal identity but also major tax benefits. From income tax exemptions (12A) to donor tax deductions (80G) and GST relief on certain services, the structure is ideal for anyone looking to make a social impact in India.
In addition to tax savings, a Section 8 Company also boosts your credibility with donors, government agencies, and the public. If you’re serious about running a transparent, compliant, and tax-efficient non-profit, Section 8 Company Registration is your best option.
If you’re also providing taxable services or selling goods as part of your initiative, don’t forget to apply for GST Registration to stay compliant.
