Relief and Exemptions to Section 8 Companies

A Section 8 Company is a Company established under the provisions of the Companies Act, 2013 which has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other objects with the condition that they apply the profits into furthering the objective.

Accordingly, in this article, we shall study about the exemptions and benefits of a Company formed as a not-for-profit organization under Section 8 of the Companies Act, 2013 under the provisions of the Companies Act, Income Tax Act, Stamp Act and others.

GENERAL BENEFITS CONNECTED TO THE INCORPORATION OF SECTION 8 COMPANY:

• By forming a Section-8 Company, the purpose or objective of the organization can execute a wide range of activities and gain integrity and fidelity as it is an approved establishment by the Central Government.
• Due to its strict compliances as regard to functioning, it has a more reliable image in front of internal and external user of information as comparison to societies.
• The credibility of Section 8 Company is more in compare to societies and other types of charitable organizations.
• Grants and subsidies from the government and other institutions are mostly considerable to the Section-8 Company as contrast to Societies or Trust.

EXEMPTIONS AND RELIEFS AVAILABLE TO SECTION-8 COMPANIES UNDER DIFFERENT ACTS, RULES AND REGULATIONS:

COMPANIES ACT, 2013 (‘ACT’): –

• Directorship in Section 8 Companies will not be counted for calculating the ceiling with respect to maximum number of directorships as prescribed under Section 165 of the Act.
• A general meeting may be called by giving notice of not less than 14 clear days instead of 21 clear days.
• A Section 8 Company can hold at least one meeting within every six calendar months instead of holding four meetings a year.
• Recording of minutes of General Meetings, Board Meeting and other resolutions is not applicable on a Section 8 Company. However, the minutes of meetings may be recorded within 30 days of conclusion of the meeting in cases where the Company’s articles provide for confirmation by way of circulation of minutes.
• A firm can even be a member of a Section 8 Company.
• Section 149(1) of the Act shall not apply to Section 8 Company accordingly, a Section 8 Company is not required to appoint an Independent Director. Further, for the above-mentioned reason, the Audit Committee of a Section 8 Company shall also not require to have Independent Directors as member of its Board.
• Section 8 Companies are not required to appoint a qualified CS professional as its Company Secretary.
• It is exempted from applicability of secretarial standards as well.
• Section 178 of the Act is not applicable to Section 8 Company. Accordingly, Section 8 Companies are not required to have a Nomination and Remuneration Committee and nor a Stakeholders Relationship Committee.

There are numerous sections such as Section 150, 152(5), 160, 165(1), 178,149(1) (b) and many more provisions that are not applicable over Section- 8 Companies and herein, only most practical significant ones are discussed. Furthermore, you can check out all exemptions on https://taxguru.in/company-law/exemptions-section-8-nonprofit-companies-462-ca-2013.html

INCOME TAX ACT, 1961

Section 8 Company is immune from some provisions of the income tax if their main activity is “charitable purpose” as mentioned section 2(15) of Income Tax Act, 1961. They also avail various other deductions and tax benefits under Section 80G of the Income Tax Act, 1961.

Below is the list of reliefs or exemption that every Section 8 Company can procure:

• 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.
• 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 favorable conditions to not for profit organizations in terms of the tax exemption.

FOREIGN CONTRIBUTION AND REGULATION ACT

A Section 8 Company can register under FCRA to receive funds from foreign source. Further, registration under FCRA is mandatory for claiming such reliefs and benefits as mentioned under the Act.

INDIAN STAMP ACT, 1899

Stamp duty on Memorandum & Articles of Association of Section 8 or on any increase in share capital is governed by Indian Stamp Act, 1899 as adopted by respective state or stamp act of respective state, as the case may be.

Most of the states like Delhi, Maharashtra, etc. provide privileged rates for stamp duty on MOA/ AOA of Section 8 Companies or on increase in authorized share capital.

OTHER CENTRAL/STATE GOVERNMENT SCHEMES TOWARDS TO THE SECTION-8 COMPANIES

The central and state government have schemes to set up and promote Section 8 Companies for rural products & charitable purposes.

The central government plans to have Section 8 company to promote selected rural products and create an end-to-end value chain for them with the help of professionals and experts. These are generally the products made by women-led self-help groups, village organizations, farmers-producers etc. and for the same, Government provides many reliefs and exemption to the Companies under these plans or schemes.

FREQUENTLY ASKED QUESTIONS (FAQs) ON SECTION 8 COMPANIES:

Q.1 Is there any restriction on a Section 8 Company from making investments, giving loans, guarantees etc. to other Companies?

Reply: Yes, Section 8 Company can give loans or guarantees or provide security in connection with loan or acquire by way of subscription, purchase or otherwise, the securities of the company however, the same should be in compliance with the Section 180, 185, Section 186 and other sections, whatsoever applicable, of the Companies Act, 2013.

Q.2 Whether Accounting Standards are applicable on a Section 8 Company?

Ans. Yes, there is no such exemption provided for section 8 Companies.

Q.3 What is the meaning of “Charitable Purpose” in terms of the provisions of Section 2(15) of the Income Tax Act, 1962?

Reply: According to Section 2(15) of Income Tax Act, 1961, “charitable purpose” includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.

Q.4 Is Section-8 Company is entitled for any exemptions/ reliefs from payment/applicability of excise duty, service tax, customs duty, deduction of tax at source, collection of tax at source etc.?

Ans. No specific exemption is made available to Section 8 Company regarding above mentioned Acts.

{The author i.e., Mrs. Kajal Goyal is a Company Secretary in Practice at M/s. Kajal Goyal and Associates and can be reached at (M) +91-9999952595 and (E) cskajalgoyal@gmail.com}