A Section 8 company is formed with the objective of promoting commerce, arts, science, sports, education, research, social welfare, and protection of the environment. in a country. Though they are authorized to run a business and earn a profit, the profit can only be utilized for meeting company objectives, and cannot be shared among the members.
Checklist For Annual Compliance
- Appointment of An Auditor: Under section 139 of the Companies Act 2013, it is mandatory for companies to appoint an auditor. The book of accounts and annual returns of the company shall be maintained.
- Maintenance of A Register: The company shall maintain a statutory register consisting of loans obtained, charges created, its members, etc as enumerated under section 8 of the companies act 2013.
- Convening Meeting: Annual general body meeting and other statutory meetings have to be conducted.
- Report by Directors: Directors of the company shall file their annual report in an appropriate manner, consisting of fiscal data and corporate social responsibility. The board directors are responsible for this report.
- Financial Statement of The Company: The balance sheet, profit and loss A/C, cash flow statement and other financial statements to be filed by the company for the previous financial year.
- Tax Returns: At the end of every assessment year, before 30th September, tax returns are to be filed.
- Filing of Financial Statements: The financial statement shall be filed in the appropriate form ( E-FORM AOC-4), within 30 days from the last general body meeting,
- Filing Returns: Limited companies need to file the Form MGT-7 with Registrar of Companies (RoC), for filing returns within 60 days of the annual general meeting.
What Are The Compliances For A Section 8 Company?
All the benefits of a Section 8 company, such as the ability to raise funds in the form of donations and contributions achieved through disciplined compliance.
A Section 8 company is a form of NGO registered under the Companies Act, 2013. According to which all Section 8 companies must adhere to the compliance levied by Registrar of Companies (RoC) and Income tax authorities. Failure to fulfill their compliance requirements results in paying heavy penalties (up to Rs. 1 lakh a year), and chances are such organizations and their directors’ may even get blacklisted for a period of time.
Compliances for Section 8 companies
- Notice as to the appointment of Auditor within 15 days of the appointment – Form ADT-1
- Director’s consent form (Form DIR 2) to occupy the office within 30 days from the director’s appointment.
- Returns form (Form MR-1) within 60 days from the appointment of Managing Director, manager or key managerial person
Immediate compliance after incorporation
Appoint Auditor Within 30 Days:
A Section 8 company is required to appoint the First Auditor within 30 days from the date of its incorporation to take care of all annual financial filings of the company.
Conduct Meeting For The Board Of Directors Within 30 Days:
The first meeting of the Board of Directors must be conducted within 30 days from the date of incorporation. Thereafter, the Board of Directors shall hold at least one meeting every six calendar months.
Annual General Meeting:
A Section 8 company must hold its first Annual General Meeting (AGM) within nine months from the close of the first financial year of the company.
What are the Tax Compliances for a Section 8 Company?
A Section 8 company is liable to pay corporate tax as prescribed by the Income Tax Act. But, it can claim certain income to be excluded in calculating the total income which is applicable to income tax. The compliances to be fulfilled to claim such an exemption are:
- The Section 8 company shall be registered under Section 12A of the Income Tax Act, with the Principal Commissioner using form 10A.
- It must comply with the conditions specified under Section 11, so as to be eligible for the exemption.
- The company has to be approved under Section 80G, through Form 10B.
What are the Penalties for Non-compliance:
Non-compliance may lead to penalties ranging from Rs.25,000/- to Rs.5,00,000/- and/or imprisonment.
FAQs on Annual Compliances for Section 8 Companies
Can a Section 8 company be converted into another type of company?
Yes. However, it can be only done as per the rules specified by the Ministry of Corporate Affairs.
Can Section 8 Companies claim full tax exemption?
Yes. By fulfilling the conditions specified by the relevant provisions under the Income Tax Act, Section 8 Companies can claim full exemption.
Can section 8 Companies issue dividends to its members?
A Section 8 Company can be incorporated as a company limited by shares or guarantee, with or without share capital. Irrespective of the category of the company, a Section 8 company cannot issue dividends to its members.
What is the penalty for failure to appoint an Auditor within the prescribed time?
Failure to appoint an Auditor is punishable with a fine of Rs. 25,000 which may extend up to Rs. 5,00,000.
What is the penalty for the non-filing of a Director’s consent form with the RoC (Registrar of Companies)?
Failure to file Director’s Consent notice is punishable with a fine up to Rupees 50,000 or imprisonment up to six months.
What happens if I don’t file my Annual Returns?
Failure to file Annual Returns is punishable with a fine of Rupees 50,000 which may extend to Rupees five lakh.
What is the penalty for non-compliance of requirements on the Annual General Meeting?
- Failure to send a copy of audited financial statements to the members before the Annual General Meeting, and record the minutes of the meeting are each punishable with a fine up to rupees 25,000/-
- Failure to conduct an Annual General Meeting is punishable with a fine up to Rupees one lakh.
- Failure to submit a report on Annual General Meeting is punishable with a fine of Rupees one Lakh which may extend to Rupees five Lakh.
Is there any condition to claim tax exemption?
Yes, you need to register your company with the Commissioner of Income-tax to be eligible for tax exemption.
Can I claim tax exemption without registration?
No. If your company is not registered with the Commissioner, the tax will be levied on par with other types of companies, at 30%.
Can A Section 8 Company accumulate profit without paying taxes?
Yes. A Section 8 Company is allowed to accumulate or set apart (up to 15%) of its total income without paying tax.