In India, a non-profit organisation can be registered as Trust by executing a Trust deed or as a Society under the Registrar of Societies, or as a non-profit company under Section 8 Company of the Companies Act, 2013. A Section 8 Company is the same as Section 25 company under the old Companies Act, 1956. Under the new Companies Act 2013, Section 25 (as per the old Act) has now become Section 8.
As per Section 8(1a, 1b, 1c) of the Companies Act, 2013, a Section 8 company can be established for the “promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object”. The Act further states that a Section 8 company can purse the above objects subject to the condition that it “intends to apply its profits, if any, or other income in promoting its objects” and “intends to prohibit the payment of any dividend to its members.”. In simple terms, a Section 8 company must promote a public cause and the proceeds generated by the entity must solely be used to support the stated public cause(s) only.
Private limited company and Section 8 company registration procedure are very similar to each other. A minimum of two Directors are required to start a Section 8 company. One of the Director must be an Indian Citizen and Indian Resident – whereas one or more persons acting as Director can be an Indian National or Foreign National. In addition to the required number of persons, a registered office address within India would be required for the Section 8 Company. Finally, Section 8 company would be subject to the following conditions:
A Trust in India is controlled by the Trustees mentioned in the Trust Deed. A Section 8 Company would be controlled by the Board of Directors – similar to a private limited company. During the incorporation process, the digital signature certificate is obtained for the proposed Directors. To obtain digital signature and DIN, the proposed Directors must submit a copy of their:
Once the documents are submitted, the applicant must complete an OTP and eKYC procedure through a smartphone to obtain a digital signature in their name.
In parallel to the digital signature application processing, the name approval application can be initiated for the Section 8 Company to the MCA. The name of a Section 8 Company must end with the words prescribed for this purpose like foundation, forum, association, federation, chambers, confederation, council, electoral trust, etc. The words names used in a Section 8 Company are foundation and association. The name approval process can be completed in 24-72 hours.
Once the name approval and digital signatures are obtained, an Advice House Incorporation Expert would prepare the MOA, AOA and incorporation application for the Section 8 Company. All the Directors must sign the document and send a copy to the Advice House on mail. Once the documents are received and verified, the incorporation application is filed with the MCA.
On approval of the incorporation application, the Government would issue the incorporation certificate, PAN and TAN for the Section 8 Company.
80G is a certificate that exempts a person – making a donation to a Section 8 company from part or fully paying taxes on the donation amount. There is, however, a maximum allowable deduction criterion. The criterion is if the aggregate of the amount you donate exceeds 10% of the total gross income, then the excess amount will not qualify for tax benefit. 80G certificates made its way into law book in the year 1967-68, and it continues to be an important tax-saving mechanism for millions of taxpayers in India.
12A registration is a one-time registration obtained by most Trusts, right after incorporation to be exempted from paying income tax. Section 8 Company, Trusts and NGOs having 12A registration enjoy exemption from paying income tax on the surplus income of the Trust or NGO. Income tax exemption is available for all non-profit NGOs. Hence, it is important for all Trusts, NGOs and other Not-for-Profit organizations to be aware of Section 12A of Income Tax Act and obtain the same, soon after incorporation of the Trust or NGO.
Organizations seeking foreign contributions for definite cultural, social, economic, educational or religious programmes may obtain FCRA registration or receive foreign contribution through “prior permission” route. It is preferable for an FCRA applicant to be a Trust or Society or a Section 8 Company. The not-for-profit entity must have also been in existence for a minimum of three years while making the FCRA application. It should also not have received any foreign contribution prior to that without the Government’s approval. Additionally, the entity seeking registration should have spent at least INR 10,00,000/- over the last three years on its aims and objects, excluding administrative expenditure. Statements of Income & Expenditure, duly audited by Chartered Accountant, for last three years are to be submitted to substantiate that it meets the financial parameter.
As a company driven to help people building organisations and institutions, Advice House has had the pleasure and privilege of working as a partner beside to many noble organisations focused on helping disabled children, children with AIDS etc. If you wish to start a Section 8 Company in India to promote some social good or charitable work, contact Advice House today.