Section 8 Company Compliance: Key Rules & Major Exemptions

Section 8 company

Section 8 Company Compliance: Key Rules & Major Exemptions

by Team Alonika 0 Comment
Section 8 company registration

While businesses help the economy grow, another critical group of entities works hard to improve society—these are non-profit organizations. Section 8 companies, formed under the Companies Act, 2013, have a unique and essential role. These companies are created not for profit but to promote noble causes such as education, science, art, sports, social welfare, environmental protection, and charitable activities. To begin, one must undergo the Section 8 company registration process, which ensures that the company is legally recognized and eligible for various government benefits.

In this blog, we will cover all the essential compliance requirements and taxation rules of Section 8 companies and highlight the changes introduced in the 2025 Budget that affect these entities.

 

Mandatory Legal Compliance for Section 8 Companies

To maintain their operations as legally and transparently as possible, they must adhere to specific essential rules outlined in the Companies Act, 2013.

  1. Appointing an Auditor

Every company must appoint a statutory auditor within 30 days of its incorporation. The auditor is responsible for reviewing and verifying the company’s financial records and reports. The appointment details must be shared with the Ministry of Corporate Affairs (MCA) by submitting Form ADT-1. The typical term for an auditor is five years.

  1. Maintaining Statutory Registers

These companies must maintain up-to-date registers at all times. These documents provide a clear picture of the company’s internal management. Key registers include:

  • Register of Members
  • Register of Directors and Key Managerial Personnel
  • Register of Loans and Investments

These records must be kept in good order to comply with the law and for internal audits.

  1. Organizing Regular Meetings

They should hold regular meetings to ensure smooth decision-making and transparent governance.

  • Board Meetings: At least one board meeting should be held every six months. These meetings enable the board to track company activities and make informed, critical decisions.
  • Annual General Meeting (AGM): This must be held within six months after the end of the financial year. During the AGM, members discuss the company’s financial results, vote on key decisions, and ensure the company is being run responsibly.

 

Filing Financial Statements and Annual Returns

Every company must submit its financial statements and annual returns to the MCA each year:

  • Financial Statements (Form AOC-4): These must be submitted within 30 days of the AGM.
  • Annual Return (Form MGT-7): This gives details of the company’s structure, shareholders, and key changes. It must be submitted within 60 days after the Annual General Meeting (AGM).

 

Taxation and Financial Rules

Although these companies are non-profit, they must still comply with tax-related laws, including income tax filing and GST regulations.

  1. Income Tax Returns

All companies must file income tax returns by September 30 each financial year. If the company is registered under Section 12A and Section 80G of the Income Tax Act, it can enjoy tax exemptions, provided it uses its income strictly for charitable purposes.

  1. GST Compliance

If the company’s annual turnover exceeds:

  • ₹40 lakh for goods, or
  • ₹20 lakh for services,

Then it must register for GST. This registration also allows the company to claim Input Tax Credit (ITC) on goods and services purchased for charitable work, which helps reduce its tax burden.

  1. Tax Exemptions under Sections 12A and 80G

These two sections provide major tax benefits:

  • Section 12A: Exempts income from tax, but only if 85% of that income is used for charitable purposes. If not, the unused portion becomes taxable. Additionally, if the income exceeds ₹2.5 lakh, proper books of accounts and supporting documents must be maintained.
  • Section 80G: Donors who contribute under this section can claim deductions on their donations, encouraging more public support.

However, if the company misuses funds or offers benefits to trustees, it may be taxed at a flat rate of 30% on such income, without deductions.

 

Event-Based Compliance

Apart from regular filings, these companies must also report specific changes or significant events to the authorities.

  • Change in Directors

If the board of directors changes, the company must inform the MCA by filing Form DIR-12 within 30 days.

  • Changes in Memorandum or Articles of Association

If a company updates its goals or rules, it must submit Form MGT-14 within 30 days after the resolution is approved.

  • Significant Beneficial Ownership

They are required to maintain a record of individuals who hold significant ownership or control in the company. Any change must be reported to the Registrar of Companies (ROC) to ensure transparency and compliance.

  • Penalties for Not Following the Rules

Failing to comply with the above requirements can lead to serious consequences:

  1. Fines and Monetary Penalties: The company and its directors may be fined.
  2. Legal Action: Failure to comply may result in legal proceedings against the company’s leadership.
  3. Loss of Tax Benefits: If the rules are not followed, the company may lose its 12A and 80G registrations, which could impact funding and donor support.

Union Budget 2025 and Its Implications for Charitable Companies

The 2025 Union Budget introduced a few important changes that directly affect non-profit and charitable organizations in India:

  1. Increased Oversight on Fund Usage

The government has implemented stronger monitoring systems to ensure that funds are used correctly for the stated charitable goals. This move aims to improve the efficiency and trustworthiness of non-profit organizations.

  1. More Digital Filing Options

The Budget has encouraged the use of digital platforms for filing returns and maintaining compliance records. This helps reduce paperwork, errors, and the need for manual processes, making compliance easier and faster.

  1. Clearer Tax Guidelines

New guidelines have been introduced to simplify tax exemptions and deductions for non-profits. This motivates more individuals and organizations to establish non-profit organizations and support social welfare initiatives.

 

Empowering Social Good Through Compliance and Purpose!

These companies are a cornerstone of India’s social development. From promoting education and healthcare to preserving art and culture, they make a huge difference in communities. However, to function smoothly and retain their benefits, they must strictly adhere to all compliance rules under the Companies Act, Income Tax, and GST regulations. Timely filings, proper governance, and responsible use of funds help build public trust and ensure these entities continue to serve their causes effectively.

If you’re planning to start a Section 8 company and are looking for expert support, Alonika.in is here to help. Known for our professionalism and reliability, we provide comprehensive assistance with Section 8 company registration in Mumbai. From documentation to compliance, we streamline the process, making it smooth, efficient, and stress-free.

Let Alonika.in simplify the registration process for you in Mumbai. Get in touch today!