A Section 8 Company, registered under the Companies Act, 2013, is formed for charitable or not-for-profit purposes such as promoting commerce, art, science, education, sports, research, social welfare, etc. While these companies are non-profit in nature, they are not automatically exempt from income tax.
Below is a detailed explanation of the applicability of income tax to Section 8 companies:
š¹ Income Tax Applicability
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Taxable Entity:
A Section 8 company is treated as a “company” under the Income Tax Act, 1961, and is thus liable to pay income tax. -
Tax Rate:
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Taxed at 22% (plus surcharge and cess) under Section 115BAA (if opted), or
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25% (plus surcharge and cess) if turnover is below ā¹400 crore, or
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30% (plus surcharge and cess) for others not opting special regimes.
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š¹ Exemption Provisions ā Section 11 & 12
To claim exemption from income tax on income applied to charitable purposes, the Section 8 company must:
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Register under Section 12AB of the Income Tax Act.
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Utilize at least 85% of its income for the charitable objectives.
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Not apply income for the benefit of specific individuals (Section 13 restrictions).
If approved under Section 12AB, the income applied for charitable purposes can be exempt under Sections 11 & 12.
š¹ Donor Exemptions ā Section 80G
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If registered under Section 80G, donors to the company can claim tax deductions on donations.
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Requires separate registration from 12AB.
š¹ Other Key Points
| Aspect | Applicability |
|---|---|
| Tax Audit | Yes, if gross receipts exceed ā¹1 crore (or as per limits under Section 44AB) |
| TDS Compliance | Yes |
| Return Filing | Mandatory (ITR-7 if claiming exemption under 11 & 12) |
| MAT (Minimum Alternate Tax) | Not applicable to Section 8 companies claiming exemption under Section 11 |
ā Conclusion
A Section 8 company is liable to pay income tax unless it obtains registration under Section 12AB for exemption. Merely being a not-for-profit company under the Companies Act does not grant tax exemption.
FAQs ā Income Tax & Section 8 Company
1. Is a Section 8 company exempt from income tax automatically?
No.Ā A Section 8 company is not automatically exempt from income tax. It must register underĀ Section 12ABĀ of the Income Tax Act to claim exemption on income applied to charitable purposes.
2. Under which sections can a Section 8 company claim income tax exemption?
Exemptions can be claimed underĀ Sections 11 and 12Ā of the Income Tax Act, if the company is registered underĀ Section 12AB.
3. What is the income tax rate for a Section 8 company without 12AB registration?
It is taxed like any other company:
- 22% (with 115BAA option) or
- 25% (if turnover < ā¹400 crore) or
- 30% (standard rate),
plus applicableĀ surcharge and cess.
4. Can a Section 8 company receive donations and provide 80G receipts?
Yes, but only if it isĀ separately registered under Section 80G. This allows donors to claim deductions on donations made.
5. Is ITR filing mandatory for Section 8 companies?
Yes.Ā Every Section 8 company must file anĀ Income Tax Return (ITR-7)Ā annually, whether or not it has taxable income.
6. What if a Section 8 company earns profits from business activities?
Such income isĀ taxable unless:
- The business is incidental to its objectives, and
- Separate books of accounts are maintained for it.
7. Is tax audit applicable to Section 8 companies?
Yes, if gross receipts exceed the limits underĀ Section 44ABĀ (e.g., ā¹1 crore or ā¹5 crore depending on cash transactions).
8. Is MAT (Minimum Alternate Tax) applicable to Section 8 companies?
No.Ā MAT isĀ not applicableĀ to Section 8 companies that are registered underĀ Section 12ABĀ and claim exemption under Sections 11 and 12.
9. Can a Section 8 company distribute profits or dividends?
No.Ā By law, a Section 8 companyĀ cannot distribute profitsĀ to its members. All income must be used for its charitable objectives.
10. How to apply for 12AB and 80G registration?
Application is made online via theĀ Income Tax e-filing portalĀ (Form 10A or 10AB), along with the required documents like registration certificate, MoA/AoA, activity reports, etc.