Is a section 8 company free of income tax?
A section 8 company is not free of income tax. Section 8 of the Companies Act does not exempt income. Income applied to charitable or religious objects is exempt under section 11 only where the company is registered for that exemption and the conditions of that section are met.
What does section 8 not do?
Section 8 lets the Central Government license a company that promotes commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or a similar object, and that intends to apply its profits to those objects and to prohibit a dividend. The licence changes the name and the use of profits. It does not compute taxable income. A company that has the licence and has no registration under the Income-tax Act is taxed as a company on its income.
When is income exempt?
Section 11 exempts income applied to the objects of a trust or institution that is registered. The registration now granted is under section 12AB. A fresh application is not made under the older section 12AA. A registration that is still recognised is used for the year it covers. Income that is not applied in the manner section 11 allows is not exempt merely because the company is a section 8 company. Which return follows from that choice is on the section 8 return page.
What is section 80G?
Section 80G is a deduction for the donor, in the old tax regime, for a donation to a fund or institution that is approved. It does not exempt the company’s income. A company that has opted for section 115BAA cannot claim Chapter VI-A deductions other than the two that section leaves open, so that company cannot claim 80G. A company whose income is exempt under section 11 is not computing that income under section 115BAA.
Which return is filed?
A section 8 company that claims section 11 files ITR-7. A section 8 company that does not claim section 11 files ITR-6. The company return of an audited company is due on 31 October, or on 30 November where section 92E applies. Those dates are on the due-dates page. The Registrar filings stay as well. AOC-4 and MGT-7 are on the section 8 annual page. An income-tax exemption does not cancel them.
Frequently asked questions
Four questions cover the Companies Act licence, section 12AA, section 80G, and the Registrar filings.
Does the Companies Act licence exempt the income?
No. Section 8 licences the company to drop the word Limited and to apply its profits to its objects. The Income-tax Act decides whether the income is exempt.
Is a fresh 12AA application the current route?
No. The current registration for exemption under section 11 is section 12AB. A registration that is still recognised under the older section is used for the year it covers.
Does section 80G exempt the company?
No. Section 80G is the donor’s deduction. It does not compute the company’s own income.
Can the company skip the Registrar filings?
No. Income-tax exemption does not remove Form AOC-4 or Form MGT-7. Those filings are on the section 8 annual page.
Sources
Exemption of charitable income is section 11 of the Income-tax Act, 1961. The registration is section 12AB. Section 8 of the Companies Act is a different statute.