NGO / NPO / Section 8 Company

A Section 8 Company aims to promote science, art, commerce, sports, charitable activities, etc. Such companies are registered to work towards the promotion of the less-talked communities and sectors in India. A Section 8 Company is a Non-Governmental Organization (NGO) and one of India's most preferred forms of NGO. It is registered under the Companies Act, 2013 and hence, it has to follow the compliances prescribed under the Companies Act 2013. It is vital for Section 8 Company to follow compliances prescribed by the Government.

If a company doesn’t stay updated with the Section 8 Annual Compliances, they end up paying the penalties to the Government. The Companies Act, 2013 mandates the provision for all the Section 8 Companies in India to follow the compliances with the MCA (Ministry of Corporate Affairs) strictly.

What is NGO | NPO | Section 8

  • A Non-Profit Organization means a trust, company or other association of persons, that is established and incorporated for a public purpose.
  • The income and property of such organization are distributive neither to its members nor to office bearers except as reasonable compensation for services rendered.
  • In India, NGO includes all kinds of Non Profit Organization i.e. Trust, Society and Section 8 Company.
  • In a Charitable Trust at least two people are required, there is no limit of maximum members.
  • In society, a minimum of seven members are required to be members.
  • A non-profit Company can also be registered under section 8 of the Companies Act with the Registrar of Companies.
  • Other names for such not-for-profit organizations are “Sangathan”, “Sangh”, “Sangam”. Income tax exemption is available for all non-profit NGOs.

Benefits of Following Section 8 Annual Compliances

  • Transparency in the Company’s Operations: Compliances such as preparation and filing of financial returns, annual returns, etc. explain the Company's financial situation clearly. Hence, filing the Company's compliances creates the transparency of the Company's operation or actual condition.
  • Better Credibility: Companies who file compliances on time have better credibility than the one who doesn’t. As a result, it’s easy for such companies to avail financial help and market credit from the concerned authority.
  • Avoid Legal Complications: If you don't follow the compliances of the Company, you will get trapped into legal issues such as receiving notices from the MCA, which could further lead you into legal trouble. Hence, it's always advisable to meet the compliances on time to avoid any legal complications in the future.
  • Build Trust: Whether it is customer or vendor or supplier or the regulatory body, everybody trusts those companies who file compliances on time and are quite open about their financial detail. Such companies have better credibility; and hence, find it easy to build trust among everybody.
  • Avoid Penalties: Finally, the biggest reason for filing compliances on time is to avoid penalties. Non-compliance could lead to several bad consequences such as company closure, confiscation of a license, or severe fines.

Checklist for Section 8 Annual Compliances in India

  • Filing ADT-1 .i.e. Appointment of Auditor

To take care of the Company's financial filings on an annual basis, the Section 8 Company needs to appoint an auditor mandatorily. According to section 139 of the Companies Act, 2013, every Company must inform the MCA about the auditor's appointment in the form ADT-1. The book of accounts & annual returns of the Company shall be audited by the statutory auditor who will be appointed for a period of 5 years.

  • Maintenance of Books of Accounts

Every Section 8 Company is obligated to maintain the books of accounts of the Company. The books of accounts keep the records of the filing of the annual returns, etc.

  • Maintenance of Statutory Registers

All the Section 8 Companies must maintain the statutory records in the registers. The register contains the details of members, loans and investments, and charges, etc. Further, it provides an overview of how actively the Company works every year.

  • Convening Meetings

Annual general body meeting is to be conducted once a year within six months of the end of Financial Year & other board meetings have to be conducted.

  • Director’s Report

Director's report is the document that consists of the info regarding the Company and its compliance along with a set of financial, accounting, and corporate social responsibilities. The Board of Directors is responsible for producing this report. As per the provisions of the Companies Act, 2013, producing a director's report is compulsory compliance for every Section 8 Company in India.

  • Preparation of Financial Statements

The Company's financial statement consists of the balance sheet, cash flow statement, profit & loss of the Company and more. Hence, every Company is supposed to prepare the financial statements of the preceding financial year mandatorily.

  • Income Tax Returns Filing

Every Section 8 Company must file income tax returns before or by 30th September of the next financial year. It is necessary to file income tax returns because it gives an overview of the Company's total income.

  • Filing of Financial Statements (AOC-4)

Every Section 8 Company needs to file a copy of the financial statements in the prescribed format, i.e. in the e-form AOC-4. The financial statement must be filed within thirty days from the date of the last annual general meeting held.

  • MGT-7, Filing of Annual Returns with ROC

Since Section 8 Companies are registered as limited companies, they also need to file Form MGT-7 with the ROC for filing the Company's annual returns. MGT-7 must be filed within sixty days from the date of the last annual general meeting.

Event-based Section 8 Annual Compliances

Event-based, as the name suggests, are the compliances that need to be filed on the occurrence of specific events. Unlike annual compliances, these are non-periodical in nature. The checklist for event-based compliances for Section 8 Company is as follows:

  • Appointment or resignation of Directors;
  • Appointment or resignation of Auditors;
  • Transfer of Shares;
  • Appointment of KPM (Key Managerial Personnel);
  • Receipt of share application money;
  • Change of Company’s name;
  • Amendment in the Company's MOA (Memorandum of Association);
  • Change in Company's registered address;
  • Any other changes in the Company's structure, etc.

Due Dates for Filing Section 8 Company Compliances

The only way to avoid penalty and fine for non-compliance for Section 8 Company is to follow the compliances within the stipulated time.

COMPLIANCE

DUE DATE

AGM (Annual General Meeting)

30th September

AOC-4

Within 30 days of AGM

MGT-7 (Annual Returns)

Within 60 days of AGM

Income Tax Returns (Form ITR-6)

30th September

Penalties for Non-Compliance

The Ministry of Corporate Affairs has the power to impose certain penalties in case it encounters any non-compliance with the procedures. Penalties to be charged are as follows:

  1. The Central Government may disavow the permit allowed to the Organisation on the off-chance that it finds that the Organisation is working incorrectly or in a way violate the Organisation's object;
  2. The chiefs & each official of the Organisation who is in default will be liable for imprisonment for a term and a fine which may be extended to Rs. 25 lakhs or with both;
  3. In the event that it is discovered that the issues of the Organisation were directed falsely, every official in default will be at risk for activity under area 447;
  4. The Organisation will be guilty with fine, which is not less than Rs. 10 lakhs and can be extended to Rs. 1 crore.
FAQs

Frequently Asks Questions

The term “NGO” denotes a unit that operates independently towards the social welfare of the public, children, animals, etc., that, too, without government aid.
The benefits of filing compliances are Avoid Penalties, Building Trust, Transparency of Operations, Avoid and Legal Issues, and Increases credibility.
One can check the status by visiting the official MCA portal.

Yes, GST is applicable to a section 8 company.

The Annual Compliances for a Section 8 Company are Appointment of Auditor, Maintenance of Books of Accounts, Convene Statutory Meeting, Preparation of Financial Statements, Preparation of Financial Statements, Income Tax Returns, Financial Statement Returns Filing and Annual Return Filing.

If an individual fails to furnish Annual Returns for Section 8 Company, then the same will attract penalty, which ranges from Rs 50000 to Rs 500000.

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