Section 8 Companies are non-profit entities that work for charitable, social, environmental, educational, and welfare-based objectives.
To support such causes, the Indian government provides significant tax exemptions under the Income Tax Act and other financial laws.
These benefits help NGOs reduce operational cost, enhance fundraising ability, and ensure that maximum funds can be directed towards public welfare.
What Makes Section 8 Companies Eligible for Tax Exemptions?
A Section 8 Company enjoys tax benefits only when it:
- Register as a non-profit under Companies Act, 2013
- Use income exclusively for charitable purposes
- Maintains proper books of accounts
- Applies for 12A & 80G registration under the Income Tax Act
- Does not distribute profit to members or directors
Without these conditions, tax exemptions are not applicable.
Major Tax Benefits Available to Section 8 Companies
Income Tax Exemption Under Section 12A (12AB)
Once a Section 8 Company obtains 12A registration, it becomes eligible for:
- Income tax exemption on donations, grants, membership fees, and project income
- No tax on corpus donations
- Exemption on utilisation of income for charitable work
This is the biggest tax benefit available to any charitable company.
80G Deduction Benefits for Donors
A Section 8 Company with 80G approval allows donors to claim:
- 50% deduction on donated amount
- In special cases (Govt.-notified funds) – 100% deduction
- Increased donor trust and CSR funding opportunities
80G status directly enhances fundraising capacity.
Exemption on Surplus Income used for Charitable Purposes
Income generated from activities such as:
- Training programs
- Workshops
- Social events
- CSR projects
- Rental income (if used for charity)
is exempt from tax as long as the money is used for charitable objectives only.
Capital Gains Exemption
When a Section 8 Company sells a capital asset (property, equipment, etc.):
- Capital gains are not taxable if proceeds are reinvested into another capital asset
- Exemption applies under Section 11(1A) of the Income Tax Act
This ensures that NGOs can upgrade infrastructure without tax burden.
TDS & GST-Related Relaxations
TDS Benefits
- Payments received as donations are not subject to TDS.
- Many charitable services are exempt from TDS-related deduction.
GST Benefits
- Activities classified as “charitable activities” under GST are fully exempt.
- Government-funded training programs for skill development are exempt.
- Donations without any direct supply are not considered a GST supply.
Property & Stamp Duty Exemptions (State-wise)
Several states provide stamp duty concessions for Section 8 Companies on:
- Memorandum & Articles filing
- Property purchase for charitable use
- Registration of lease deeds
States like Maharashtra, Karnataka, Delhi, Rajasthan, Tamil Nadu offer reduced stamp duty for NGOs.
Eligibility Criteria to Claim These Tax Benefits
To claim tax benefits, a Section 8 Company must ensure:
- Valid 12A & 80G registration
- Activities strictly match “charitable purpose” under Section 2(15)
- Funds are not misused or diverted
- Annual filings with MCA and ITD are up to date
- Proper auditing and accounting procedures are followed
Documents Required for 12A & 80G Registration
- Certificate of Incorporation (Section 8 License)
- PAN of the Company
- MoA & AoA
- Details of Directors
- Financial statements of previous years
- Activity report
- Donation receipts (if available)
- CSR/project documents
- Bank account details
These documents help authorities verify transparency before granting tax exemptions.
Compliance Requirements to Maintain Tax Exemptions
To retain tax benefits, the company must adhere to:
- Annual IT return filing (Form ITR-7)
- MCA filings – AOC-4 & MGT-7A
- Proper maintenance of books
- Utilisation of funds only for charitable objectives
- Avoidance of prohibited activities (political, religious beyond limits)
- Timely renewal of 12A/80G (if applicable)
Failure to compliance can lead to suspension or cancellation of tax exemptions.
Practical Examples of Tax Savings for Section 8 Companies
Example 1 – Educational NGO Saving Income Tax
If a Section 8 Company receives ₹25 lakh donations and holds valid 12A registration, the entire ₹25 lakh becomes tax-free, saving approx. ₹7.5 lakh in taxes.
Example 2 – Donor Claiming 80G Benefit
A donor contributing ₹1 lakh under 80G can claim ₹50,000 as deduction, reducing his taxable income substantially.
Example 3 – Capital Gains Exemption
A Section 8 Company sells old premises worth ₹10 lakh and reinvests in a new training center.
Result: Zero capital gains tax.
Common Errors NGOs Must Avoid
- Using funds for non-charitable purposes
- Paying directors’ excessive salary
- Delayed MCA or IT returns
- Not issuing 80G-compliant donation receipts
- Improper record-keeping
- Non-renewal of 12A/80G where required
Avoiding such mistakes ensures long-term tax exemption benefits.
Conclusion
Section 8 Company registration enjoy generous tax benefits, making them one of the most efficient structures for charitable organizations in India. With 12A & 80G exemptions, GST relief, capital gains exemption, and state-level concessions, NGOs can maximize impact while minimizing tax liabilities.
Proper compliance and transparent financial management are key to preserving these benefits year after year.
FAQs
Are Section 8 Companies 100% tax-free?
Yes-only if they have 12A registration.
Do donors automatically get 80G?
No. The NGO must first obtain 80G approval.
Is GST applicable to all activities?
No. Only charitable activities listed in the GST Act are exempt.
Can a Section 8 Company generate profit?
Yes, but the profit must be used only for charitable objectives.
What is a Section 8 Company in India?
A Section 8 Company is a non-profit organization registered under the Companies Act, 2013, formed to promote charitable objectives such as education, social welfare, art, science, religion, or environmental protection.
Are Section 8 Companies exempt from Income Tax?
Section 8 Companies are not automatically exempt from income tax. They must obtain 12A/12AB registration under the Income Tax Act to claim income tax exemption on their surplus.
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