Income Tax Exemptions to Section 8 Companies

Only by registering a section 8 company does not result into income tax exemption and further exemption to the donators. Rather section 8 company is the first step to claim the income tax exemption. There are basically two types of income Tax exemptions which are as follows:

• - Exemption to Section 8 Company from Income Tax:

  This exemption is claimed under Section 12AA of the Income tax Act, 1961. As per section 12AA, an application is filed to the Income tax commissioner along with the necessary supporting documents. If Income tax commissioner is satisfied, then he shall grant the tax exemption to the company.However, complying with section 11 to section 13 is very important to avoid revocation of exemption.

• - Exemption to donators under Income tax:

  This exemption is claimed by donators under section 80G. However,the donators is only eligible to take tax exemption if the section 8 company is registered under section 80G. This exemption can be filed along with section 12 exemption or anytime after that.

Mandatory Requirements for Section 8 Company Registration

Section 8 company are formed by those who do not have any profit motive, rather they have a social objective which they want to achieve. Hence, there mandatory requirement to start the section 8 company are as follows:

• Minimum of two persons are required along with the documents stated above.

• You must have a plan for your social objectives, as ROC may ask for the same.

• Whatever, you choose the capital of the company, you must invest the same into company within 2 months.

Donations / Funding of NGO / NPO or Section 8 Company

Section 8 company are not allowed to raise funds by way of deposits but they can accept donations from the general public. Let us discuss the ways by which it can raise funding:

• Foreign Donations: Foreign donations are allowed only when FCRA registration has been taken. FCRA license can only be applied after three years from the date of registration. However, if it is really urgent to receive foreign donations, then you may apply for prior permission from commissioner.

• Equity Funding: Section 8 company can also raise funding by issuing new equity shares at a higher value.

• Domestic donations: There is no restriction on the domestic donations, however a proper check must be kept in order to avoid the money laundering cases.

How to Raise Funding in a Public Limited Company?

Finance is a lifeline of any business and in todays world every competition is neck to neck, availability of good finance is needed in order to sustain. You may refer the practical example of Flipkart, Ola etc. Hence, you must follow the following in private company in order to raise funds:

• Build a plan and a working business model: Gone are those days when you can get funding on the basis of an idea.Now, is the time, that you should test your own idea, reach a MVP and then build a strong future plan.

• Reach investors and list on stock exchange: You may reach the private investors or list your shares on stock exchange. However, initiating a IPO is a very complex task.

• Prepare Documents: Once you sign the term sheet, next and final step is to prepare documents like Shareholder agreement etc.