Are section 25 companies in India exempt from income tax?

 

Section 25 companies in India, now known as Section 8 companies under the Companies Act, 2013, are nonprofit organizations formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, or any other useful object. These companies are registered with the objective of applying their profits, if any, or other income solely for promoting their objectives, and they do not distribute dividends to their members.

Under the Income Tax Act, 1961, Section 8 companies (formerly Section 25 companies) are eligible for certain tax exemptions. However, it's important to note that the mere registration as a Section 8 company does not automatically grant complete exemption from income tax. The tax benefits and exemptions available to these companies are subject to meeting specific conditions and compliance requirements.

Here are some key points regarding income tax exemptions for Section 8 companies:

Registration: Section 8 companies must obtain registration from the Income Tax Department as a charitable or nonprofit organization to avail of tax benefits.

Exemptions: Section 8 companies are eligible for exemptions under various provisions of the Income Tax Act, such as Section 11, Section 12A, and Section 10(23C).

Section 11: Under this section, income derived from property held for charitable or religious purposes is exempt, subject to certain conditions.

Section 12A: This section provides exemption from tax on income for nonprofit organizations if they are registered under Section 12A. Registration under Section 12A is necessary to avail of the exemption.

Section 10(23C): This section provides exemption from income tax to entities that are engaged in specific charitable, educational, or other activities specified by the government. Section 8 companies may fall under this section if they meet the required criteria.

Compliance Requirements: To maintain their tax-exempt status, Section 8 companies must comply with the provisions of the Income Tax Act, including filing annual tax returns and adhering to the conditions specified in the respective sections.

It's crucial for Section 8 companies to consult with a qualified chartered accountant or tax advisor to ensure they meet all the necessary requirements and comply with the applicable tax laws to claim exemptions from income tax successfully.