Microfinance is a vital contributor to the financial inclusion ecosystem, bridging the gap by providing small loans and financial services to individuals and enterprises that are unable to access traditional banking. Section 8 microfinance company registration in India is a commonly opted choice, for a companies due to its tax privileges and regulatory advantage. If you want to register a microfinance company under Section 8 of the Companies Act, 2013, then Lawgical India is a right guide for you, as it will explain the process along with the benefits, taxation, and ethical considerations for compliance and success.
What is a Section 8 microfinance company?
A Section 8 Company is a company that is registered under the Companies Act, 2013, under the Companies Act, 2013, which is intended to promote social, charitable, or financial inclusion; the company intends not to profit. The Microfinance Company registration of a Section 8 provides financial and lending services on a micro scale for the underserved without the distribution of profit among its members.
Features of Section 8 Micro Finance Company Registration in India:
· No minimum requirement capital
· Various government schemes, tax exemptions, and benefits
· Welfare-based goals
· Pending regulatory check by the Reserve Bank of India (RBI)
Step-by-step process for Microfinance Company under Section 8
Step 1: Get a Digital Signature Certificate (DSC).
As the registration process is completely online, Digital Signature Certificate (DSC) is required for the company’s directors to sign electronic documents.
Step 2: Get a Director Identification Number (DIN).
Director Identification Number (DIN) – This unique number should be applied from the Ministry of Corporate Affairs (MCA) for each director of the company.
Step 3: Name Approval Process
The applicant shall file a RUN i.e. Reserve Unique Name facility, with MCA for the name approval.
So, a section 8 company registration online of microfinance, name should mention the "Foundation", "Trust,” or "Association" keywords that will distinguish you from other 8 microfinance companies.
Step 4: MOA and AOA Drafting
The AOA includes the rules and regulations under which the company operates.
Step 5: Application of the license in form INC-12 under section 8 microfinance company registration in India.
Form INC-12 is filed with the Registrar of Companies (ROC) to get a license. Include the following documents:
· MOA and AOA
· Declaration by Directors
· Three year projected financials
· Directory and subscriber list
Step 6: File Incorporation with Form SPICe+
The SPICe+ (Simplified Proforma for incorporating a Company Electronically) form enables:
· Name reservation
· Incorporation
· DIN allotment
· PAN and TAN application
Step 7: Obtain PAN & TAN
After incorporation of the section8 company registration online, apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) with the Income Tax Department.
Step 8: Open a bank account and get registered under the guidelines of the Reserve Bank of India
Thus, an NBFC of Section 8 type microfinance company registration, needs to open a dedicated bank account and comply with the norms of RBI for NBFCs. According to its financial activities, the company might also need approval under the RBI Act, 1934.
Importance of Section 8 Microfinance Company Registration in India
Tax Benefits & Exemptions
Exempt from Income Tax: Section 8 companies qualify for Section 80G and 12A exemptions, which means donors can claim tax deductions.
No Stamp Duty:
Section 8 companies aren’t liable to pay a stamp duty like Private Limited or LLP registrations.
GST Benefit:
Certain financial services provided by the section 8 microfinance companies in India, registration are exempt from GST.
No Capital Minimum
Section 8 microfinance companies that work as microfinance institutions, do not require a huge capital base like NBFC microfinance institutions, which makes them the best option for start-ups and NGOs.
Limited Liability
By capitalizing their contributions, the directors and members have full control over their liability.
Government Funding & Grants
As not-for-profit organizations, Section 8 microfinance companies have access to government grants, CSR funding, and international donations.
In such cases, a degree and a stamp of a compound are needed to serve legal purposes.
A registered Section 8 microfinance company is credible in the financial sector; thus it will be easier to raise funds as well as work with financial institutions.
TAXATION OF MICROFINANCE COMPANIES UNDER SECTION 8:
Corporate tax exemption:
· Compliance with Section of the Income Tax Act, 1961 allows for tax exemptions and is given to Section 8 companies.
· For Donors: Any individual or corporation donating to a registered Section 8 company can claim deductions under Section 80G.
GST Compliance:
The Company needs to get itself registered for GST if the turnover is more than ₹20 lakh. But certain microfinance services are outside the scope of GST.
TDS (Tax Deducted at Source) Compliance:
Any TDS has to be filed against a Section 8 microfinance company registration in India, while making payments to vendors and employees.
Ethics in Section 8 Micro Finance Company
Transparency & Accountability
It is subject to strict financial disclosures, annual audit, and compliance with both RBI and MCA regulations.
Social Responsibility & Community Good
Because the company is a financial inclusion operation, its essential function should be to service low-income people and small businesses.
No Profit Distribution
As opposed to private financial institutions, profits could not be distributed to members but must be reinvested into operations and social welfare initiatives in a Section 8 microfinance company registration in India.
RBI guidelines
Also, if the company is providing lending services beyond a threshold, it would also need to get itself registered as a Non-Banking Financial Company (NBFC), and they will need to follow the RBI guidelines.
Conclusion
As a result of the above, registering a Section 8 Microfinance Company Registration in India, will not only be instrumental in increasing the accessibility of finance among the rural population, but also be a sector to gain from in terms of taxation and regulatory relaxation. Apart from prioritizing the appropriate online registration process, maintaining ethical business practices, and abiding by RBI and MCA guidelines, it helps increase your credibility as an individual microfinance founder ideal for the upliftment of the community.
You should always approach professional legal advisers, as you have these questions, for simple and easy section 8 company registration online. Data collection should be limited to only as much as is needed to adhere to ethical guidelines.
