In this guide · 10 sections
- What the Act changes, and how little it is
- A worked income and expenditure account
- Corpus, restricted grants, donations and fees
- Reserves and surplus: what section 8 restricts
- What applies and what does not
- The audit report: CARO off, Rule 11 on, IFC to test
- AGM, AOC-4 and income tax
- Checklist for a section 8 file
- FAQs
- Sources
- A section 8 company uses the Schedule III format (Division I unless it is on Ind AS), with an income and expenditure account in place of the profit and loss account: s.2(40)(ii) and Part II, paragraph 1.
- A section 8 company can never be a small company (proviso to s.2(85)) and cannot be an OPC, so the cash flow statement is required unless it is dormant or a recognised start-up private company. AS 3 has no SMC relaxation.
- CARO 2020 does not apply (para 1(2)(iii)), whatever the size. Rule 11 still does, and G.S.R. 466(E) gives no relief on preparing accounts, audit or filing. IFC reporting has no section 8 exemption: a private section 8 company must qualify on the ₹50 crore turnover and ₹25 crore borrowing limits.
- Surplus goes to Reserves and Surplus but can only be applied to the objects: no dividend line, and no bonus shares under the standard memorandum. A deficit is shown as negative surplus.
- Schedule III has no head for corpus or restricted funds, and AS 12 covers only government grants. Much of the treatment of donor money is judgement: decide by the donor's terms, write the policy, apply it consistently.
Try SignReady: Work through CARO, cash flow and IFC from your answers and the trial balances.
Start freeThe section 8 file usually arrives looking like last year's society or trust accounts: a "general fund" instead of reserves, a corpus line wherever someone put it, all grants credited on receipt, no cash flow statement because "we are small", and a CARO annexure either attached out of habit or dropped along with everything else. The company is a charity in purpose, but it is a company for reporting. This guide sets out what changes in a section 8 company's financial statements, what does not, and where the treatment is judgement rather than rule. Law as at 31 October 2026; figures are illustrative.
What the Act changes, and how little it is
Section 2(40)(ii) says the financial statement includes a profit and loss account or, for a company carrying on any activity not for profit, an income and expenditure account. Part II of Schedule III, paragraph 1 of the General Instructions, then applies that Part to the income and expenditure account in the same way as to a statement of profit and loss. So there is no separate format. The lines, notes and additional information are the same, and "profit" reads as "surplus".
The one line written for these companies came in with G.S.R. 207(E), from 1 April 2021: paragraph 2(A)(ba), "grants or donations received", relevant to section 8 companies only, under revenue from operations. See revenue from operations and other income for the rest of that note.
The Division depends on the framework, not on charitable status. ICAI's February 2026 FAQs on section 8 companies (Q77) confirm these companies follow section 129 and the applicable AS or Ind AS, so most fall under Division I: see Division I, II and III. Books stay on accrual and double entry (FAQ Q76).
ICAI's Technical Guide on Accounting for NPOs has fund-based formats, but they are not for companies. The 2009 edition (para 109) says NPOs under s.25 of the 1956 Act follow the company law format, and that its illustrative formats are for NPOs with no prescribed format. A May 2026 ICAI EIRC session summary of the guide also calls the formats recommended ones, open to change to meet the governing statute. We could not open the current edition, so read it before relying on the guide. Its definitions help with donor money; its layout does not replace Schedule III.
A worked income and expenditure account
An illustrative section 8 company with 1,00,000 equity shares of ₹10, running a training programme. Year ended 31 March 2026; nil lines and the previous-year column are left out for space, but the real statement needs comparatives.
| Income and expenditure account | Note | ₹ |
|---|---|---|
| I. Revenue from operations | A | 89,00,000 |
| II. Other income | B | 36,00,000 |
| III. Total income | 1,25,00,000 | |
| IV. Expenses: employee benefits expense | 46,50,000 | |
| Depreciation and amortisation expense | 4,80,000 | |
| Other expenses (programme 52,30,000; administration 9,40,000) | 61,70,000 | |
| Total expenses | 1,13,00,000 | |
| Surplus before tax | 12,00,000 | |
| Tax expense (nil on the assumption that income-tax registration conditions are met) | Nil | |
| XV. Surplus for the year | 12,00,000 | |
| XVI. Earnings per equity share of ₹10: basic and diluted | 12.00 |
| Note A: Revenue from operations | ₹ |
|---|---|
| (b) Sale of services: training fees | 18,60,000 |
| (ba) Grants or donations received: general donations | 42,00,000 |
| (ba) Grants or donations received: project grant released as spent | 24,00,000 |
| (c) Other operating revenues: membership fees | 4,40,000 |
| Total | 89,00,000 |
| Note B: Other income | ₹ |
|---|---|
| Government grant towards programme costs (AS 12) | 30,00,000 |
| Interest on fixed deposits | 5,25,000 |
| Grant for equipment, released from deferred income | 75,000 |
| Total | 36,00,000 |
Why the government grant sits in other income. AS 12 (paras 9.1 and 15) shows a revenue grant under other income or deducts it from the related expense, while line (ba) offers a home in revenue from operations. General Instruction 1 to Schedule III makes the Schedule give way where an Accounting Standard requires a change, so this example follows AS 12. Some will read (ba) as the specific provision for these companies. Pick one, state it in the policy note, and keep to it.
EPS. A company without share capital (section 8 allows it: FAQ Q40) has no figure to give. Where there are shares, line XVI stays in the format, even though members can never receive a dividend. We found nothing from ICAI that removes it, so we would keep the line and explain the shares in the note. This is our reading, not a stated rule.
Corpus, restricted grants, donations and fees
AS 12 deals only with government grants (paras 1 and 3). A CSR contribution or a foundation's project grant is outside it, and no Accounting Standard deals directly with private donations. The questions to ask of each receipt are: did the donor restrict it, can the donor take it back, and has the company done what earns it? The table states what is settled and what is not.
| Receipt | Usual treatment | How firm is this? |
|---|---|---|
| General donation, no conditions | Income under (ba) when received or when receipt is reasonably certain | Line is in Schedule III; timing follows the policy |
| Corpus donation, with the donor's written direction | Commonly credited direct to the Balance Sheet, not through income and expenditure. Show as its own line under Other Reserves, stating nature and purpose. Call it a "fund" only if earmarked investments represent it (Note B(ii)) | Judgement, both the credit and the head: Schedule III does not name corpus. An ICAI EIRC session summary of the NPO guide has corpus donations going direct to the Balance Sheet, but the guide's 2009 edition defines corpus as founders' or promoters' money (para 110), so other donors' corpus is not squarely covered |
| Project grant, unspent amount refundable or conditions not yet met | Other current liabilities (or other long-term liabilities if not due within 12 months); release to (ba) as the conditions are met | Judgement, reasoned from the grant terms; AS 12 applies only by analogy |
| Grant restricted to a purpose, no refund and no performance condition | One reading: income under (ba) on receipt, with the unspent part carried as a separately named reserve. Another: defer as above | Judgement. Disclose the policy and the movement |
| Government grant for costs | Match with the related costs; other income or deduct from expense. Recognise only with reasonable assurance of compliance and receipt | AS 12 paras 6.1, 9.1, 13, 15 |
| Government grant for a specific fixed asset | Deduct from the asset's gross value, or treat as deferred income and release over the asset's life | AS 12 paras 8.3, 8.4 |
| Government grant in the nature of promoters' contribution | Capital reserve | AS 12 paras 5.2(i), 10.1 |
| Donation in kind | Value it, record it and disclose it (FAQ Q145). From government, AS 12 has free assets at a nominal value (paras 7.1, 17). From others, the NPO guide's 2009 edition uses a nominal Re 1 and discloses fair value (paras 55, 135); the EIRC session summary shows non-monetary corpus at fair value | Basis of value is judgement outside AS 12 |
| Annual membership fee | Over the period it covers; the part for next year is income received in advance. Other operating revenue, or sale of services where the fee buys a service | Follows AS 9 reasoning; the line is judgement |
| Entrance or life membership fee | No Accounting Standard addresses it directly. Read the articles and what the member gets, then set a policy | Judgement |
In the example, the project grant runs like this, and its closing balance sits in other current liabilities:
| Project grant movement | ₹ |
|---|---|
| Opening unspent balance | 6,00,000 |
| Received during the year | 40,00,000 |
| Released to income as spent on the project | (24,00,000) |
| Closing unspent balance | 22,00,000 |
Sample policy wording, to adapt: "Donations without conditions are recognised as income when received. Donations with the donor's direction that they form part of corpus are credited directly to corpus. Grants subject to conditions or refundable if unspent are carried as liabilities and recognised as income as the related expenditure is incurred. Government grants are accounted for under AS 12."
SignReady drafts the Balance Sheet, Statement of Profit and Loss, cash flow statement and notes in the Schedule III format as an editable Excel workbook, with previous-year figures. The draft has no separate section 8 format: on a section 8 file, the income and expenditure wording and the grant notes are for you to put in and review.
Reserves and surplus: what section 8 restricts
Section 8(1)(b) and (c) require the company to apply its profits and other income in promoting its objects and to prohibit dividends. The standard memorandum, Form INC-13, goes further: nothing may reach members as dividend, bonus or otherwise as profit, and payments to members are limited to out-of-pocket expenses, reasonable interest and rent, and prudent remuneration for services actually rendered. Older licences can be worded differently, so read the client's memorandum. A default attracts the fines in s.8(11), and the licence can be revoked under s.8(6). On winding up, leftover assets go to a similar section 8 company or are sold with proceeds credited to the Insolvency and Bankruptcy Fund (s.8(9)).
Accumulating a surplus is allowed, provided it goes back into the objects (FAQ Q47). So surplus stays in the note exactly as in the reserves and surplus format, with these differences on the file:
| Note: Reserves and surplus, 31 March 2026 | ₹ |
|---|---|
| Corpus fund (represented by earmarked fixed deposits): opening 25,00,000; corpus donations received 5,00,000 | 30,00,000 |
| Building reserve (designated by the Board): transfer from surplus | 3,00,000 |
| Surplus: opening balance | 38,00,000 |
| Add: surplus for the year | 12,00,000 |
| Less: transfer to building reserve | (3,00,000) |
| Surplus: closing balance | 47,00,000 |
| Total reserves and surplus | 80,00,000 |
- No dividend lines. Nothing for dividends paid or proposed. A debit to surplus described as a distribution, or anything flowing to a member, is a licence question before it is an accounting one.
- Deficit. Shown as negative surplus, and a negative total stays negative (Note B(iii)).
- Board designations. The Board can lift them, so a designated reserve is not the same as a donor restriction. Name it accordingly.
- Related parties. Test payments to members against the memorandum as well as AS 18 and section 188.
What applies and what does not
| Item | Section 8 company | Basis |
|---|---|---|
| Schedule III; income and expenditure account | Applies | s.129, s.2(40)(ii), Part II para 1 |
| Small company status | Never, whatever the capital and turnover | s.2(85) proviso (B) |
| One Person Company | Not available | FAQ Q48 |
| Cash flow statement | Required, unless dormant or a recognised start-up private company | s.2(40), FAQ Q82; G.S.R. 583(E) |
| SMC relaxations in the Accounting Standards | Test them: the SMC definition does not exclude section 8. AS 3 is not among the relaxations | Companies (AS) Rules, 2021 |
| Statutory audit | Applies, whatever the size | s.139, FAQ Q78 |
| CARO 2020 | Does not apply | Para 1(2)(iii) |
| Rule 11 reporting | Applies; we found no section 8 carve-out | Audit and Auditors Rules, 2014 |
| IFC reporting | Applies, unless a private company qualifies on the limits below | s.143(3)(i), G.S.R. 583(E) |
| CSR | Applies if s.135(1) limits are crossed | FAQ Q88 to Q90 |
| AGM, AOC-4, annual return | Apply | s.96, s.137, s.92; FAQ Q66, Q81 |
| General meeting notice; sending accounts to members | 14 days, in place of 21 | G.S.R. 466(E), serials 5 and 7 |
| Board meetings | Relaxed: at least one in every six calendar months | G.S.R. 466(E), serial 14 |
What G.S.R. 466(E) covers. The notification of 5 June 2015, as amended by G.S.R. 584(E) of 13 June 2017, is mainly a table of governance relief: meetings and notices, minutes, independent directors, committees under s.178, quorum, s.179 matters by circulation, and s.184(2) and s.189 only above ₹1 lakh. No serial touches s.129, s.134, s.137, s.139 or s.143. Preparing accounts, audit and filing stay as for any company; the only relief near them is the 14 days for sending accounts to members (serial 7).
The condition people forget. Paragraph 2A, added in 2017, gives the relief only to a company that has not defaulted in filing under s.137 or s.92. It does not say how long a past default bars the relief or whether late filing cures it, so a late AOC-4 needs a view on the file before the next 14-day notice goes out.
Cash flow: why "we are small" fails. The proviso to s.2(40) lets a One Person Company, a small company and a dormant company leave out the cash flow statement, and G.S.R. 583(E) adds a private company recognised as a start-up. Section 8 companies are shut out of the first two: s.2(85) names them, and ICAI says an OPC route is not available. FAQ Q82 states plainly that they are not exempt. Dormant status under s.455 and start-up recognition would be on the record if they exist, so ask for the document rather than assuming.
The SMC argument fails too. Appendix I to ICAI's Compendium lists AS 3 among the standards applying in full, with no SMC relaxation. For the method, see the AS 3 indirect method, starting from surplus before tax. AS 3 has no line written for corpus or capital grants. Treating them as financing is a reasonable view since they are capital in nature, but it is a judgement: hold it steady year to year.
The audit report: CARO off, Rule 11 on, IFC to test
CARO. Paragraph 1(2)(iii) excludes a company licensed to operate under section 8, regardless of size, and ICAI's Guidance Note (paras 12 and 13) applies this at the balance sheet date and extends it to companies licensed under s.25 of the 1956 Act. See CARO 2020 applicability. If the licence has been revoked and the company converted, the exemption goes. Sample line: "The Companies (Auditor's Report) Order, 2020 does not apply to the Company, as it is licensed to operate under section 8 of the Act."
Rule 11. The clauses stay in the report: see the Rule 11 checklist. Rule 11(f) on dividends should read that none was declared or paid, and if one was, the problem is bigger than the clause. Rule 11(e) covers funds advanced or received for onward lending or investing. Where grant money passes through partner organisations, ask what it was for before settling the wording. The audit trail clause, 11(g), applies as it does to any company.
IFC. G.S.R. 466(E) does not touch s.143(3)(i). The OPC and small company exemptions are closed. A public section 8 company reports. A private one can use the G.S.R. 583(E) limb if turnover is under ₹50 crore per the latest audited statements and borrowings from banks, financial institutions or any body corporate stayed under ₹25 crore throughout the year (the July 2017 correction changed "or" to "and"), with no default in filing under s.137 or s.92. We see nothing in that limb that excludes section 8 companies.
The trap is "turnover". Section 2(91) covers revenue from goods and services, so donations and grants look to be outside it. That reading helps the client, so record it rather than assume it; and note that on this reading a company funded by large donations can stay under ₹50 crore while running a big operation.
AGM, AOC-4 and income tax
- AGM: required, within six months of the year end (nine months from the first year end for the first AGM). The Board may fix the time, date and place in advance, having regard to any directions from the general meeting (G.S.R. 466(E), serial 4).
- AOC-4: within 30 days of the AGM (s.137), in AOC-4 XBRL where the company falls in that class. Do not assume that a charitable company is outside it.
- Annual return: within 60 days of the AGM (s.92). Form MGT-7A is for OPCs and small companies, so a section 8 company files MGT-7, although FAQ Q81 mentions both.
- Board's report and signing: s.134 applies; no serial in G.S.R. 466(E) changes it.
- Income tax: the licence does not give a tax exemption. Registration is a separate matter: ss.12A / 12AB and 80G of the 1961 Act for FY 2025-26, and the registered non-profit provisions from s.332 of the Income-tax Act, 2025 from tax year 2026-27. Check the client's registrations and their continuing conditions before taking tax expense as nil.
Checklist for a section 8 file
| # | Check | See |
|---|---|---|
| 1 | Licence and memorandum on file; objects and clause 5 read; licence not revoked | s.8; INC-13 |
| 2 | Statements in Schedule III form, "surplus" wording used, comparatives given | Part II para 1 |
| 3 | Grants or donations shown separately in the revenue note | Para 2(A)(ba) |
| 4 | Grant agreements read; each classed by restriction, refund and condition; movement note agrees to the trial balance | Donor terms |
| 5 | Corpus receipts backed by the donor's written direction; treatment follows the stated policy | Donor letters |
| 6 | No dividend, bonus or disguised benefit to members; related party note tested against clause 5 | s.8(1); AS 18 |
| 7 | Cash flow statement present, or dormant or start-up document on file | s.2(40) |
| 8 | No CARO annexure; sample line in the report | Para 1(2)(iii) |
| 9 | Rule 11 clauses answered, with onward grants considered under 11(e) | Rule 11 |
| 10 | IFC decision recorded: public or private, turnover reading, peak borrowings, filing record | G.S.R. 583(E) |
| 11 | Filing history checked before relying on any G.S.R. 466(E) relief | Para 2A |
| 12 | CSR limits tested; income-tax registrations and FCRA position noted | s.135; FAQ |
Try SignReady: Draft the Schedule III statements from the trial balance, as editable Excel.
Start free- Schedule III rounding off
- Schedule III Divisions I–III
- Notes to accounts format
- Current vs non-current
- Cash flow statement (AS 3)
- Previous year figures
Frequently asked questions
Is a section 8 company a small company?
No. The proviso to section 2(85) of the Companies Act, 2013 says the definition does not apply to a company registered under section 8. This holds however small its paid-up capital and turnover are, so reliefs tied to small company status are not available to it.
Is a cash flow statement mandatory for a section 8 company?
Yes, in almost every case. Section 2(40) lets one person, small and dormant companies omit it, and G.S.R. 583(E) adds recognised start-up private companies. A section 8 company cannot be small or an OPC, and ICAI's FAQ Q82 says it is not exempt. AS 3 also has no SMC relaxation.
Does CARO 2020 apply to a section 8 company?
No. Paragraph 1(2)(iii) excludes a company licensed to operate under section 8, whatever its size. Rule 11 reporting continues, and so does internal financial controls reporting unless a private company qualifies under G.S.R. 583(E) on the turnover and borrowing limits.
Where is a corpus fund shown in a section 8 company's balance sheet?
Schedule III has no corpus head, so this is a judgement. A common reasoned approach is a separate line under Other Reserves in Reserves and Surplus, stating its nature and purpose, called a fund only if earmarked investments represent it. Corpus donations made with the donor's direction are commonly credited direct to the Balance Sheet; that too is practice, not a Schedule III rule.
Does AS 12 apply to CSR grants received by a section 8 company?
Not directly. AS 12 covers grants from government, government agencies and similar bodies. A CSR contribution from a company is outside it, so the treatment depends on the grant terms: conditional or refundable amounts are usually carried as a liability and released as spent. State the policy in the notes.
Can a section 8 company carry a surplus in reserves?
Yes. Surplus can accumulate in Reserves and Surplus, provided it is applied to the objects and not distributed: section 8(1)(b) and (c), and ICAI's FAQ Q47. The note shows no dividend lines, and a deficit is shown as negative surplus under Note B(iii) of Schedule III.
Sources
- Companies Act, 2013 — sections 2(40), 2(85), 2(91) and 8, and Schedule III, Division I (India Code, amended text)
- MCA — G.S.R. 466(E) dated 5 June 2015, exemptions to section 8 companies (Gazette copy hosted by ca2013.com)
- MCA — amending notification of 13 June 2017, G.S.R. 584(E), inserting paragraph 2A (copy hosted by ca2013.com)
- ICAI — Frequently Asked Questions on Section 8 Companies under the Companies Act, 2013 (February 2026), Q40, Q47, Q48, Q76 to Q78, Q81, Q82, Q88 to Q90, Q145
- ICAI — Guidance Note on the Companies (Auditor's Report) Order, 2020 (Revised 2022), paras 12 and 13, with the text of the Order (hosted by CAG)
- ICAI — Guidance Note on Division I – Non Ind AS Schedule III to the Companies Act, 2013 (Revised January 2022), para 9.1
- ICAI — AS 12, Accounting for Government Grants
- ICAI — Appendix I to the Compendium of Accounting Standards: SMC definition and relaxations under the Companies (Accounting Standards) Rules, 2021
- Form INC-13, memorandum of a section 8 company, clause 5 (copy hosted by ca2013.com)
- Section 2(40) with the start-up modification made by the private company exemption notification of 13 June 2017 (ca2013.com)
- G.S.R. 583(E) dated 13 June 2017 — section 143(3)(i) exemption for private companies (summary by Vinod Kothari and Company)
- Corrigendum of 13 July 2017 to G.S.R. 583(E), reading "or" as "and" (Simpliance)
- Companies (Audit and Auditors) Rules, 2014, rule 11 (ca2013.com)
- Companies (Management and Administration) Rules, 2014, rule 11(1), Forms MGT-7 and MGT-7A (ca2013.com)
- ICAI — Technical Guide on Accounting for Not-for-Profit Organisations (2009 edition), paras 55, 109, 110, 135. Later editions exist.
- ICAI EIRC background material, May 2026 — a speaker's summary of ICAI's Technical Guide on Accounting for NPOs (formats, corpus, restricted and designated funds). Read the current Guide before relying on these points.
SignReady's applicability planner works from your answers and the trial balances and shows the questions behind each result, for the partner to confirm. The Schedule III draft and FinalCheck sit in the same finalisation. First 3 finalisations free.
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Version history: 10 Nov 2026 — first published.
