Defunct Company: Definition, Causes, and Example

What is Nidhi Company?

A Nidhi Company is a type of Non-Banking Financial Company (NBFC) that operates exclusively for its members. It is registered under Section 406 of the Companies Act, 2013 and regulated by the Ministry of Corporate Affairs (MCA), rather than directly by the Reserve Bank of India (RBI).

The primary function of a Nidhi Company is to accept deposits from members and lend money back to its members. This “for members only” model distinguishes it from other NBFCs and ensures that operations remain community-centric.

Since Nidhi Companies deal only with their members and do not interact with the general public, they enjoy exemptions from core RBI regulations that typically apply to other NBFCs. However, they must still adhere to rules laid down by MCA and maintain transparency in their financial dealings.

The Purpose and Nature of Nidhi Companies

The central purpose of Nidhi Companies is to promote savings and thrift among their members and to facilitate easy, low-interest loans for those same members. They act as mutual benefit societies, pooling deposits and using those funds to lend back within the group.

Key characteristics include:

• Community-Focused Model: Members both contribute and borrow, keeping financial circulation within the group.
  
  
• Limited RBI Oversight: While they fall under the broad category of NBFCs, Nidhi Companies are largely governed by MCA rules.
  
  
• Exemption from Core NBFC Rules: They are not required to obtain RBI approval for incorporation or daily operations.

This makes them a niche but highly effective option for people looking to run community-driven financial institutions.

Benefits of Nidhi Company

• Encourages Savings: Members are motivated to build disciplined saving habits.
• Access to Affordable Credit: Members can borrow at lower interest rates compared to market lenders.
• Limited Regulatory Burden: Exemptions from most RBI regulations make operations simpler.
• Low Risk of Default: Since lending and borrowing are limited to members, risks are lower.
• Simple Incorporation: Registration under MCA is more straightforward than NBFC licensing.
• Legal Status: Recognised as a public company, lending credibility and trust.

Nidhi Company Registration Process

Registering a Nidhi Company in India involves several steps:

1. Obtain DSC & DIN – Digital Signature Certificate for proposed directors.
2. Name Approval – File an application with MCA to get the company name approved (must include “Nidhi Limited”).
3. Draft MOA & AOA – Prepare Memorandum of Association and Articles of Association with clear objectives.
4. Filing for Incorporation – Submit the incorporation application along with required documents through MCA’s SPICe+ form.
5. ROC Scrutiny – Registrar of Companies reviews and verifies the application.
6. Certificate of Incorporation – Once approved, the company is legally formed.
7. GSTIN & Bank Account – Apply for GST (if applicable), and open a current account for operations.

Related Read: How to apply for a Digital Signature Certificate in India

Compliances of the Nidhi Companies

After incorporation, a Nidhi Company must comply with specific filings and statutory requirements:

• NDH-1: Filing of return of statutory compliances within 90 days of the first financial year.
• NDH-2: Application to extend time for compliance (if required).
• NDH-3: Half-yearly return to ROC.
• MGT-7: Annual return filing with MCA.
• AOC-4: Filing of financial statements with MCA.
• Income Tax Compliances: Annual income tax return filing, tax audit (if applicable), TDS deductions, and advance tax payments.

Related Read: ROC Compliance Calendar 2025–2026: Important Filing Due Dates

Nidhi Company Incorporation Requirements

To incorporate a Nidhi Company, certain prerequisites must be met:

Before Registration:

• Minimum 7 members required.
• Minimum 3 directors.
• Minimum ₹5 lakh paid-up equity capital.
• The name must end with “Nidhi Limited”.

Post Registration (within 1 year):

• Minimum 200 members.
• Net Owned Funds (NOF) of at least ₹10 lakh.
• Deposits not to exceed 20 times NOF.
• Maintain at least 10% of deposits as unencumbered deposits (liquid assets).
  
  

Documents Required for Nidhi Company Registration

To register a Nidhi Company, you need the following documents:

• Identity Proof: PAN card of directors and members.
• Address Proof: Aadhaar card, passport, voter ID, or driving license.
• Photographs: Passport-sized photos of all directors and members.
• Office Proof: Rent agreement/ownership papers and utility bill of the registered office.
• Digital Signature Certificate (DSC) of directors.
• Charters: Draft MOA and AOA.
• Foreign Directors: Passport and notarised documents if applicable.

The entire process can be completed online via the MCA portal.

Restrictions on Nidhi Companies

To ensure that Nidhi Companies remain true to their purpose, certain restrictions apply:

• Cannot accept deposits from or lend to non-members.
• Cannot carry out chit funds, hire purchase, leasing finance, or insurance businesses.
• Cannot issue debentures, preference shares, or other securities.
• Cannot advertise for deposits to the general public.
• Cannot open current accounts in the name of members.
• Cannot conduct corporate transactions such as partnerships with other financial institutions.
• Must operate strictly within the framework of member-only deposit and lending.

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Frequently Asked Questions (FAQs)

Eligibility Criteria for Foreign Company Registration in India

To register a foreign company in India, the following eligibility conditions must be fulfilled:

• FDI Policy Compliance: The foreign investor must follow FDI norms, either under the Automatic Route (no prior approval required) or the Government Route (approval from concerned ministries needed).
  
• Indian Resident Director: A subsidiary company must have at least one director who is a resident in India.
  
• Registered Office in India: The company must maintain a registered office in India, and proof of valid address must be submitted during incorporation.
  
• Business Activity Restrictions: Foreign companies are not permitted to engage in retail trading or real estate activities.
  
• Regulatory Compliance: Business activities must align with the Reserve Bank of India (RBI) and the Ministry of Corporate Affairs (MCA) regulations.
  

Types of Business Entities for Foreign Companies in India

Foreign companies can enter India through multiple legal structures based on their business goals and compliance appetite:

1. Wholly Owned Subsidiary (WOS)
   
   • A private limited company incorporated in India with 100% foreign shareholding.
     
   • Can engage in commercial and revenue-generating activities under FDI-compliant sectors.
     
2. Liaison Office
   
   • A non-commercial presence used for market research, networking, and representing the parent company.
     
   • Requires RBI approval and cannot earn income in India.
     
3. Branch Office
   
   • Set up to conduct business and earn revenue in India.
     
   • Can export/import goods, offer consultancy services, or carry out R&D.
     
   • RBI approval required.
     
4. Project Office
   
   • Temporary setup for executing specific projects awarded by Indian entities or government bodies.
     
   • Generally permitted if the project is funded by an inward remittance or a bilateral/multilateral agency.
     
5. Joint Venture (JV)
   
   • A foreign company can form a joint venture with an Indian entity to share equity, control, and profits.
     

Step-by-Step Registration Process for a Foreign Company in India

Setting up a foreign company in India involves regulatory approvals, documentation, and legal filings. Here's a detailed breakdown of the process:

Step 1: Choose the Right Business Structure

Foreign entities must select the most suitable mode of entry based on their intended operations:

• Wholly Owned Subsidiary (WOS)
  
• Branch Office
  
• Liaison Office
  
• Project Office
  
• Joint Venture (JV)
  

Each structure has different regulatory requirements under RBI, FEMA, and MCA.

Step 2: Obtain a Digital Signature Certificate (DSC)

A Digital Signature Certificate (DSC) is needed for all directors/authorized representatives to sign e-forms on the MCA portal. Apply for a DSC from a certified authority in India.

Step 3: Name Reservation & Company Incorporation via SPICe+ (For Subsidiary/JV)

File the SPICe+ Part A form for name reservation on the MCA portal. After name approval, complete SPICe+ Part B, including:

• eMOA (Memorandum of Association)
  
• eAOA (Articles of Association)
  
• AGILE-Pro (for GST, EPFO, ESIC, and bank account setup)
  
• INC-9 (declaration by subscribers/directors)
  

Upload all documents with digitally signed forms.

Step 4: RBI Approval for Liaison, Branch, and Project Offices

Foreign companies opting for Liaison, Branch, or Project Offices must apply via Form FNC on the RBI FIRMS portal. Approval is granted under RBI’s Authorized Dealer Category-I Banks (designated AD Bank).

Step 5: Open a Bank Account

Open a current account in an Indian bank in the name of the newly incorporated entity. It is required for:

• Receiving foreign capital infusion
  
• Making statutory payments
  
• Conducting business transactions
  

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FDI Policy & Compliance for Foreign Companies

Foreign Direct Investment (FDI) in India is governed by the FEMA Act, RBI circulars, and sectoral guidelines. Here’s what foreign companies must know:

• FDI Routes:
  
  • Automatic Route: No prior government approval needed.
    
  • Government Route: Approval required from specific ministries, based on the sector.
    
• Sectoral Caps: Certain sectors have FDI limits (e.g., defense, insurance, telecom) and special conditions.
  
• Compliance & Reporting:
  
  • File FC-GPR (Foreign Currency-Gross Provisional Return) after equity shares are allotted.
    
  • Annual Return on Foreign Liabilities and Assets (FLA) must be filed with RBI.
    
  • Form FC-TRS for transfer of shares between resident and non-resident.
    

Documents Required for Foreign Company Registration

To complete the registration process, the following documents are typically required:

For Directors:

• Valid Passport (mandatory for foreign nationals)
  
• Government-issued ID proof (Aadhar, Voter ID)
  
• Address proof (utility bill, bank statement)
  

For Registered Indian Office:

• Rental Agreement or Lease Deed
  
• NOC from owner
  
• Recent utility bill
  

For RBI/FEMA Compliance:

• FDI declaration
  
• FC-GPR or Form FNC for RBI registration
  

Post-Registration Compliance for Foreign Companies in India

Once registered, a foreign company must ensure continuous legal and financial compliance. Key post-incorporation obligations include:

• Annual Filings with MCA:
  
  • File Form FC-3 with business activity details and financials.
    
  • Submit AOC-4 for financial statements.
    
• Tax Compliance:
  
  • File ITR, pay TDS, and maintain GST records if applicable.
    
• FEMA/RBI Reporting:
  
  • Submit Annual Activity Certificate through an authorized dealer bank.
    
  • Continue timely reporting of share allotments and inward remittances.
    

Frequently Asked Questions

Budget 2024 Latest Update on Corporate Tax Rate

Finance Minister Nirmala Sitharaman has proposed a reduction in the corporate tax rate for foreign companies, bringing it down from 40% to 35% in the 2024 budget.

Subdivisions of Direct Taxes

Direct taxes in India are categorized as follows:

1. Personal Income Tax
   
   • Paid by individual taxpayers based on their income.
   • Taxed according to predefined slabs at different rates.
2. Corporate Income Tax (CIT)
   
   • Paid by domestic and foreign companies on their income earned in India.
   • The CIT is levied at rates specified by the Income Tax Act, subject to annual revisions in the Union Budget.

What is Pvt. Ltd. Tax Rate?

The Pvt. Ltd. tax rate refers to the corporate income tax rate applicable to private limited companies in India. Under the Income Tax Act, 1961, domestic companies are generally taxed at 30% on their total taxable income, with variations based on turnover and certain conditions.

For companies with a turnover of less than ₹400 crore, the tax rates are as follows:

• Turnover up to ₹1 crore: Taxed at 25%.
• Turnover between ₹1 crore and ₹10 crore: Taxed at 25% on profits exceeding ₹25 lakh, plus an additional ₹25 lakh.
• Turnover above ₹10 crore: Taxed at 30%.

A 4% Health and Education Cess is levied on the total tax payable.

Companies may also opt for a reduced tax rate of 22% under Section 115BAA, provided they forgo certain exemptions and deductions. This option also includes the surcharge and 4% cess.

Additionally, new manufacturing companies incorporated after October 1, 2019, can avail a 15% tax rate (plus surcharge and cess) under Section 115BAB, subject to specific conditions.

Corporate Income Tax Rate for AY 2022-23

The Corporate Income Tax Rate for the Assessment Year 2022-23 varies based on the company's turnover and the applicability of surcharge and cess. Here's a table summarising the effective tax rates:

For Companies with Turnover Above ₹400 Crore

For Companies with Turnover Below ₹400 Crore

Key Budget 2022 Updates

1. No Changes in Tax Rates: The corporate tax structure remained unchanged.

2. Updated Surcharge Cap for Cooperatives: Surcharge capped at 7% for cooperatives with income between ₹1 crore and ₹10 crore.

3. Set-Off for Losses in Case of Start-ups: Extended incorporation date for start-ups to claim tax holiday under Section 80-IAC to 31 March 2023.

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Income Tax Rate for Domestic Manufacturing Companies for AY 2022-23

New manufacturing companies incorporated in India on or after October 1, 2019, and commencing production before March 31, 2023, can avail a concessional tax rate for private limited companies of 15% under Section 115BAB. However, this is subject to certain conditions, such as:

• The company should be engaged in the business of manufacture or production of any article or thing
• It should not be formed by splitting up or reconstruction of an existing business
• It should not use any plant or machinery previously used in India (with certain exceptions)
• The option to avail Section 115BAB must be exercised in the first year of operation

The applicable tax rates for domestic manufacturing companies for the assessment year 2022–23 are outlined below:

Education Cess for Companies

Private limited companies are required to pay an education cess at the rate of 4% on the total income tax, including the applicable surcharge. Below is a detailed explanation of the corporate income tax rates for FY 2021–22 or AY 2022–23:

For companies with a turnover of up to ₹400 crore:

• Income up to ₹1 crore is taxed at 25%.
• Income exceeding ₹1 crore but up to ₹10 crore is taxed at 25% plus ₹25,00,000. A 7% surcharge applies.
• Income above ₹10 crore is taxed at 25% plus ₹2,50,00,000, with a 12% surcharge.

For companies with a turnover exceeding ₹400 crore:

• Income up to ₹1 crore is taxed at 30%.
• Income exceeding ₹1 crore but up to ₹10 crore is taxed at 30% plus ₹3,00,000. A 7% surcharge applies.
• Income above ₹10 crore is taxed at 30% plus ₹3,00,00,000, with a 12% surcharge.

The education cess of 4% is uniformly applicable to the total tax payable, including any surcharge, regardless of turnover.

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Income Tax Rate for Foreign Company

Foreign companies, i.e., those incorporated outside India but earning income from Indian sources, are taxed at a basic rate of 40% (plus applicable surcharge and cess). The surcharge is levied at 2% on income between ₹1 crore to ₹10 crores and 5% on income exceeding ₹10 crores.

It is important to note that foreign companies can avail beneficial provisions under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence to minimize their tax liability.

Minimum Alternate Tax for Company

The Minimum Alternate Tax (MAT) provisions apply to companies whose tax payable under the normal provisions of the Income Tax Act is less than 15% of their book profits. In such cases, MAT is levied at 15% (plus applicable surcharge and cess) of the book profits.

However, MAT is not applicable to companies opting for the concessional tax regimes under Section 115BAA and Section 115BAB. Further, the credit for MAT paid is allowed to be carried forward for 15 years to be set off against future tax liabilities.

H2 - How to Calculate Total Income for a Company?

To arrive at the taxable income for a private limited company, the following steps are involved:

The Corporate Income Tax Rate is then applied to this taxable income to determine the tax liability of the private limited company.

Returns Applicable for Domestic Company for AY 2022-23

Private limited companies are required to file their income tax returns annually. For the assessment year 2022-23, the following returns are applicable:

1. ITR-6: This return is applicable for companies other than those claiming exemption under Section 11 (income from property held for charitable or religious purposes).

2. ITR-7: This return is applicable for companies claiming exemption under Section 11.

The due date for filing the return is 31st October of the assessment year. However, for companies required to furnish a report in Form No. 3CEB under Section 92E (relating to international transactions), the due date is 30th November of the assessment year. Companies must also ensure timely compliance with advance tax payments, TDS/TCS obligations, and tax audit requirements (if applicable) to avoid penal consequences.

Domestic Company Tax Slab for AY 2024-25

For the Assessment Year (AY) 2024–25, the income tax rates for domestic companies depend on their turnover or gross receipts during the financial year (FY) 2020–21, as well as the tax provisions they choose to apply under specific sections of the Income Tax Act. The applicable rates are as follows:

• If the total turnover or gross receipts during FY 2020–21 do not exceed ₹400 crores:
  
  • Tax rate: 25%
• If the company opts for Section 115BA:
  
  • Tax rate: 25%
• If the company opts for Section 115BAA:
  
  • Tax rate: 22%
• If the company opts for Section 115BAB:
  
  • Tax rate: 15%
• For any other domestic company:
  
  • Tax rate: 30%

These rates are exclusive of surcharge and cess, which will be applied additionally based on the applicable income slabs.

Frequently Asked Questions