Income Tax efiling in India for FY 2023-24 (AY 2024-25)
We have changed the way people do tax filing in India. We don’t just get your tax return filed within minutes but get you maximum refunds in shortest time.
File ITR Now Hire eCA NowGuide of Nidhi Company - Purpose, Regulations & Rules
What is Nidhi Company & Purpose?
Nidhi company is a company which is formed with the objectives to bear the habit of thrift and savings amongst the members and receiving deposits from and lending to the members for their mutual advantages. A Nidhi company is another NBFC (Non-banking financial company) governed by the (MCA) Ministry of Corporate Affairs. Nidhi company aims to develop the habit of saving the amount among its members and works on the principle of mutual concession. It is in short can be like “All for one- one for all”. A Nidhi company does not require a license to operate from the Reserve Bank of India. It should be registered as a public company and its name should end with “Nidhi Limited”.
Why The Incorporation of Nidhi Company is Essential?
The term Nidhi means in India’s traditional roots “treasure.” A Nidhi Firm is a type of NBFC (non-banking financial company) established under Section 406 of the Companies Act 2013. The major aim of Nidhi Company is to sow a habit of saving and thrift in its members. In Nidhi company, the members who borrow and lend money from each other are known by a variety of names including Nidhi such as benefit funds, mutual benefit funds, and mutual benefit Companies. Nidhi company focuses more on the mutual benefit of its societies with just individual members and limited dealings. The major source of funds is its members only who make contributions to Nidhi Company. Members of Nidhi companies can take loans at low-interest rates for various objectives, such as housing construction or maintenance. Nidhi Company operates in an obligated environment, restricting its ability to accept deposits.
Key features of Nidhi Company
Limited Liability - Based on the amount invested or contributed by the members, they will get limited liability which can not be carried forward. However, the members of the company will be eligible only for their share in the company. Availability of Emergency Fund - The members of the Nidhi company can avail of the fund from the contributed fund by themselves at a lower interest rate. Legal existence - Nidhi Company is a separate legal entity that can receive assets in its own name. It has a separate legal existence as a registered Mutual Benefit Society.
Compliances of A Nidhi Company
All the companies incorporated under section 406 of the companies act, 2013. There are certain major compliances of a Nidhi company which are as follows. Form NDH-1 - After the formation of Nidhi company, if it fulfills all the requirements and prerequisites of the Nidhi Rules 2014 then it is mandatory to file the form NDH-1 along with the applicable cost. However, you must ensure that you file this form within 90 days of the 1st financial year. It is worth noting that the form must be validated by the Chartered Accountant/ Company Secretary. Form NDH-2 - This form is to be filed for the extension of the time limit. Make sure to file this form within 30 days of the following year's end. This form must be filled only in the following cases- Failure to maintain a NOF to deposits ratio of 1:20. Unable to maintain a minimum of 200 members within a year of incorporation. NDH - 3 - This is the half-yearly return form which is needed to be filed within 30 days at the end of each half-year. File NDH-3 to the ROC (Registrar of the companies) along with the applicable fee. This form must be duly validated by the Chartered Accountant or Company Secretary.
Benefits of a Nidhi Company
As per the Nidhi Company Rules, It is a different legal entity with limited liabilities. It is only utilized. Nidhi company holds good credibility than equivalent functional units, such as Trusts, Cooperative Societies, etc. Its working functions under easy regulations as followed under Nidhi Rules 2014. The effortless processing process is obeyed in its procedure. It becomes easy to avail of loans available at a more reasonable rate than other banks and NBFCs. Such companies operate for those members who have minimum eligibility for availing loans, such as low-wage workers. Secured and Convenient ways for money depositions and uplifts the habit of savings amongst the enrolled members only. No requirement for external involvement and thus there is less possibility of dispute or corruption. Nidhi company provides financial help to lower and middle-income groups without complex formalities and documentation and it fulfills the needs of lower and middle-income groups, such as those in rural and remote areas, etc.
Eligibility For Nidhi Company Registration
The following are prescribed requirements that must be fulfilled before the incorporation of Nidhi Company: You need to add “Limited” to the end of the name if you own a Nidhi company. Trusts are not authorized to be members of Nidhi company. People under the age of 18 years also are not eligible to be a member of Nidhi company. The primary purpose of the group must be to encourage regular savings habits and thrift among its members. The minimum paid-in capital must be Rs. 5,000,000. The Nidhi Company Should be formed with at least 7 members of which 3 must be directors. The Act restricts the issuance of shares by the Company before its effective date, and it asks for the redemption of any preference shares issued by the Company after its effective date.
Documentation For Nidhi Company Incorporation
Details of Permanent Account Number (PAN) of all directors. Passport-size photograph. Photocopy of the directors' voter ID Card/Aadhaar Card/Ration Card. Passport (In case of NRIs/Foreigner members). Address proof. Address proof for the business place. Such as leased business space, and rental agreements of the same. Make sure that the address proof is not older than two months, No objection certificate (NOC) of the Landlord’s business space is located Property papers of the same owned business place. Electricity and water Bills of business place.
Factors For Consideration To Form Nidhi Company
We have expressed below a few important points about Nidhi Companies in India as prescribed in Rule 6 of the Nidhi Rules of 2014- After the formation of Nidhi, you will have 12 months to get at least 200 members. Interest rates can not be more than 20% per year in the case of the decreasing balance strategy. A Nidhi Company is allowed to provide its shares, debentures, and other forms of debt instruments. A Nidhi firm mandates any collateral in the form of Gold, Fixed Deposits, Real Estate, etc to issue loans. No one can make apply for a loan or make deposits from this institution. In India, operating a microfinance or auto finance company is illegal. The minimum required amount should be Rs.5,00,0000 to launch a Nidhi Company. There must be more than 10% of net deposits that aren’t tied down in any situation.
Factors To Consider After The Formation of Nidhi Company
A Nidhi company must meet the following prerequisites: There must be at least 200 individuals in the group, otherwise, it will not meet the conditions. A Net Owned Fund of Rs.10 Lakhs is required. It is not permitted for the ratio of deposits to total net holding funds to exceed 20 to 1. Rule 14 of the Nidhi Rules 2014 determines that term deposits comprise at least 10% of total deposits.
Prohibition Activities in Nidhi Company
There are certain restrictions levied on Nidhi Companies that are required to abide by certain prohibitions which are imposed on them in terms of their activities. These activities are documented as follows: Nidhi Companies can not deal with chit funds. Nidhi Companies can not deal with the leasing of finances. Nidhi Companies can not deal with the insurance business. Nidhi Companies can not deal with the securities business. Nidhi Companies can only lend funds to its own members. Nidhi Companies can not receive deposits from any other outside person except its own members.
Can a Nidhi Company Open Branches?
Yes. A Nidhi Company can have branches. However, to be eligible to open branches, the Nidhi company must meet the following prescribed conditions- If the Nidhi company has acquired the net profits after deducting tax, for the primary 3 financial years continuously. A Nidhi Company can open up to 3 branches only. However, all three The registrar has to be intimated within 30 days of opening every branch. branches must be opened within the same district. A Nidhi Company must have prior permission from the regional director in case to have more than 3 branches. These branches can be within the same district or in a separate district.
Frequently asked questions
Can a Nidhi Company open multiple branches?
How many directors should Nidhi Company have?
What is Full form Nidhi Company?
What is the requirement to be a director in a Nidhi company?
What are the rules to invest in a Nidhi Company?
How long does it take to get registration of a Nidhi company?
Does the director of the Nidhi company get a salary?
How many branches are allowed to open in a Nidhi Company?
Can A Nidhi company provide a loan to any person?
Krishna Gopal Varshney
“Krishna Gopal Varshney co-founder & CEO of Myitronline.com. Myitronline is amongst the top emerging startups of Asia and authorized ERI by the Income Tax Department. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. ”