Nidhi Company Registration

A Nidhi company is incorporated as a public limited company under Section 406 of the Companies Act 2013 read with the Nidhi Rules 2014, requiring a minimum of seven subscribers to the Memorandum and three directors. The MoA must include 'Nidhi Limited' in the name (Rule 8 of the Nidhi Rules 2014 mandates this suffix) and the main objects clause must be restricted to cultivating thrift and savings among members and lending to members only. A minimum paid-up equity share capital of ₹10 lakh is required at the time of incorporation per Rule 4 of the Nidhi Rules 2014, but this must be built up to a Net Owned Fund of ₹20 lakh within one year. Unlike a regular public company, a Nidhi cannot have preference shares or debentures, and the MoA must specifically exclude these under the authorised capital clause.

Under Rule 21 of the Nidhi Rules 2014, every Nidhi company must file Form NDH-1 (Half Yearly Return — now annual as per MCA General Circular) within 90 days from the close of each financial year, disclosing membership numbers, deposit balances, loan balances, and Net Owned Funds. Any branch opening within the same district (permitted only after five years of operations under Rule 22) requires prior Regional Director approval via Form NDH-3. If the company fails the 200-member / ₹20 lakh NOF thresholds within the first year, Form NDH-2 must be filed within 30 days of expiry of the first year seeking a one-year extension. Penalties for non-filing of NDH-1 are ₹10,000 under Rule 21(3) of the Nidhi Rules 2014 with a further ₹500 per day of continuing default, and the Registrar of Companies can initiate action under Section 450 of the Companies Act 2013 against every officer in default.

Interest income earned by a Nidhi company on loans extended to its members is exempt from GST under Entry 27 of Notification No. 12/2017 – Central Tax (Rate) dated June 28, 2017, which exempts 'services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.' Since a Nidhi company by definition lends only to its members (Rule 10 of the Nidhi Rules 2014), all such interest income is exempt from GST. However, any fee charged by the Nidhi for processing loan applications or penalty charges that are not characterised as interest may attract GST at 18% under the residual entry, and the Nidhi must evaluate each type of charge carefully. Nidhi companies typically have very low GST turnover and may not even need GST registration if their taxable supplies (if any) are below ₹20 lakh per Section 22 of the CGST Act 2017.

No — Rule 7 of the Nidhi Rules 2014 strictly prohibits Nidhi companies from accepting deposits from or lending to any person other than a member. A member is defined as a person who has been admitted to membership after subscribing to equity shares of not less than ₹10 face value (Rule 6(d) cap: maximum ₹2,000 shares per member). A director's relative who holds the minimum qualifying shares and has been admitted as a member through the proper process is permitted to transact — but the relationship to a director is irrelevant to eligibility, membership status is. Lending to non-members, accepting deposits from non-members, or circumventing membership requirements through nominee structures would violate Section 406 of the Companies Act 2013 and expose directors to disqualification under Section 164 and prosecution under Section 447 for fraud if the violation is intentional.

Interest income received by a Nidhi company from loans to members is taxable as 'Profits and Gains of Business or Profession' under Section 28 of the Income Tax Act 1961, since the lending activity constitutes the business of the Nidhi. The Nidhi is eligible to claim deductions under Section 36(1)(vii) for bad debts written off and Section 36(1)(viia) for provision for bad and doubtful debts (subject to 7.5% of gross total income for scheduled banks — Nidhis are not scheduled banks, so this specific provision does not apply, and actual write-offs only are allowed). For members, interest paid on deposits received from a Nidhi company is taxable as 'Income from Other Sources' under Section 56(1) of the Income Tax Act 1961. TDS under Section 194A applies if the interest paid to any member exceeds ₹5,000 in a financial year, at the rate of 10% for PAN-quoted members, and the Nidhi must file quarterly TDS returns in Form 26Q.