GSB Taxation

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Nidhi Company is a company that is registered under the companies act, 2013. It has an objective to pursue the habit of thrift and savings amongst its members. Nidhi Company is only allowed to lend and to take deposits from its members only. This is the reason funds contributed to a Nidhi company are only for the members/shareholders and only be used by the shareholder of the company.

Though Nidhi company is similar to NBFCs (Non-banking Financial Corporation) yet very different from the NBFCs. The facets of both these corporations appear the same but they are very different from their core. They both have been the most engaging entities of Modern India. As Nidhi Company deals with its shareholders- members only. therefore, RBI (Reserve bank of India) has exempted the Nidhi companies that are notified from the core provision of the RBI act and all the other directions applicable to NBFCs. The activities of Nidhi Company are specifically related to its members. No outsider is allowed to take part in the activities of Nidhi Company because it is written in the objectives of a company that no outsider is allowed to take part in the activities of the business. This is one of the major advantages of Nidhi Company as it focuses only on the limited group of people and offers more room to expand and grow. 

Nidhi companies are known under different names like Mutual fund, Benefit funds, permanent fund, and mutual benefit company. They are considered as mutual benefit societies as they are restricted to their members and also the membership is limited. The source of funds for such kinds of societies is mainly the contribution from its members. Loans are given to the members at a reasonable price and most of the loans are for the construction of houses or repairs.

Moreover, we must note that there are various advantages of forming a Nidhi Company. One of the major disadvantages is regarding credit responsibility among the members. There have been many cases where the people have borrowed the loan but haven’t paid the loan back despite the fact they were in a full capacity to pay the loan.  This is a major drawback for the Nidhi Company because these people lead to breaking up of a company as other members also follow the same path. However, even though we see that Nidhi Company is one of the best entities for starting lending and borrowing among a limited group of people.

Documents required for Nidhi Company Registration

  • PAN card of all shareholders/directors
  • Copy of Voter Id card/ Aadhar card of directors
  • Passport size photograph of all directors and shareholders
  • If the property on rent then rent agreement or utility bill
  • NOC (No objection certificate from landlord)
  • Latest bank statement/telephone bill
  • Scan copy of the signature

Advantages of Nidhi Company

  • Ease of formation

Unlike NBFCs, Nidhi Company does not need to obtain a license from RBI. They just have to register themselves as a public company with MCA and infuse the amount of capital as required.

  • Lower rate of credit: Loan given to the members of Nidhi company is at a lower rate of interest than the market which further brings greater savings to the members. 
  • No outsider interference: Nidhi companies are formed, managed and provide mutual benefits to their members only. Any outsider is not allowed to avail of the loans and deposit money in these companies.
  • Help in channelizing small savings:  The major aim of such companies is to promote the habit of thrift and saving among the lower and middle sections of the society.


  • Limited fund:  As Nidhi companies accept the deposit from their members only, the amount of fund raised is limited in accordance with the number of members.  
  • Limited availability of credit: As the funds raised are limited, the availability of credit is also restricted which further destroys the purpose for which Nidhi company was established.
  • Other regulations: Rules and directions governing the Nidhi Company are made from time to time by the central government. Therefore, they are not totally exempt from the regulatory framework. 

Procedure for Nidhi company registration

  1. Obtaining DIN (Director Identification Number)

The proposed directors who may also be the applicants of Nidhi Company have to first apply for DIN in the prescribed E-form. Such E-form has to be signed by the proposed directors by digital signature only. Therefore, one needs to get the Digital signature first.

  • Name approval:

The name of the company incorporated as Nidhi shall have “Nidhi Limited” as its last words. Also, you have to provide 3 name options to MCA for Nidhi Company of which one will be selected.

  • Submission of the Incorporation documents:

Once the name is approved by the ministry of corporate affairs, the applicant needs to provide the required documents for the incorporation of Nidhi Company to MCA through prescribed E-form.

  • Certificate of incorporation:

After the submission of the documents and registration fee and stamp duly paid, it takes nearly 15-25 days to get the certificate of incorporation of Nidhi Company. A certificate of incorporation serves as proof that the company has been created. The certificate of incorporation contains CIN (Corporate of Identity number) of such a company.

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