“Is crowdfunding taxable in India?” – Do you want to raise funds or donate money but are worried about taxes? Let’s understand about taxes on crowdfunding.
Well, every country has its own rules and laws for crowdfunding. So, tax-related rules also vary from country to country.
In my current blog, I’m going to share if crowdfunding is taxable in India or not. And let’s see when it’s taxable and when it’s tax-free.
Is Crowdfunding Taxable in India?
No, it’s not taxable. Crowdfunding is not taxable in India if the funds are raised by non-profit organizations. So, non-profit organizations can raise money by using any crowdfunding platform without worrying about taxes.
If an individual is receiving donations on a crowdfunding platform then he is liable for income tax in case the company is not a non-profit organization itself.
CROWDFUNDING TAX IMPLICATIONS IN INDIA
Crowdfunding organizations should be registered as charitable trusts to get benefits of tax deductions. And people who donate money to such crowdfunding organizations will get tax exemption benefits under income tax section 80G.
Tax Laws in India for Crowdfunding
If you receive money from crowdfunding in India and if the amount is 50,000 rupees then it will not be taxed. The donations that you receive will be considered a gift. But if the amount is more than 50,000 INR then it will be taxed as per the income tax slab.
The money that you receive from crowdfunding will be considered as your income. So, in that particular financial year, you should pay income tax according to the slab.
Is Crowdfunding Tax-Free for Donors in India?
If you want to donate money through crowdfunding then if the organization is registered as a charitable trust or non-profit organization then you will get 50% to 100% tax exemption on the amount that you donate.
But this depends on the organization or the crowdfunding campaign in which you will be donating money. So, you can analyze more about a particular crowdfunding campaign to check the tax deductions.
Get the 80G Certification After Donating to Crowdfunding Campaigns to Get Tax Benefits
Some crowdfunding sites in India have registered as a charitable trust. So, when you donate money on such crowdfunding sites you will tax benefits. You should download the 80G certification after contributing your money.
Make sure you check if the platform provides 80G certification to get tax benefits or not before donating your money. This will help you with tax.
Crowdfunding is Legal in India According to SEBI
Let’s see when and how crowdfunding is legal in India. You should always follow the rules of RBI and SEBI if you are dealing with money matters in India.
1. Social or Donation Lending Crowdfunding
This types of crowdfunding involve donations. People come forward and donate money to support a cause. This can be considered as social work to help needy people.
So, this type of donation crowdfunding is legal in India. For example – raising funds through crowdfunding for a sick person.
2. Pre-Order Crowdfunding
Pre-order crowdfunding means where people give money in order to receive the product after manufacturing. It is legal in India. One can raise funds through the pre-order crowdfunding process in India.
Let’s see an example of pre-order crowdfunding – Pre-order of books. You will get the book after publishing and printing but you have to pay money and pre-order it.
2. Reward Crowdfunding
Reward crowdfunding means where people donate money and in return get rewards in the future or immediately. This type of reward crowdfunding benefits the donors and also fundraisers.
This is legal in India. One can choose the reward crowdfunding option to collect money. Examples of reward crowdfunding are- getting one-year membership for a sports club or getting a free copy of a book.
4. Debt Crowdfunding
Debt crowdfunding refers to peer-to-peer lending. In this one can get a loan and then he should return it in future days along with interest. And also one should apply for such funds to get approval from the lender.
This we can consider as unsecured loans. And such debt crowdfunding is legal in India as NBFC provides a license to the platforms for such peer-to-peer lending. So, one who has such a license can lend money and it is legal.
According to Indian Laws and Rules Who Can Raise Funds Through Crowdfunding?
Well, when it comes to donation crowdfunding, reward crowdfunding and pre-order crowdfunding anybody can do this. As these are legal in India. So, anybody can become a donor or investor here in these three types of crowdfunding processes.
Also, if you want to raise funds through these three types of crowdfunding then you can do it. It’s legal.
Tax Deduction Under Section 80G in India for Donation Crowdfunding
Let’s see some examples that when you get tax benefits.
1. 100% Tax Deduction for Donating Money
If you donate money to crowdfunding campaigns like the Prime Minister’s National Relief Fund or any such type of campaign then you will get a 100% tax deduction on the donation.
2. 100% Tax Deduction With Qualifying Limit
If you contribute to any institution which is approved and is promoting family planning then also you will get a 100% tax deduction but with a qualifying limit.
3. 50% Tax Deduction for Donating Money
If you donate your money for crowdfunding campaigns like Indira Gandhi Memorial Trust etc then you will get a 50% tax deduction on such donations.
4. 50% Tax Deduction With Qualifying Limit
If you donate money to crowdfunding campaigns that are created by registered charitable or non-profit organizations then you will get a 50% to 100% tax deduction. But this depends on the qualifying limit.
How One Can Raise Funds Legally through Crowdfunding in India?
And there are many ideas and ways to raise funds online and offline. But you just need to do it in the right way and legally to drive more funds for your project. If you want to collect funds legally in India then choose the right type of crowdfunding option for you.
As we have discussed that donation crowdfunding, reward crowdfunding and pre-order crowdfunding are legal. So, you can collect funds from these options.
While raising funds if the question ‘is crowdfunding legal in India’ is disturbing you then consider the type of crowdfunding that you are opting for. Analyze if it comes under donation, debt or anything else. Then choose the legal crowdfunding option only.
Things to Consider While Donating in Crowdfunding to Get Tax Benefits
When you decide to donate money in crowdfunding campaigns consider these things to get tax benefits-
1. Check out if the crowdfunding campaign if it is eligible for a tax benefit or not
You should check out and read the details about a particular crowdfunding campaign to know if that will provide any kind of tax benefit or not.
Sometimes on the same crowdfunding websites, some campaigns are eligible for tax benefits but some others will not be eligible for tax benefits. So, you should know the crowdfunding website as well as about a particular campaign on that site in which you will be donating money.
2. Fill Your Details Completely While Donating Money
If you do not fill in complete details while donating money in crowdfunding campaigns many times you may miss tax benefits.
So, fill in all the details like name and all the necessary details while donating. So, that you can get tax benefits. The details on your documents should match the details in the form that you fill while donating money on crowdfunding sites.
3. Do not forget to download the 80G certificate from the website
Download the 80G certificate and keep it with you after contributing money towards crowdfunding campaigns. This certificate is important to get a tax benefit.
This certificate will be proof that you have donated money and you are eligible for tax benefits. So, do not forget to get such a certificate.
4. Check the Limit of Tax Deduction
If you donate in some crowdfund then you will get only a 50% tax deduction. And some crowdfund provide 50% to 100% tax deduction.
So, analyze the tax deduction percentage while donating. Also, analyze the qualifying limits.
5. Do not Invest money in Equity Crowdfunding
Equity crowdfunding is illegal in India. According to SEBI guidelines, there are many rules for start-ups to raise funds from equity crowdfunding.
So, do not donate money to such illegal crowdfunding campaigns if you find any. You will not get any tax benefits there. So, analyze the campaign before contributing money.
So, I’ve explained the tax implications on crowdfunding in India and I hope that you have got an answer to your question – Is crowdfunding taxable in India. You can consider all these points while crowdfunding to get tax benefits.