Crowdfunding is the process of raising funds with the help of people across the country, using donation-based fundraising platforms as the medium. Crowdfunding on PlanetMakers helps fund generate rural employment, plantation drives, create fruit-based trees, and the creation of ponds & lakes.
With donation-based crowdfunding, getting financial help for the overall initiatives and objectives of PlanetMakers becomes viable and achievable. Unlike other types of fund raise, fundraising via online crowdfunding platforms requires no liability to pay back the funds raised. So, all the amount generated can be used to cover the cost of generating rural employment, plantation drives, creating fruit-based trees, and creation of ponds & lakes.
Crowdfunding is the practice of raising funds for a specific cause from a large group of people who show their support for that cause by making donations.
Crowdfunding helps non-profit organizations across India – from the biggest to the smallest – work on various causes like education, child welfare, women empowerment, and many many more.
Crowdfunding supports these NGOs’ fundraising journey with faster transactions, wider reach, and reduced fundraising costs. Donation-based crowdfunding offers NGOs a perfect platform to use the power of social media to raise funds faster.
Tax Regulations For Crowdfunding In India
According to recent Income Tax regulations, all Non-profit organizations raising funds from crowdfunding websites are entirely exempted from taxation. However, individuals receiving contributions from a crowdfunding platform for any cause are liable for tax in India.
All contributions made to the non-profit establishment or charitable institution can avail of tax deductions under section 80G of the Income Tax Act. Under the Finance Act 2017, all donations above ₹2000 in cash won’t be eligible for tax deductions in India. The reason is that people contributing more than ₹2000 will do it online, and India can move towards complete digitalization as the online process is hassle-free for everyone.
Many top crowdfunding platforms have already become one of India’s popular alternatives for financial support after the covid19 pandemic. As donation-based crowdfunding is legal in India, most individuals and NGOs widely choose a crowdfunding platform to raise funds for personal and social causes.
Therefore, we will try to cover more about donation-based crowdfunding in detail.
Tax regulations related to crowdfunding in India can vary depending on the type of crowdfunding and the specific circumstances of the campaign. Here are some general guidelines regarding tax implications for different types of crowdfunding:
Donation-Based Crowdfunding:
Donations received through crowdfunding campaigns are generally considered as “income” for the recipient.
If the funds received are for a charitable cause and the recipient is a registered charitable organization, the donations may be eligible for tax exemptions under the Income Tax Act.
Donors might also be eligible for tax deductions if they contribute to eligible charitable organizations.
Rewards-Based Crowdfunding:
Funds received through rewards-based crowdfunding campaigns could be considered as “income” for the campaign creator.
The campaign creator might need to report the funds received as income and pay income tax accordingly.
However, if the funds received are used to produce the promised rewards (such as products or services), the costs associated with fulfilling those rewards may be deductible, reducing the taxable income.
Equity Crowdfunding:
Equity crowdfunding involves the issuance of securities (shares) in exchange for investments. Therefore, it falls under the regulatory purview of the Securities and Exchange Board of India (SEBI).
The tax implications for equity crowdfunding can be complex and may involve aspects such as capital gains tax, dividends, and reporting requirements for both the issuer and the investor.
Peer-to-Peer Lending:
Interest income earned by lenders through peer-to-peer lending platforms is taxable as per the individual’s income tax slab rates.
Lenders might need to report the interest earned as “income from other sources” in their income tax return.
It’s important to note that tax regulations and interpretations can change over time. Additionally, specific circumstances and the amount of funds involved can also impact the tax treatment. Therefore, it’s highly recommended to consult with a qualified tax professional or financial advisor who is up to date with the latest tax laws and regulations in India before embarking on a crowdfunding campaign or making investment decisions.
For the most accurate and current information on crowdfunding-related tax regulations in India, please consult the official website of the Income Tax Department of India or seek guidance from a certified tax professional.
Crowdfunding in India refers to the practice of raising funds for projects, causes, or businesses from a large number of people, typically through online platforms. Crowdfunding can be categorized into several types, including donation-based crowdfunding, rewards-based crowdfunding, peer-to-peer lending, and equity crowdfunding. The procedures for crowdfunding in India may vary depending on the type of crowdfunding and the regulations in place. Here is a general overview of the procedures:
Choose a Crowdfunding Model: Decide which crowdfunding model suits your needs. Are you seeking donations, offering rewards, providing loans, or offering equity? Each model has its own set of regulations and procedures.
Select a Crowdfunding Platform: Choose a crowdfunding platform that aligns with your project or business type. Some popular crowdfunding platforms in India include Ketto, Milaap, Wishberry, and Fueladream.
Project Setup: Create a compelling and detailed project or campaign description on the chosen platform. Clearly explain your project, its goals, why you need funds, and how the funds will be utilized.
Legal and Regulatory Compliance: Depending on the type of crowdfunding, you might need to fulfill certain legal and regulatory requirements. For instance, equity crowdfunding involves compliance with SEBI (Securities and Exchange Board of India) regulations. Peer-to-peer lending platforms also have specific guidelines to follow.
Documentation: Prepare all necessary documentation, including your business plan, financial projections, legal agreements (if applicable), and any other relevant information that potential backers might need to make an informed decision.
Campaign Launch: Once your campaign is set up and you’ve ensured compliance, launch your crowdfunding campaign on the chosen platform. Promote it through various channels, including social media, email marketing, and networking.
Engage with Backers: Interact with your backers and potential supporters. Respond to their questions and provide updates on your project’s progress.
Fulfill Commitments: If you’re running a rewards-based campaign, make sure you fulfill your promises to backers, such as delivering rewards on time.
Manage Funds: Manage the funds you’ve raised responsibly and transparently. Keep accurate records of expenses and ensure that the funds are used for the intended purpose.
Closure of Campaign: Once your campaign duration is over, close the campaign on the platform. Thank your backers and supporters for their contributions.
Reporting and Compliance: Depending on the type of crowdfunding, you might need to report to regulatory authorities or fulfill specific compliance requirements, especially for equity-based crowdfunding.
Please note that regulations and procedures related to crowdfunding in India might have evolved since my last update. It’s important to consult with legal and financial experts who are up to date with the latest regulations and practices before embarking on a crowdfunding campaign.
Accepting crowdfunding involves several considerations and guidelines to ensure a successful and ethical campaign. Here are some steps to follow when accepting crowdfunding:
Clearly Define Your Goals: Clearly outline the purpose of your crowdfunding campaign. Explain what you’re raising funds for, how much you need, and how the funds will be used. Transparency is key to gaining the trust of potential backers.
Choose the Right Platform: Select a crowdfunding platform that aligns with your campaign’s type and goals. Research different platforms to find one that suits your needs and has a user-friendly interface.
Craft a Compelling Campaign:
Create an engaging campaign page with a clear and concise description of your project or cause.
Use high-quality visuals, including images and videos, to showcase your campaign and convey its essence.
Explain the impact of contributions and why people should support your campaign.
Offer Attractive Rewards (if applicable):
If running a rewards-based campaign, offer enticing rewards that match the contribution levels.
Clearly describe each reward and its value, and set realistic delivery timelines.
Promote Your Campaign:
Actively promote your campaign through social media, email marketing, personal networks, and other relevant channels.
Regularly update your backers and potential supporters about the campaign’s progress.
Engage with Backers:
Respond promptly to questions, comments, and messages from backers.
Build a sense of community and connection by sharing updates, stories, and behind-the-scenes content.
Maintain Transparency:
Be open about your campaign’s progress, challenges, and setbacks.
Communicate any changes to plans, timelines, or goals.
Deliver on Promises:
If offering rewards, ensure that you fulfill them as promised and within the specified timeframe.
Keep backers informed about any delays or changes in delivery schedules.
Express Gratitude:
Show appreciation to your backers through thank-you messages, personalized notes, or acknowledgments on your campaign page.
Follow Legal and Tax Regulations:
Understand the legal and tax implications of the funds you raise, depending on the type of crowdfunding and your country’s regulations.
Comply with any reporting requirements or obligations related to the funds raised.
Keep Records:
Maintain accurate records of contributions, expenses, and any communications related to the campaign.
This will help with accountability and reporting, if necessary.
Continuous Communication:
Even after the campaign ends, maintain communication with backers and update them on your progress and achievements.
Ethical Considerations:
Be honest in your campaign representation, avoid misleading information, and use funds only for their intended purpose.
Remember that crowdfunding success often hinges on effective communication, transparency, and delivering value to your backers. By following these guidelines, you can build a strong crowdfunding campaign that resonates with your target audience and attracts meaningful support.