Crowdfunding and Tax Deduction

Crowdfunding and Tax Deduction
Crowdfunding and Tax Deduction

Over the past few years, online crowdfunding platforms have gained immense popularity. Apart from helping people contribute to various social causes of their choice, these platforms allow altruistic individuals to get tax benefits on donations.

However, before we understand how donating money gratifies your empathetic heart and helps you save tax, let’s look at what crowdfunding means.

What crowdfunding means?

Imagine you want to raise funds to pay for your house help’s surgery who recently met with an accident. You will try to collect funds by asking your family, friends, neighbours, and others in your network to contribute whatever small amount they can. Little by little, you will manage to collect the goal amount and be able to help them. This is what crowdfunding is; it is an effort of collecting small contributions from many individuals to reach a common goal.

What are the types of crowdfunding?

Based on the nature of donation and returns involved, there are four types of crowdfunding. 

Let’s take a brief look at them:

  1. Donation-based

Here, the donor doesn’t have any expectations of returns except for the sense of satisfaction from helping someone. In some cases, there are positive crowdfunding tax implications wherein the donor can receive certain tax benefits on the donation made.

These donations can include medical treatments, children’s education, construction funds for an animal shelter, conducting mental health awareness campaigns etc. Ketto is host to many such crowdfunding campaigns created by individuals to fund for social and personal causes. Ketto is also the first crowdfunding platform to provide ZERO% platform fee policy, ensuring more funds to the campaigner.

  1. Equity-based

Equity-based crowdfunding involves raising funds from investors who then get an equitable share in the venture. However, this is not legal in India due to the high risks involved.

  1. Debt-based

Also known as peer-to-peer lending or crowdlending, debt-based crowdfunding involves contributors receiving fixed interest at fixed durations from the enterprise raising funds. The RBI regulates this type of crowdfunding under guidance from the SEBI, to ensure minimal risk to backers. 

  1. Rewards-based

This is a highly popular form of crowdfunding in creative circles. Gamers, fashion designers, movie productions houses, musicians, artists of many kinds use this crowdfunding to make their next project a reality. These campaigners offer their backers more immediate rewards, like free tickets to the next movie/music show, access to the game, and even song dedications. Often, the compensation offered would depend on the amount of contribution made towards the cause.

What are the fundraising tax laws in India?

In India, donations to certain non-profits are eligible for income tax benefits. Individual donating to a non-profit organisation with a valid 80G certification can receive as much as 100% tax deduction.

Simply put, when you make a donation to a registered charitable institute, it counts as a 50% or 100% deduction on your gross annual income. This reduces your taxable income, saving you some more money. Depending on the charitable trust, you can claim deductions with or without an ‘upper limit.

To leverage the crowdfunding tax laws, make sure you double-check that the non-profit you are donating to has its 80G certification. Once the donation is made, you will receive a donation receipt which needs to be submitted when claiming tax deductions. 

While getting tax benefits is a fantastic incentive for your charitable heart, the primary objective of making donations must be to contribute to the community’s betterment. So, visit the Ketto India website, to donate to various causes of your choice and make a difference to your fellow community member’s life while getting a tax benefit on the same.

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