Is crowdfunding in India getting impacted due taxation and regulatory norms?

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India’s first large-scale crowd-funded project happens to be a film called Manthan (1976). The film directed by Shyam Benegal was funded by five lakh farmers from Gujarat who paid two rupees each.

However, during the last 42 years, the country has failed to nurture this model further. Surprisingly, no clear norms have been framed for funders and campaign owners as of now.
Rewards-based, donation-based, debt-based (P2P), and equity-based crowdsourcing models are popular in India.
Crowdsourcing portals in India
Banks and conventional VCs only offer funds to businesses that have a considerable potential to become profitable. They prefer investing in projects backed by entrepreneurs with a specific educational background. On the other hand, crowdfunding can help small businesses and non-profit projects as well. Donations and reward-based crowdsourcing models are popular in India. People donate openheartedly to each other for health causes as healthcare costs are unbelievably high in the country. As far as stats are concerned, around 49 percent of the crowdfunding transactions in India happen to be donation based.
Rang De, Ketto, Wishberry, Bitgiving, FuelADream, Catapooolt, Milaap, Impact Guru, Ignite Intent, and Your Seva are some of the most trusted platforms in India.
How is crowd-funded money taxed and regulated in India?
Back in 2014, the SEBI (Securities and Exchange Board of India) released its crowdfunding consultation paper. It categorized crowdfunding into four models. Donation (social lending), rewards, debt (peer to peer lending) and crowdfunding in exchange for equity, are the four types.
Unfortunately, India does not have a proper framework in place to regulate crowdsourcing. But experts suggest that the transactions are indeed monitored by SEBI and the RBI as well as the IT (Income Tax) department. Currently, as a part of self-regulation, crowdfunding portals do urge registered uses to complete the KYC documentation.
The rewards and donation crowdfunding transactions do not attract taxes. NGOs, not-for-profit organizations, and donation crowdfunding portals offer a tax exemption certificate to every online donor. Due diligence process is followed by donation crowdfunding platforms in India to make sure that criminals do not misuse their platform.
Funds collected by NGOs and charitable trusts registered under Section 12AA (IT Act) do not attract the GST. But, the programs organized by them need to be free of commercial activities.
If you are based in Gujarat, are wish to get more clarity on the Goods and Service Tax applicable to crowdsourcing campaign owners, you should surely consider attending GST Training in Ahmedabad.
RBI has specific regulations when it comes to lending based crowdfunding
The central bank is soon set to put crowdsourcing portals that support P2P lending into NBFC (Non-Financial Banking Companies) category. Last but not least; the equity-based crowdfunding is illegal in India.

 Crowdsourcing agencies levy a certain amount of fees (usually five to nine percent of the amount collected) and 18 percent GST on the fee amount. Contract charges, as well as payment gateway fees, are charged additionally to the campaign owners. All the transactions are made using crowdsourcing portal’s nodal bank account, and RBI’s usual bank transaction charges are applicable here as well.
SEBI is set to introduce new frame-work for crowdsourcing portals and has asked the government to give its nod for amending SEBI Act and the Companies Act, 2013, for the same purpose. Perhaps, a proper regulatory framework around the same may prove to be good news for nation’s young entrepreneurs who wish to convert their hobby into a business.
Source - Medium

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