In India, crowdfunding is new, and apprehensions regarding regulations and taxes on this type of funding are common. However, online crowdfunding has completely changed the fundraising environment in recent years. Did you know that under Section 80G of the Income Tax Act, donating through any crowdfunding platform may be eligible for tax benefits? Here is everything you have to know if you plan to get a tax deduction for your charity donations.
What Is Crowdfunding?
Crowdfunding is widely recognized as the most effective fundraising method currently available. It is a way of raising money by bridging individuals who support a specific cause with those who need the funds. Typically, several donors contribute small amounts to raise a much larger target of funds that will be used for a specific purpose. Purposes include raising funds for an innovative product launch, environmental or philanthropic initiative, and medical fees for the needy among myriad others. Any good cause can benefit from crowdfunding in India. Whether for a personal or charitable objective, crowdfunding works for any project.
Taxation and Regulation of Crowdfunding
A regulating authority called the Securities and Exchange Board of India (SEBI) oversees tax regulations for crowdfunding in India. Contribution payments in crowdfunds are subject to the rules of the Income Tax Act. Tax benefits are available for those who donate through crowdfunding platforms.
Several NGOs and non-profit organizations in India are authorized to give tax exemption certificates upon donations. These NGOs may use crowdfunding platforms to raise funds, and donors receive tax benefits. In addition, Section 80G allows tax deductions for contributions made to specific organizations.
Tax Exemption of Funds Raised Through Crowdfunding Websites
Charitable contributions on crowdfunding websites are deductible under Section 80G of India’s Income Tax Act. To be eligible for such tax deductions and benefits, donors must get the necessary documents, including an 80G Certificate.
Since these organizations (that are accepting the funds from the fundraiser) depend on donations from individuals and corporate organizations, they must follow strict guidelines to maintain transparency and effectiveness with the funds they receive. In addition, due to their charitable operations, the government offers these organizations several tax benefits and deduction which is extended to the donors.
What Are Section 80G’s Tax Deductions?
Under 80G, taxpayers can claim an exemption if they meet certain requirements regarding payment method, deduction percentage, etc., while making a donation such as the ones on crowdfunding. Individuals, HUF, companies and even non-resident Indians are eligible to claim a deduction under Section 80G if they meet the Income Tax Act’s rules and conditions.
What Kinds of Donations Are Tax-Deductible Under Section 80G?
Here are the following types of donations deductible under section 80G:
- Donations must be made to authorized entities.
- A receipt and a certificate are necessary, along with the donation receipt, to claim the deduction.
- One cannot get a tax deduction for a contribution of in-kind services.
- A cash donation worth more than Rs. 2,000 can’t be deducted.
Who Can Get an 80G Certification?
Some specific regulations and guidelines determine which non-profits are qualified for 80G certification. Therefore, not all NGOs and trusts qualify. Here are the 80G certification requirements:
Business and charity separation: To qualify for an 80G exemption certificate, organizations must show that they have effectively separated their charitable and non-charitable activities.
Donations can’t be misused: The fund that has already been given to the cause shouldn’t be used for anything else. Therefore, all such organizations must adhere to stringent accounting procedures to demonstrate that they have not misused funds.
No religious activity: An NGO or trust that participates in religious work for a specific caste or religion is disqualified for 80G certification.
Accurate bookkeeping: Organizations must keep complete, accurate, and up-to-date bookkeeping records and books of monetary transactions as confirmation before submitting an application for an exemption under section 80G.
Appropriate registration: For the organization to be legitimate, it must be registered under either Section 25 of the 1956 Act or the Societies Registration Act of 1860.
How Much Tax Exemption Does 80G Provide?
Before the 2017 Union Budget, the maximum amount of cash donations that may be deducted was Rs. 10,000. This measure was taken to prevent taxpayers from abusing this benefit.
As of the 2018-2019 tax years, section 80G contributions must be paid to a specified organization or institution, and cash donations are limited to a maximum of Rs. 2,000. In contrast, there is no limit on deductions permitted under section 80G for any sum contributed to authorized funds and institutions by cheque or digital payment.
Another important thing is that, under Section 80G, you can get a tax credit of either 100% or 50% of the amount you donated. You may also qualify if you make a charitable donation to the government or local authority. For this, you must adhere to a set of regulations. However, in-kind donations, such as clothing, food, etc., are not tax-exempt.
Considerations for Successful Fundraising
Here is how you can successfully raise funds:
Identify a non-profit organization that can direct donations towards the cause you want to support, to maximize the amount that gets to the charitable organization. If you are looking for funding for medical treatment for cancer, you can use Ketto, a well-known nonprofit organization. You can raise funds through your favorite crowdfunding platform and choose Ketto as the destination of the contributions.
Make sure the non-profit organization has a valid 80G certificate. The tax benefits arise from your donations as a result of this action.
An FCRA license will permit the NGO to accept donations from foreign friends and family. The crowdfunding platform may not process foreign donations if the organization does not have a valid FCRA license. This is vital to avoid being detained by the authorities. However, Indian people living abroad can contribute in any currency.
The emergence of crowdfunding platforms has made it easier than ever to collect funds for deserving projects. There are several lessons for prospective users of crowdfunding platforms and donors. Crowdfunding can help to collect large sums easily and at a faster pace. Visit Ketto to create a crowdfunding campaign.