Are donations to crowdfunding platforms eligible for tax rebate? Here is all you need to know

Since not all organisations are not registered as charitable trusts, not all your donations may qualify for a tax break.

“Millions of lives are vulnerable because of densely populated cities and a severe shortage of medical infrastructure. HelpNow is an initiative by young students providing a safe, 24x7 logistics network for transporting COVID resources. You can donate funds for buying PPE kits, widening ambulance networks, and more.”

This is one of the countless crowdfunding initiatives currently active on various platforms like Ketto, Milaap, and more. This initiative, for instance, managed to raise more than Rs 2,40,0000 out of its total of Rs 2,50,00,000, with more than 4,500 supporters. It is perhaps a nod to India’s inherent philanthropic disposition that India managed to rank in the top 20 most generous countries in the world, as per the CAF (Charitable Aid Foundation) World Giving Index 2021. At #14, with a score of 44 percent, India outshone the US (#19) and China (#95). 

The global market for crowdfunding is only set to expand to over $117 million in 2021, from its size of $19 million a few years ago. And augmenting it is the value of the crowdfunding segment in India, which stood at $9.1 million in 2020 and is likely to grow at a CAGR of 1.4 percent by 2024.

In a consultation paper on crowdfunding, Securities and Exchange Board of India (Sebi), defined crowdfunding as “solicitation of funds (small amount) from multiple investors through a web-based platform or social networking site for a specific project, business venture or social cause.”

Its significance and impact have only grown over the last two years, especially in the wake of the pandemic. From raising university fees for those struggling financially to collecting funds for various COVID-19 resources, crowdfunding has emerged in a major way. In fact, Ketto, one of India’s most popular crowdfunding platforms grew almost 4x during the pandemic, raising over Rs 115 crore from its COVID campaigns. Another crowdfunding platform, ImpactGuru also saw a massive surge in the frequency of donations with almost 2.5 donations post-COVID. 

It helps that except for equity crowdfunding, where funds are raised by offering a share of the company’s equity in return, all other categories, namely donation-based, reward-based (gifts in return of donations), and debt-based (regular interest payment on donations) crowdfunding are legal in India. The most popular category amongst these, however, is donation-based crowdfunding, where people give money with no anticipation of returns whatsoever.  

Taxability
Delhi-based Chartered Accountant Umesh Goyal explains the tax status surrounding crowdfunding. “Crowdfunding organisations are registered under the Income Tax Act as a charitable trust. And when people contribute to such organisations, they are eligible for income tax deductions under section 80G, which is typically 50 percent of the contributions. When this money reaches the beneficiary via the trust, it is not taxable in the hands of the recipient, he said. 

Since not all organisations are not registered as charitable trusts, not all your donations may qualify for a tax break. It is important to check whether the entity you are donating to can provide you a certificate under Section 80G, post which you can claim 50-100 percent deductions on your donations so made. 

As for your donations, you can also claim a 100 percent deduction under Section 80GGA, which allows for funds to be donated for research and development purposes. You cannot also claim deductions for donations made in kind, like that of clothes, food, and more. 

On part of the organisation that is receiving such donations, it is compulsory to file Form 10BD detailing the information of donors. In fact, donations under centrally sanctioned funds like the Prime Minister’s National Relief Fund, National Defence Fund, and more are eligible for 100 percent deductions. If you’re making donations in cash, remember that any amount above Rs 2,000 in cash will not be eligible for deductions.