“Donating through crowdfunding can significantly reduce your tax burden. Contributions to eligible campaigns can be claimed as deductions under Section 80G of the Income Tax Act. This not only supports important causes but also provides financial relief to donors,” said Varun Sheth, co-founder of Ketto.
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Tax on crowdfunding in India
Contributions received by individuals through crowdfunding platforms are subject to Income Tax. However, nongovernmental organisations and non-profits raising funds through crowdfunding are entirely exempt from tax. Donations made to non-profit or charitable institutions qualify for tax deductions under Section 80G of the Income Tax Act. The Finance Act of 2017 stipulates that cash donations exceeding Rs 2,000 are not eligible for tax deductions. Legal donation-based crowdfunding is widely accepted for both personal and social causes by individuals and NGOs.
“The agencies raise the funds on behalf of the charitable trust and after reducing the cost of fund raise transfer the funds to the charitable trust who in turn will provide medical/ educational assistance or cause which is charitable in nature,” said Sandeep Shah, partner at CIGNAS.
Tax-efficient crowdfunding
When setting up a crowdfunding campaign, aim to partner with a non-profit that has a valid 80G certification. This ensures that both donors can claim tax deductions and that the funds are not subject to income tax upon receipt.
Both fundraisers and donors should maintain detailed records of all transactions. This includes receipts for donations and documentation of how funds are used, which is essential for tax reporting purposes.
Given the complexities of tax laws surrounding crowdfunding, it is advisable for both donors and recipients to consult with tax professionals. They can provide tailored advice based on individual circumstances and help navigate the intricacies of tax deductions and liabilities.
Timing donations can also impact tax liabilities. Donors should consider making contributions in a financial year that aligns with their income levels to maximise tax benefits.