80 G Certificate – How It Affects Crowdfunding

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In India, the majority of the population are under privileged. Several of them are suffering from illnesses and are struggling to pay their medical bills. There are children who lack money to afford education and essential facilities. There are places in India that still do not have bathrooms and toilets attached to houses.

People are expected to use the fields and such for toilet and bathing purposes. This is why there are several NGOs trying to raise funds using different methods like crowdfunding to provide them with necessary amenities.

Crowdfunding has proven to be one of the most effective ways to raise funds. Thanks to Indian crowdfunding platforms like Impact Guru and Milaap, fundraising for social causes as well as personal causes has become much simpler. These sites have campaigns which are divided into different categories, such as a campaign trying to gather funds for an individual’s medical treatment.

Crowdfunding helps non-profits to achieve their goals of spreading awareness as well as raising funds for a cause, with very little effort. It uses the power of internet and technology and social media campaigns to reach out to the masses encouraging them to donate for such causes.

Since 2010, crowdfunding India has seen the emergence of at least 15 such platforms. Although the industry is growing, the legalities around crowdfunding remains complicated. While there is no one law regulating crowdfunding in India, it is monitored by the Securities and Exchange Board of India (SEBI).

Apart from equity-based crowdfunding, other forms of crowdfunding like Rewards-based crowdfunding, Donation-based crowdfunding and Debt-based crowdfunding are legal in India.

As the name suggests, donation-based crowdfunding requests individuals or organisations to donate money for a cause without the promise of anything in return. Most of the times, the individuals opt for crowdfunding via online platforms to pay for the medical costs of transplants and cancer treatments because these aren’t covered by health insurances or bank loans.

But NGOs have been using the power of crowdfunding the most. Online crowdfunding has lowered down NGO fundraising cost by 60% and many NGOs are now using it as a primary option for raising money for any cause.

Since donation-based crowdfunding works on the financial sector where there is no financial return involve, it is exempted from SEBI rules. It is governed by the Information Technology Act (2000) and Income Tax regulations.

Under Income Tax Section 80G, all donations made to charities and non-profit organisations are exempted from tax deductions. In fact, online crowdfunding platforms make sure that the donors get 80G exemptions.

According to Income Tax regulations, any donations made above INR 2,000 in cash is not eligible for deductions. But the online platforms have multiple cashless payment options to ensure everyone who donates gets a tax exemption certificate.

Donations made to only charities falling under 80G category are eligible for an 80G deduction. Charities with religious or business angle are usually not granted 80G certification. Similarly, if you are donating to private trusts, which are not registered under 80G certification, or gifting to trusts operating outside India (a foreign trust), it will fall under taxable income.

Not all NGOs or trusts are eligible for an 80G certification. There are a few rules that need to be followed to acquire it.  A few reasons which can lead to the government rejecting your claim for an 80G certification are as follows:

  • If the non-profit organisation is involved in business or financial transactions other than donations, then the two needs to be segregated. Otherwise, request for 80G will be denied.
  • All non-profits are liable to keep a strict accounting of all transactions as proof before applying for 80G. These documents are scrutinised thoroughly before the certification is issued.