What are the tax implications of Crowd funding and who have successfully done crowd funding in India
Crowd funding is the latest trend to get the funds for a business. What are the tax implications? How income tax is charged on crowd fundings?
Who have successfully excuted a project involving crowd funding in India?
Crowd funding is undoubtly the best kind of funding if you get it. Internet is the best medium to get crowd funding. We shall not discuss legality of crowd funding, private companies can not accept deposits from public, option of crowd funding is not open for them.
Income Tax laws in India charge taxes based on form of money received. If the funds are in form of capital receipts, the receipts are not taxed however revenue receipts are taxable.
You can receive crowd funding either in form of donation, advance sell of product, against the equity etc.
If funds are received against the equity, no tax payable as per income tax act since its a capital receipt.
If funds are received as donation, against sell of products etc. the receipts will be taxable under the head income from business or profession.
A great example of crowd funding in India is Pawan Kumar. He collected the funds against advance sell of tickets for his movie Lucia.
Pawan Kumar collected rs.51 lakh in 27 days for his movie Lucia. The model for collecting funds from crowd was sell of viewership against funding. He distributed the watching privilages in different categories based on the funds contributed.
Another great example of crowd funding is Shyam Benegal, he collected money from 50,000 farmers to produce an advertisement for Amul in 1975.
Crowd Funding is very well possible in india via a private company, Company Law does not say that a private company can not take donations from public for a venture. There are 3 Models - Donation Model, Equity Model (Investment against for eg shares), Debt Model (Loan under agreemtent with terms of repayment). In last option you may recieve SEBI Notice possibly if you are getting money from US UK (Outside india), However in US for small start ups people prefer donation model and mediocure model - Loan is suitable and for big Idea better to involve a good investor who can understand your needs. Anythiing you recieve in india as revenue reciept is taxable, Capital reciept (against issue of shares for eg from Foreign Institution/ individual) however not taxable but you need to see it comes under automatic approval from RBI and you need to give details of funding recieved from outside india to RBI in a pre defined performa.