Overview
Crowdfunding is governed by SEBI in India. SEBI is a market regulator that regulates the securities market. Set-up in 1988, it is a non-statutory body. Equity-based crowdfunding is illegal in India. Other types are legal. The risk associated with unregulated investments is high. The investor may lack skills and experience of assessing the risk before investing.
Legal Types of Crowdfunding
4 Types of Crowdfundings are Legal in India:
- Social or Donation
- Lending Crowdfunding
- Reward-based Crowdfunding
- Debt-based Crowdfunding
- Product Crowdfunding
Follow the rules of RBI and SEBI if you are dealing with money matters.
The lack of a regulatory framework means many crowdfunding activities operate in a gray area. SEBI’s consultation paper on crowdfunding has raised concerns about investor protection, fraud, and fund misuse.
After banning equity platforms, SEBI provided an alternative to raise funds with less compliances. In 2015, SEBI allowed companies to list on stock exchanges with relaxations.
The impact has been phenomenal; from medical treatment to NGOs to personal causes, crowdfunding has aided many. Investing through crowdfunding can give greater satisfaction than investing in a large-cap company, provided risks are well managed.
Crowdfunding Platforms and Their Impact
Is there any crowdfunding platform in India?
Crowdfunding platforms make finance easier by aggregating many small sums. Websites like Ketto, Milaap and ImpactGuru focus on social change, awareness and fundraising across sectors. Rules and regulations differ so entrepreneurs must understand platforms before starting projects, which can also test early product versions.
SFA provides transparent donation options. Ketto allows medical, education and social cause fundraising. Milaap also focuses on education, healthcare and rural development. ImpactGuru assists individuals and organizations. Marquee Equity helps startups raise funds and connect to investors, raising $22 million itself. Savart democratizes investor access while ensuring protection.
Successful promotion drives fundraising traffic. Debt-based crowdfunding is also known as P2P lending. Quicker and easier than traditional financing, platforms like LenderKit offer white label software for real estate or startup financing crowdfunding. Kickstarter funds creative projects and startups through innovation and research into music, books and films. Campaigns like Sweet Requiem raised over $33,000 for a Tibetan women’s struggles film and Edible Cutlery also succeeded this way.
Tax Implications
Is crowd funding taxable in India?
The taxability of crowdfunding in India would depend on the nature and type of crowdfunding as well as the specific circumstances of each case. It is recommended to consult a tax professional for individual cases.