You should registered ngo and rbi permission to receive foreign funds and remittances
Receiving foreign funds on a crowdfunding platform
I have incorporated an Private Limited company on July 2020. What I intend to do through my company is - Crowdfunding. Crowdfunding has various models. Ours is Donation Based crowdfunding.You can refer to the pdf attached (SEBI Consultation paper on crowdfunding) to know more in detail. What happens in a typical crowdfunding platform is - People who are planning to do something of social value ask for donations from public in general. They post their project on a crowdfunding website and people interested to donate to that project donate funds online. The duration of hosting the project online and amount to be raised are pre-decided. Money donated by the donor comes to the company's account who are running the website. The company then deducts its service fees and transfer the rest of the money to the account of the person who is asking for money. In such a scenario, if donations are coming from overseas, does the company who is providing the website interface need to comply with FCRA? - what is the procedure if you can guide us to understand. It's pertinent to mention here that the funds come only in the form of donation. Donor expects no monetary benefit in return. He might get a Thank you note or memento in return but the price of that memento does not depend on the amount donated. Crowdfunding companies registered in India as pvt ltd company not as charity organisations and accepting funds from abroad as an mediator on other's behalf are - Wisberry.in or Ketto.org or donatekart you can please refer to their websites to know more in detail.
Asked 5 years ago in Civil Law
First answer received in 10 minutes.
Lawyers are available now to answer your questions.
16 Answers
It will come under FEMA.
You need to follow FEMA 1999 .
You need to get approval from RBI for crowdfunding into your accounts reasons may be whatsoever. You need to comply with FCRA.
If not then DRI and ED would come in pictures and charge you under PMLA 2002.
Terrorists are using the same way for the transfer of terror fund from abroad to India.
Therefore your inward remittance from foreign donors must be received under the supervision of RBI under foreign inward remittance accounts.
Under the current Income Tax regulations, non-profit organisations that raise money using crowdfunding platforms are completely exempted from taxation.
2)You have to be registered/approved with FCRA to be able to receive foreign donations.
3) Else foreign contributions will be restricted on your campaign.
1. Foreign funds even in the form of donations is liable for scrutiny under various wings of economic surveillance and watchdog in India.
2. That apart the money subject to concessions is under Income Tax assessment as well.
3. Since various niches of Tax implications are involved its prudent to take advice from a Tax Consultant like CA.
Dear Sir/Madam,
You are suggested that the company providing the website interface is necessarily to comply with FCRA and FEMA, FERA etc.
The other crowdfunding platforms in India like Ketto, Milaap, Donatekart etc., are not NGO/section 8 companies under Companies Act/Charitable organisations and they do not have FCRA (as FCRA is given to charity organisations). They are profit organisations just like now. How come they are getting foreign funds? What kind of permissions are to be taken to receive donations from abroad?
Asked 5 years ago
1)
For all NGOs that sign up on Ketto, foreign donations are disabled by default.
Simply put, if your NGO wants to accept foreign donations through Ketto, you have to upload your latest FCRA certificate, FCRA account cancelled cheque and add the bank details. Only after successful verification, foreign donations will be enabled.
2)you don't need FCRA certification to raise funds on Ketto. However, Ketto will not allow you to raise funds from non-Indian/foreign donors in that case until and unless you submit all the necessary FCRA registration documents and bank details.
No one is barred to receive fund from foreign countries provided it is obtained through proper processing from RBI which is a licensing authority.
You can get foreign funds but subject to scrutiny of fera and ED. As many of foreign funds are illgotten remittances provided for wrong needs
- As per law, equity-based crowdfunding is illegal in India , whereas peer-to-peer lending is regulated by the RBI.
- Further , community crowdfunding which includes donation based and rewards-based crowdfunding are legal
- Further , crowdfunding websites typically charge a fee for using their platform and services to bring money for the cause.
- Further, it is governed by the Securities & Exchange Board of India
- Further, as per the Income Tax Act, non-profit organisations that raise money using crowdfunding platforms are completely exempted from taxation, and any individual receiving donations on any platform, unless the company is a non-profit itself, is liable to pay income tax.
- Further , Foreign Contribution (Regulation) Act, 2010 (FCRA) and the Foreign Exchange Management Act, 1999 (FEMA) are applied to all types of crowdfunding.
FCRA, 2010 has been enacted by the Parliament to consolidate the law to regulate the acceptance and utilization of foreign contribution or foreign hospitality by certain individuals or associations or companies and to prohibit acceptance and utilization of foreign contribution or foreign hospitality for any activities
According to the rules in India, equity-based crowdfunding is illegal, whereas peer-to-peer lending is regulated by the RBI.
Community crowdfunding which includes donation based and rewards-based crowdfunding are legal and are quite popular to raise funds for social causes.
The key SEBI guidelines on crowdfunding are:
- Only “Accredited Investors” may invest.
- Qualified Institutional Buyers (“QIBs”) to hold 5% of issued securities; at least 5% of issued securities.
- Retail Investor contribution: Minimum- INR 20,000 and maximum- INR 60,000.
- Maximum number of retail investors- 200.
Donation/Social Lending Crowdfunding: This is a legal form of Community crowdfunding where contributions are made as donations without any motive of any return. Eg: social, artistic etc. purposes
Reward Crowdfunding: This is also a legal form of Community crowdfunding where funds are remitted with the objective to receive future or existing tangible reward (eg. Pilot product, membership rewards scheme etc.)
It is essential to formulate balanced crowdfunding regulations in India that lower the cost of capital and increases liquidity while ensuring adequate investor protection and minimizing investment risks.
SEBI proposed guidelines in 2014, via a ‘Consultation Paper on Crowdfunding in India’ for crowdfunding aimed at improving access to funds for start-ups and small-to-medium enterprises.
Under Income Tax regulations, non-profit organisations that raise money using crowdfunding platforms are completely exempted from taxation. However, any individual receiving donations on any platform, unless the company is a non-profit itself, is liable to pay income tax.
You should look at the links below to know more
https://www. linkedin.com/pulse/crowdfunding-legal-india-sebi-regulations-its-deepak-prabhu#:~:text=Equity%20Crowdfunding%2C%20specifically%20digital%20equity,unauthorized%2C%20unregulated%20and%20illegal%E2%80%9D.
Yes company need to comply with FCRA.
You need to take permission from RBI For recieving funds from abroad as donations.
- As per the information mentioned in the present query, makes it clear that there has been gross violation of several other provisions also that can put it in an non- appropriate channel.
- I would like to apprise you that there cannot be profit making organisation in which donation can come.
- And only NGOs are allowed to have it and that too, if after three yea if their registration where they can receive foreign funding.
You need to get permission front he competent authority.