Iam from mysore karnataka aged about 26 years done with be civil and mba marketing. i have planned to start a private limited company. it is a automated unmanned retail supermarket which uses artificial intelligence and machine learning. it is a new concept. it helps in cashles transactions and digitalise the market.since i dont have much investment to start the project i need funds so i have planned to collect it as crowdfunding from the known people such as friends family of about 50 laks to 1 crore. my question is that will i face any problem from income tax dept or gst department about the source of the money. should i pay any tax for the collection of money from friends and family to start a company. i will reimburse the money in the form of products once my business is stabilised
Dear Sir,
Hope you are doing well !!
It is advisable that take the money from friends/family as a loan and make a proper loan agreement with them.
So, you will not face any problem from IT/GST department about the source of money.
You will not be required to pay the tax on loan money.
We may help you in drafting loan agreement.
i am asking about crowdfunding for a startup business. crowdfunding is collecting small amount of money from a large number of people. so i cannot make agreement for collecting 100 rs from large group of people.
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.
Since you are going to give the people products in exchange of the money they give you its basically advance for sale and so it will be taxed in India as sale income under income tax.
If you say that its a kind of donation and you wont give anything in exchange then in that case its donation and which is non taxable only for trust and NPO and since you are none of them it will again be taxable in your hand.
Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.
Thank you.
Hello,
What I can understand from your query is that you are going to reimburse the people with your products, your crowdfunding would be Pre-Order Crowdfunding. The investors contribute today with the objective of receiving a product later, actually, they pre-purchase a product. This would be declared as an advance and would appear as a liability for your business.
Whatever your crowdfunding form may be, it must be properly documented.
I hope this answer satisfies your requirement.
Regards,
CA Hunny Badlani
so there will be no tax on donation based crowdfunding for business startup. what do you suggest ? should i make loan agreement for small amounts like 100rs 500rs for the business. or should i pay tax for collecting the money from known people . how do i show it in my account.if i promise people that ill give products soon after my business stabilises. what kind of documentation should i do? what is your suggestion for crowdfunding of small amounts to start up my company. what kind of taxes shd i pay.how much cash can i keep in my home. what is the maximum cash deposit can be kept in bank account without any notice from IT dept.my products which i am selling are vegetables and fruits which are exempted from tax. so should i pay any income tax. should i inform IT dept that iam collecting money in advance for the building of startup company and when my business is stable ill supply the products (non gst products) to them. will this attract penalties and taxes. please suggest on how to raise funds for my startup company
There will be tax if you collect amount as donation because donation is only not taxable for NPO or trust.
If you promise people to give product then you can show it as advance from customer but this will only work for few years after which it will be considered as your income. You must issue invoice showing the amount collected as advance.
It would be better if you dont put much cash in your house. If you open a current account there is no limit as such for cash deposit.
Your products are exempted from GST not income tax.
There is no such requirement to inform IT department beforehand unless they ask for it.
-No, there will be tax on donation based crowdfunding for business startup. It is only exempt for NPO & Trust.
-It is better to maintain records of small amount through invoice/consolidated agreement.
-You should show it as advance received from customer.
-There is no limit for cash deposit can be kept in bank account without any notice from IT dept.
However, you should have proper justification/documents for explain the same.
Also, it is advisable to open current account for startup.
-Vegetables and fruits are exempted from GST. You will have to pay income tax.
-No, there is no need to inform anything to IT dept.
Hi,
You will have to make agreement with all the people you are taking loan. You don't need to pay any taxes on the loan amount.
If the amount is 1 CR., I am sure you will have few people who will contribute more than 60-70% of the total fund. Make sure proper loan agreement/ equity agreement are in place with those people.
In the loan agreement, you can mention how are you gonna repay that loan..In cash or in kind.
