When a crowdfunding campaign succeeds, the immediate concern is whether the money raised will help meet medical bills, educational expenses, or other pressing needs. Tax implications are usually the last thing on anyone's mind. Yet, as taxpayers prepare to file their income-tax returns, one question often surfaces: Is money received through crowdfunding taxable?
The issue came under judicial scrutiny when the Mumbai Income Tax Appellate Tribunal (ITAT), in the case of Rana Ayyub, examined the taxability of funds raised through an online crowdfunding campaign. While the ruling turned on the facts of that case, it also exposed a larger issue. Crowdfunding has become a common means of raising financial support, but the Income-tax Act still does not provide a dedicated framework for taxing such receipts.
No blanket exemption
Many people believe that since crowdfunding is driven by compassion, the money received is automatically exempt from tax. Unfortunately, the law is not that simple.
The Income-tax Act does not recognise crowdfunding as a separate category of exempt income. Therefore, the taxability of amounts received through crowdfunding has to be examined under the existing provisions of the Act.
One of the key provisions is Section 56(2)(x) [Section 92(2)(m) of the 2025 Act], which taxes money received without consideration unless it falls within one of the specified exceptions. These exceptions are not accidental. Parliament has consciously exempted receipts from relatives, under a will or inheritance, from local authorities, and from specified educational institutions, hospitals and charitable organisations. More recently, specific relief was provided for covid-related medical assistance and ex gratia payments received by the families of persons who succumbed to the pandemic.
The message is clear. Wherever the legislature intended to grant an exemption, it expressly provided one.
Crowdfunding by individuals does not presently enjoy any such general exemption. The same legislative approach is reflected in the CBDT's administrative guidance. Over the years, the Board has clarified that certain compassionate payments, such as lump-sum payments to the legal heirs of deceased employees or specified ex gratia payments, are not taxable. Had the government intended to extend a similar blanket relief to crowdfunding receipts, one would have expected either a statutory amendment or a comparable clarification.
Better structure
Where funds are proposed to be raised for medical treatment, education or relief of the poor, a more tax-efficient approach, wherever feasible, is to run the campaign through a charitable organization registered under Section 12AB or an institution covered by Section 10(23C) of the Income-tax Act.
Such organizations operate within a well-established exemption framework. The amount received by them is eligible for exemption, subject to the application of income towards their charitable objects. Since the funds are ultimately utilised for the intended charitable purpose, this provides considerably greater tax certainty than collecting donations directly into an individual's personal bank account.
It also promotes greater transparency, enhances donor confidence and reduces the possibility of future disputes.
Need clarity
Crowdfunding has emerged as an important social safety net, but the tax law has struggled to keep pace with this evolving mode of fundraising. Unlike several other humanitarian receipts that have been specifically exempted by Parliament or clarified by the CBDT, crowdfunding by individuals continues to operate without a dedicated statutory framework.
Until legislative clarity emerges, taxpayers should avoid assuming that a noble objective alone guarantees tax exemption. A careful evaluation of the legal position, timely tax advice where necessary, and proper documentation remain essential. More importantly, wherever feasible, campaigns for medical treatment, education or relief of the poor should be run through an eligible charitable organisation. A little planning before the first contribution is received can often prevent a prolonged tax dispute later.
Ashish Karundia is a practising chartered accountant and author. Views are personal.