Crowdfunding in India: SEBI Framework, Platforms, and Legal Rules

Crowdfunding has raised over ₹3,000 crore in India through donation and reward-based platforms since 2014, yet the regulatory framework remains fragmented across SEBI, RBI, and the Companies Act. If you are a startup founder, social entrepreneur, or platform operator exploring crowdfunding as a funding mechanism, you face a legal landscape where donation-based and reward-based campaigns operate freely, peer-to-peer lending runs under strict RBI licensing, and equity crowdfunding remains blocked by securities law. SEBI's 2014 consultation paper proposed a regulatory framework for equity crowdfunding, but 12 years later, that framework has not materialized. This guide breaks down every crowdfunding model available in India in 2026, the exact legal provisions governing each, tax treatment of crowdfunded amounts, RBI P2P lending caps, and what founders need to know before launching a campaign or building a platform.

What Is Crowdfunding and How Does It Work in India

Crowdfunding is a method of raising money from a large number of people, typically through an online platform, where each contributor provides a relatively small amount. Unlike traditional funding where a single investor or bank provides the capital, crowdfunding distributes the fundraising across hundreds or thousands of backers.

In India, crowdfunding operates across four distinct models, each with a different legal status:

• Donation-based crowdfunding: Contributors give money for a cause (medical treatment, disaster relief, education) without expecting any financial return. Platforms like Ketto and Milaap dominate this space. No SEBI or RBI license is required for the platform or the campaigner.
• Reward-based crowdfunding: Backers contribute money in exchange for a product, service, or experience. This functions as a pre-order mechanism. Wishberry and Fueladream operate in this segment. Governed by general contract law and the Consumer Protection Act, 2019.
• Equity-based crowdfunding: Investors receive shares or equity in the company raising funds. This model is effectively restricted in India because of Section 67 of the Companies Act, 2013 and the absence of a SEBI regulatory framework.
• Peer-to-peer (P2P) lending: Individuals lend money to other individuals or businesses through a platform, earning interest. P2P lending is regulated by RBI under the NBFC-P2P Master Direction, 2017. Platforms must hold an RBI license.

SEBI's Position on Crowdfunding

SEBI's involvement with crowdfunding began and, for practical purposes, stalled with a single document: the Consultation Paper on Crowdfunding in India, released in June 2014.

The 2014 Consultation Paper

SEBI proposed a framework that would have allowed equity, debt, and fund-based crowdfunding under regulatory oversight. The key proposals included:

• Eligible issuers: Only unlisted public companies and startups less than 48 months old with no prior public issue
• Fundraising cap: ₹10 crore per issuer within a 12-month period
• Investor restrictions: Only accredited investors (net worth above ₹2 crore or annual income above ₹25 lakh) for equity crowdfunding
• Platform requirements: Crowdfunding platforms to be recognized by SEBI as registered intermediaries
• Disclosure norms: Mandatory disclosure of business plan, financials, and risk factors by the issuer

Why the Framework Was Never Finalized

The 2014 paper received mixed feedback. Critics argued that restricting equity crowdfunding to accredited investors defeated the purpose of democratizing startup funding. Concerns about investor protection, fraud risk, and the difficulty of regulating thousands of small issuers contributed to SEBI not moving forward. As of 2026, SEBI has not issued any regulation, circular, or updated consultation paper on crowdfunding. The regulatory vacuum means equity crowdfunding platforms operating in India do so without legal authorization.

Companies Act 2013: The Legal Barrier to Equity Crowdfunding

Even if SEBI had finalized its crowdfunding framework, the Companies Act, 2013 creates structural barriers that prevent equity crowdfunding from operating in its typical global form.

Section 42: Private Placement Limit

Section 42 restricts private placement of securities to a maximum of 200 persons (excluding qualified institutional buyers and employees under ESOP schemes) in a single financial year. Any offer made to more than 200 persons is deemed a public offer, triggering the full SEBI prospectus and listing requirements. For a crowdfunding campaign designed to reach thousands of micro-investors, this 200-person cap makes equity crowdfunding structurally unviable without a specific exemption.

Section 67: Prohibition on Public Offers by Private Companies

Section 67 prohibits any private company from inviting the public to subscribe to its securities, whether shares or debentures. Since the vast majority of Indian startups are incorporated as Private Limited Companies, this provision directly blocks them from equity crowdfunding. Converting to a public company solely for crowdfunding adds regulatory overhead (minimum 7 directors, mandatory independent directors, enhanced disclosure) that is impractical for early-stage startups.

RBI P2P Lending Framework: NBFC-P2P Regulations

Peer-to-peer lending is the only form of crowdfunded finance in India that operates under a dedicated regulatory framework. RBI classified P2P lending platforms as Non-Banking Financial Companies (NBFC-P2P) through the Master Direction issued on October 4, 2017, and has progressively tightened compliance requirements since then.

Registration and Capital Requirements

Every P2P lending platform must register with RBI as an NBFC-P2P before commencing operations. Key requirements include:

• Net owned funds: Minimum ₹2 crore at all times
• Company type: Must be incorporated as a company under the Companies Act
• Fit and proper criteria: Directors and promoters must meet RBI's fit and proper standards
• Technology infrastructure: Platform must maintain adequate IT systems, data security, and business continuity plans

Lending and Borrowing Caps

2024 Revised Guidelines

RBI issued stricter norms in 2024 after observing that some P2P platforms were marketing loans as investment products with guaranteed returns. The revised guidelines enforced T+1 fund settlement, prohibited platforms from offering any form of credit enhancement or assured return products, and mandated enhanced disclosure of borrower default rates. Platforms that offered portfolio-based lending products (where lenders could auto-allocate funds across multiple borrowers) were required to restructure their operations to ensure each lender consciously selects individual borrowers.

Reward-Based and Donation-Based Crowdfunding: Legal Status

While equity crowdfunding remains restricted and P2P lending requires an RBI license, reward-based and donation-based crowdfunding campaigns operate legally in India without sector-specific regulation.

Reward-Based Crowdfunding

In a reward-based campaign, backers contribute money in exchange for a product, early access, merchandise, or an experience. This is functionally a pre-order or advance sale. Legally, it is governed by the Indian Contract Act, 1872 (offer and acceptance), the Consumer Protection Act, 2019 (delivery obligations and refund rights), and GST law (since the transaction involves supply of goods or services).

Key compliance considerations for reward-based campaigns:

• GST registration: If the campaign creator's aggregate turnover exceeds ₹40 lakh (₹20 lakh for services), GST registration is required. The product or service delivered as a reward attracts GST at the applicable rate.
• Consumer protection: Failure to deliver the promised reward within the stated timeline can trigger complaints under the Consumer Protection Act. The platform and the campaign creator both face potential liability.
• No securities law issues: Since no equity, debt, or financial return is promised, SEBI regulations do not apply to reward-based campaigns.

Donation-Based Crowdfunding

Donation campaigns raise funds for medical emergencies, disaster relief, education, or social causes without any return to the contributor. Platforms like Ketto and Milaap have processed millions of donations. The legal framework depends on who receives the funds:

• Individual recipients: No specific license needed. However, amounts exceeding ₹50,000 from non-relatives may be taxable under Section 56(2)(x) of the Income Tax Act.
• NGOs and charitable organizations: Must hold Section 12A/12AB registration (Income Tax Act) for tax exemption on receipts and Section 80G registration to allow donors to claim deductions.
• Foreign donations: Any entity receiving foreign contributions for charitable purposes must register under the Foreign Contribution (Regulation) Act, 2010 (FCRA). Operating without FCRA registration while accepting foreign crowdfunding donations is a criminal offence with imprisonment up to 5 years.

Comparison: Crowdfunding Models in India

The following table summarizes the legal status, regulatory authority, investor protections, and practical considerations for each crowdfunding model available in India.

Tax Implications of Crowdfunded Amounts

The tax treatment of crowdfunded money in India depends entirely on the nature of the transaction. There is no separate "crowdfunding tax" provision; instead, existing Income Tax Act and GST provisions apply based on the transaction structure.

Donation-Based Crowdfunding: Gift Tax Provisions

When an individual receives a donation through a crowdfunding platform, the Income Tax Act treats it as a gift under Section 56(2)(x). The rules are:

• Amounts received from relatives (as defined under the Act) are fully exempt, regardless of the amount
• Amounts from non-relatives exceeding ₹50,000 aggregate in a financial year are taxable as income from other sources
• Amounts received on the occasion of marriage, under a will, or by inheritance are exempt
• Medical crowdfunding received by an individual for personal treatment is still subject to Section 56(2)(x) unless it falls within an exemption category

Reward-Based Crowdfunding: Business Income and GST

Reward-based contributions are treated as advance payments for goods or services. The campaign creator must:

• Report the amount as business income in the financial year of receipt
• Charge and remit GST at the applicable rate on the reward value (5% to 28% depending on the product category)
• Issue invoices to backers if the amount exceeds the threshold for invoice requirements
• Maintain books of accounts as required for business income under Section 44AA

P2P Lending: Interest Income

Interest earned by lenders on P2P platforms is taxable as income from other sources at the lender's applicable slab rate. The P2P platform does not deduct TDS on interest payments (unlike banks or NBFCs), so lenders must self-report this income in their ITR. Borrowers paying interest cannot claim a business deduction unless the loan was taken for business purposes and proper documentation exists.

Platform Revenue: GST and Income Tax

Crowdfunding platforms earning commission or service fees must register under GST and charge 18% GST on their service fee. Platform income is taxed as business income under normal corporate tax rates. If the platform is a startup eligible under Startup India, it can claim a 3-year tax holiday under Section 80-IAC on profits.

Popular Crowdfunding Platforms in India

India's crowdfunding ecosystem is dominated by donation and medical fundraising platforms, with reward-based and P2P lending occupying smaller but growing segments.

Donation and Medical Crowdfunding

• Ketto: India's largest crowdfunding platform by campaign volume. Focuses on medical emergencies, personal causes, and NGO fundraising. Claims to have raised over ₹3,000 crore across 4 lakh+ campaigns. Charges 0% platform fee on select campaigns and 5% to 6% on standard campaigns.
• Milaap: Focuses on social impact, education, and community development alongside medical fundraising. Operates a 0% platform fee model for personal causes. Strong presence in tier-2 and tier-3 city campaigns.
• ImpactGuru: Specializes in healthcare fundraising with partnerships with 200+ hospitals for direct billing integration. Also supports NGO fundraising with tax receipt generation under Section 80G.

Reward-Based Platforms

• Wishberry: India's first reward-based crowdfunding platform, focused on creative projects including films, music albums, books, and art installations. Charges 5% to 10% platform fee on successfully funded campaigns.
• Fueladream: Focuses on product innovation and entrepreneurial projects. Supports reward-based campaigns for tech gadgets, consumer products, and startup MVPs. Charges platform fees only on funded campaigns.

RBI-Licensed P2P Lending Platforms

• Faircent: One of India's earliest RBI-licensed P2P platforms with over ₹1,000 crore in loan disbursals. Offers personal, business, and education loans with interest rates from 12% to 30% per annum.
• LenDenClub: RBI-registered NBFC-P2P with a focus on micro-lending and auto-invest features. Claims 8 million+ registered users.
• Liquiloans: RBI-licensed P2P platform targeting salaried professionals and small business borrowers with loans from ₹10,000 to ₹10 lakh.

Compliance Checklist for Crowdfunding Campaigns and Platforms

Whether you are running a crowdfunding campaign or operating a platform, compliance requirements vary by model. Use this checklist to ensure you meet all legal obligations.

For Campaign Creators (Reward or Donation)

1. Business registration: If running reward-based campaigns regularly, register as a Private Limited Company or LLP. Sole proprietorships work for one-time campaigns but limit liability protection.
2. GST registration: Required if aggregate turnover exceeds ₹40 lakh (goods) or ₹20 lakh (services). Reward-based campaign revenue counts toward this threshold.
3. Income tax compliance: Report all crowdfunded income in your ITR. Maintain records of all contributions, donor details (where available), and expenditure of funds.
4. Consumer protection: For reward campaigns, clearly state delivery timelines, refund policy, and risk factors. Non-delivery after accepting funds can constitute cheating under IPC Section 420.
5. FCRA registration: Required only if your NGO or trust accepts foreign donations through the crowdfunding platform.

For Platform Operators

1. Company incorporation: Register as a Private Limited Company or LLP
2. RBI NBFC-P2P license: Mandatory for P2P lending platforms (minimum ₹2 crore NOF)
3. Payment aggregator compliance: If handling funds, comply with RBI payment aggregator or payment gateway norms
4. DPDP Act 2023: Implement data protection measures for user data, obtain consent, and appoint a Data Protection Officer
5. KYC and AML: Verify campaign creator identity and, for P2P platforms, both lender and borrower KYC
6. GST registration: Charge 18% GST on platform service fees
7. Grievance redressal: Maintain a grievance officer and resolution mechanism as required under the IT Act and Consumer Protection Act

Future of Crowdfunding Regulation in India

India's crowdfunding regulatory framework is evolving, though the pace has been slow compared to markets like the UK (where the FCA regulates equity crowdfunding under a dedicated regime) and the US (where SEC Regulation Crowdfunding allows raises up to USD 5 million from non-accredited investors).

Key developments to watch in 2026 and beyond:

• SEBI regulatory sandbox: SEBI's Innovation Sandbox and Regulatory Sandbox frameworks provide a mechanism for fintech startups to test equity crowdfunding models under controlled conditions. If a sandbox participant demonstrates viability and investor protection, it may catalyze formal regulation.
• IFSCA at GIFT City: The International Financial Services Centres Authority (IFSCA) has a more progressive fintech framework. Equity crowdfunding platforms may find a regulatory pathway through GIFT City before the domestic regime evolves.
• Digital India and startup push: The government's emphasis on startup funding through Startup India Investor Connect and the SIDBI Fund of Funds may eventually extend to creating a regulated micro-investment or crowdfunding channel for retail investors.
• RBI P2P tightening: Expect further RBI circulars refining P2P lending norms, particularly around disclosure, default rate reporting, and borrower education requirements.

Summary

Crowdfunding in India operates in a split regulatory environment: donation-based and reward-based campaigns are legal and accessible, P2P lending runs under a structured RBI framework, and equity crowdfunding remains restricted by the Companies Act and the absence of SEBI regulations. Founders looking to raise capital through crowdfunding should choose the model that fits their legal structure and funding need. Startups selling products can use reward-based platforms for pre-launch validation. Social enterprises and medical causes can use donation platforms. Companies needing debt can explore RBI-licensed P2P platforms. For equity funding, the legal route remains angel investment, SEBI-registered AIFs, and private placement within the 200-person limit under Section 42. If you are building a crowdfunding platform, company registration and compliance architecture must come first. If you are a startup exploring funding options, combine crowdfunding with Startup India registration and professional financial advisory to build a compliant and scalable capital strategy.