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I want to fund raise to start a business, do I need to pay tax or it can be considered investment?

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Arthur Lovian

7 Points Posted on 22 October 2021

Hi everyone,

I am trying to raise funds from public: crowd funding, a very small amount of money like 100-500 from so many people and collect 1 cr to 2cr as funds to start a Business.

I have referred razorpay website, it's mentioned if I am not a charity, I need to pay Income tax.

But it's not my income, I am going to register a company and put this as capital investment.

Please let me know if I can register Business after raising funds and put this all funds as investment, or should I register MSME without GST and raise funds and convert MSME unregistered business to PVT LTD company with GST?

Help me to better make use of funds raised.

Replies (5)

Quick Summary

This discussion explores whether funds raised through public crowdfunding for a new business are considered taxable income or capital investment. The original poster is seeking advice on the best way to register their business, whether as an MSME or a private limited company, and how to account for the raised funds to minimise personal income tax liabilities. The responses suggest that while direct crowdfunding might be treated as income, structuring the contributors as capital holders in the organisation could avoid income tax, though it would necessitate profit payouts.

sabyasachi mukherjee

Profession Business

28246 Points Posted on 22 October 2021

CONCEPT ONE IS CAPITAL AND ANOTHER IS INCOME

Sameer

Article

124 Points Posted on 22 October 2021

Yes, this constitutes income and income tax is leviable subject to conditions.

Their are alternative ways to account and show these kind of collections.

One way is you can show all the people from whom the money is raised as capital holders in your organisation and generate business. In this case no income tax would be levied. But you would have to make payouts of profits generated to all these.

Arthur Lovian

7 Points Posted on 22 October 2021

Can I register a pvt ltd company and show this income as expenses atleast?

If I do this atleast this money can be utilized for real purpose in company instead of paying all as personal Income tax?

can I show this as Income from Business and consider it as Business Income and register a Business after raising funds from people?

Sameer

Article

124 Points Posted on 22 October 2021

Formation of private limited company has pre defined objectives as stated in MOA. You cannot on adhoc basis account borrowings as income and claim expenses against those.

Arthur Lovian

7 Points Posted on 23 October 2021

I have a doubt, people definitely do not start Business as PVT ltd on day 1. can I register a MSME without GST, and use my personal savings bank account, and convert that to pvt ltd company?

Because it's meaningless to call that personal income for me while it is actually for Business purpose.