Why crowdfunding legality in India is a patchwork
Crowdfunding legality in India is not governed by one law, because the country has no single crowdfunding statute; the rules that apply depend on what the contributor receives in return. A gift with nothing expected falls under charity and tax rules. A loan falls under the central bank’s rules for peer-to-peer lending. A share in a business falls under securities law. The question to ask first is therefore what kind of exchange is taking place.
The standard way to sort the models, is fourfold. Donation-based funding gives nothing back. Reward-based funding returns a product or a perk. Lending-based or peer-to-peer funding promises repayment with or without a return. Equity-based funding offers shares or a share in profit.
Each model has a different regulator: the Reserve Bank of India for lending platforms and banks, the Securities and Exchange Board of India for securities, and, for money coming from abroad to charities, the Ministry of Home Affairs under the Foreign Contribution (Regulation) Act. A single campaign can touch more than one of these if it mixes models. A fundraiser who offers a reward and also invites small loans, for instance, has to satisfy two sets of expectations at once, and the stricter one usually decides how the campaign must be run.
Donation campaigns and the rules for charities
Donation crowdfunding is regulated through tax rules and the law on foreign contributions, not through a dedicated code. The legal form of the receiver matters. A charity may be a public charitable trust, a society registered under the Societies Registration Act, 1860, or a Section 8 company under the Companies Act, 2013.
A donor gets an income-tax deduction only when the charity holds a valid 80G approval, and under the old tax regime the receipt must carry the charity’s details. A private person who collects money for a personal cause has no such approval, so donors to a personal appeal should not expect a deduction. Organisers can avoid disappointment by saying plainly, in the appeal, whether a tax receipt will be issued.
Money sent from outside the country to an organisation raises a separate set of questions under the foreign contribution law. Whether a foreign individual’s gift to another individual falls under that law is a question for a lawyer, so a fundraiser should ask one before accepting foreign gifts.
Lending platforms under the RBI directions
The one crowdfunding-like activity with a detailed rulebook is peer-to-peer lending. The Reserve Bank of India issued the Non-Banking Financial Companies – Peer to Peer Lending Platform Directions, 2025 on 28 November 2025, reference RBI/DOR/2025-26/370. A platform must be a company holding an RBI certificate of registration and at least ₹2 crore in net owned funds.
Under the directions the platform is only an intermediary. It cannot lend its own money or guarantee repayment. Loans must be unsecured, with a maximum maturity of 36 months, and the money moves through a bank escrow account. Cash dealings are prohibited.
There are also limits on how platforms speak to the public. They may not present the activity as an investment with assured returns, they must display the RBI caveat that there is no guarantee, and lenders are told they can lose their whole principal. The directions concern only peer-to-peer lending. They do not mention crowdfunding in general or collective investment.
Equity campaigns and the securities regulator
Offering shares to the public is the area where the law is least friendly to open crowdfunding. In June 2014 SEBI circulated a consultation paper that proposed limits for a crowdfunding framework: accredited investors only, start-ups under four years old, and a ceiling of ₹10 crore a year. The regulator stated that publishing the paper did not necessarily mean that rules would follow.
In September 2016 SEBI warned the public about more than six equity crowdfunding platforms, calling them unauthorised, unregulated and illegal. More recently, on 17 June 2026, it issued Press Release 32/2026 saying that platforms facilitating trade in unlisted securities are neither authorised nor recognised by SEBI, and that only recognised stock exchanges may provide a platform for fundraising and trading in securities.
The 2026 release is a caution, not a rulebook. It sets out no crowdfunding thresholds or eligibility criteria. A campaign that sells shares to the crowd carries real legal risk for its organisers and its investors.
Reward-based campaigns: an unsettled picture
For reward-based crowdfunding, the legal status turns on how a platform for such campaigns is classified in India, so a campaigner should ask a lawyer or the relevant regulator for that classification in writing. Contract, consumer protection and tax rules plainly apply to anyone who promises and sells a product, and a platform or campaigner should be able to name in writing the law and the licence, if any, on which it relies before any money is paid.
One practical fact comes from outside the country. The help page of Kickstarter lists 25 countries from which creators may launch projects, and India is not among them. Backers may live anywhere, and creators in an unlisted country may launch through a business set up in a supported country. This concerns access to a foreign platform, not Indian law.
A creator should therefore treat a reward campaign as an ordinary sale of goods that is also a public appeal for money, and take advice about tax and delivery obligations before accepting a rupee.
Where Islamic structures fit in the legal picture
The rules follow the substance of the transaction. A zakat appeal gives the contributor nothing back, so it resembles a donation. An offer of a share in results resembles the equity model. A benevolent loan that is repaid resembles lending, and a platform arranging such loans would have to ask which lending rules apply to it.
Banks in India work on interest under the Banking Regulation Act, 1949, and the country has no licensed Islamic bank. So no Indian regulator certifies a structure as compliant with Sharia, and compliance is a matter for qualified scholars or a Sharia adviser. Passing a religious review gives no legal permission.
This matters for organisers who describe a campaign as halal or interest-free and assume the label shields them. It does not. The same campaign is judged by the law on its facts: who collects the money, in whose account it lands, and what the contributor is promised.
The reverse also holds. A campaign that satisfies the law may still raise a religious question, and the two reviews should not be confused.
Checks before starting or backing a campaign
Identify the model first. If money is repaid with a return, check whether the platform is a registered NBFC-P2P by looking at the RBI list or the RBI Sachet portal. If shares are offered, ask what authority permits the offer. If the money is a gift, ask who the legal receiver is.
Look for warning signs: promises of assured returns, requests for cash, payments to personal accounts, and no named legal entity. Complaints against banks and NBFCs can go to the RBI Integrated Ombudsman Scheme, securities complaints can be lodged on SEBI SCORES, and online fraud can be reported on the National Cyber Crime Reporting Portal or helpline 1930.
Legal rules change, and several of those described here date from 2025 and 2026. Check the current text with the regulator or a qualified adviser before relying on them. A short written note of which model the campaign follows, and why, is useful to keep with the campaign records.