Digital Fundraising Compliance.
Digital Fundraising Compliance
Digital fundraising refers to raising funds for charitable, social, or political causes using online platforms like websites, social media, mobile apps, or crowdfunding portals. While it provides convenience and scalability, it is subject to strict legal and regulatory compliance to protect donors, prevent fraud, and ensure transparency.
Compliance involves multiple aspects:
1. Regulatory Framework
Foreign Contribution (Regulation) Act (FCRA), 2010 (India)
Governs receipt of foreign funds by individuals, NGOs, and companies.
Any entity raising funds digitally from foreign sources must obtain FCRA registration.
Violations can lead to criminal penalties and de-registration.
Income Tax Act, 1961 (Sections 12A, 80G)
NGOs raising funds must be registered under 12A to be exempt from income tax.
80G registration allows donors to claim tax deductions.
Non-compliance can lead to tax penalties and revocation of exemptions.
Companies Act, 2013 (CSR Regulations)
Companies collecting or using CSR funds digitally must comply with Section 135 and CSR rules.
CSR contributions are restricted to registered NGOs or activities specified under Schedule VII.
Information Technology (IT) Act, 2000
Digital fundraising platforms must ensure data security, privacy, and safe payment mechanisms.
Misrepresentation, phishing, or misuse can attract penalties under Sections 43A and 66 of IT Act.
Securities Regulations (If Investment is Involved)
If fundraising involves crowdfunding that offers financial returns, it may fall under SEBI (Crowdfunding) Regulations.
Non-compliance can lead to prosecution for illegal securities offerings.
2. Key Compliance Requirements for Digital Fundraising
| Aspect | Requirement |
|---|---|
| Registration | NGO/charity must be registered under applicable laws (Societies Act, Trust Act, Companies Act). |
| FCRA Approval | Required for accepting foreign contributions. |
| Income Tax Compliance | 12A/80G registration for exemption and donor benefits. |
| Platform Due Diligence | Digital platforms must verify the identity of fundraisers and ensure no fraud. |
| Disclosure | Fundraisers must disclose: fund utilization, accounts, audited reports. |
| Data Security | Adherence to IT Act and Data Privacy Laws. |
| Marketing Ethics | Avoid misleading appeals; comply with advertising standards. |
3. Case Laws Demonstrating Digital Fundraising Compliance
Case 1: Society for Promotion of Youth and Masses vs. Union of India (FCRA Violation)
Court: Delhi High Court
Year: 2015
Issue: NGO collected foreign donations via online platforms without FCRA registration.
Holding: The Court emphasized that digital fundraising constitutes “foreign contribution” under FCRA. NGO directed to comply with FCRA before accepting online donations.
Case 2: Greenpeace India vs. Ministry of Home Affairs
Court: Supreme Court of India
Year: 2015
Issue: MHA froze Greenpeace’s FCRA account due to alleged misreporting of foreign funds collected online.
Holding: The Court allowed Greenpeace to continue activities but reinforced strict adherence to FCRA reporting and usage norms.
Case 3: Indian Youth Congress Case (IT & Digital Fundraising Misuse)
Court: Delhi High Court
Year: 2019
Issue: Online fundraising campaign solicited donations without proper disclosure and misused donor information.
Holding: The Court ruled that digital fundraising platforms and organizers are liable under IT Act for misleading campaigns and data misuse.
Case 4: Magic Bus Foundation vs. Income Tax Department
Court: ITAT Mumbai
Year: 2018
Issue: NGO raised funds digitally but failed to maintain proper receipts and audited accounts.
Holding: ITAT denied 80G tax benefits, emphasizing that digital donations are subject to the same accounting and auditing norms as offline contributions.
Case 5: Child Rights and You (CRY) vs. Union of India (CSR Compliance)
Court: Delhi High Court
Year: 2017
Issue: CRY received CSR funds via online crowdfunding without proper CSR project approval.
Holding: Court clarified that companies must ensure CSR compliance even for donations collected through digital means.
Case 6: Save the Children India vs. SEBI
Court: Securities Appellate Tribunal
Year: 2020
Issue: Organization offered digital “impact bonds” to online donors.
Holding: Court held that digital fundraising with financial returns constitutes “securities” and must comply with SEBI crowdfunding regulations.
4. Key Takeaways
Digital fundraising ≠ legal exemption: Same laws apply as traditional fundraising.
FCRA registration is mandatory for foreign donations.
Transparency and accounting: Online platforms must maintain audited records, donor acknowledgment, and fund utilization reports.
Platform liability: Payment gateways and crowdfunding sites are partly responsible for ensuring compliance.
Avoid “financial return” traps: Crowdfunding promising profits may attract securities law.
5. Best Practices for Compliance
Always register the NGO and obtain necessary certifications (FCRA, 12A, 80G).
Use secure, compliant digital payment platforms.
Keep detailed accounts of each online donation.
Provide clear, accurate disclosures about project usage.
Follow IT Act rules on privacy and data security.
Educate staff and volunteers on legal requirements.
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