Queries about credit-based membership site

Establishing a credit-based system on a matchmaking website is feasible, but you need to consider a few legal and tax implications. Here’s an outline addressing each of your questions:

1) Legality of Credit-Based Transactions

Yes, a credit-based transaction model is legally permissible as long as it adheres to the guidelines set by the Reserve Bank of India (RBI) and other relevant authorities regarding prepaid instruments. Credits can be issued to users who can redeem them within the website’s framework for services offered, like messaging or contact viewing. Ensure:

• The terms and conditions clearly specify that these credits have no cash value and can only be redeemed on the website.
• Unused credits expire after the validity period, which should be transparent in the user agreement.

Consulting with a legal expert on prepaid instrument compliance may help ensure your model meets RBI standards.

2) GST Registration and Applicable GST Rate

Yes, GST registration is likely required for an online membership-based service if the turnover exceeds the threshold limit of ₹20 lakhs in a financial year (₹10 lakhs for special category states).

For matchmaking and dating services, the applicable GST rate is typically 18% under the category of “Other personal services.” This would apply to the income generated from memberships or credit sales.

3) Accounting of Income as “Membership Fee”

Since the income is derived from membership or service credits, recording it under “Membership Fees” in the financial statements is generally appropriate. However, depending on the specific services provided and accounting standards, it may also be recorded as "Revenue from Online Services" or a similar descriptive account that represents recurring service income.

Ensure compliance with applicable accounting standards, which may dictate revenue recognition based on service usage or over time, especially if some credits remain unused.

4) Service Code (SAC) and NIC Code for the Business

The relevant Service Accounting Code (SAC) under GST for a matchmaking service like this is typically:

• 
  SAC 999599 - Other support services, which includes personal and social services not elsewhere classified.

The National Industrial Classification (NIC) Code that may best suit this type of business:

• 
  NIC Code 9609 - Other personal service activities n.e.c. (not elsewhere classified), which can cover matchmaking and dating services.

Both SAC and NIC Codes align with the nature of the business as a personal service, focusing on social connections and introductions through an online platform.

1. Legality: Credit-based transactions are fine legally if the credits are used only within the site, with clear terms on expiry and non-redeemability.

2. GST: GST registration is needed if turnover exceeds ₹20 lakh (₹10 lakh for special category states). The GST rate for matchmaking services is typically 18%.

3. Income Accounting: You can categorize income as "Membership Fees" or "Revenue from Online Services," reflecting the platform’s purpose.

4. Codes:

   • 
     SAC Code: 999599 (Other support services).
   • 
     NIC Code: 9609 (Other personal service activities n.e.c.).

Credits vs. Rupees: "Credits" is preferable to avoid the need for RBI compliance, as it clearly indicates a non-cash, platform-only currency.

In summary, the direct nomination of a charity or the creation of a trust for charitable purposes would likely be a more effective and safer approach to achieve your objective without imposing tax liabilities on your friend. It would also provide clearer documentation and intent to the tax authorities.

1. Yes

2. If gross receipts exceeds Rs.20 lacs per annum. GST rate is 18%

3. Income from business

Using the term “Rupees” instead of "credit" could be a smart choice if you're aiming for clearer alignment with traditional prepaid models (like mobile or DTH recharges) and want to avoid legal ambiguities. Here’s a quick breakdown of the pros and cons of each term in this context:

Using “Rupees”

• Pros:

  • 
    Clarity and Familiarity: “Rupees” conveys the exact monetary value, making it clear that users are spending real money, which is similar to how prepaid accounts or wallets work.
  • 
    Consistency with Other Prepaid Models: Like mobile or DTH recharges, it’s explicit that users are loading actual currency onto the website, which is then debited per use.
  • 
    Transparency for Legal Compliance: Using “Rupees” can help avoid any misconceptions or misunderstandings about the value of the user’s balance, as the term directly correlates with Indian currency.

• Cons:

  • 
    Potential User Expectation for Cash Redemption: Since “Rupees” implies real currency, users might assume they can withdraw or transfer it to a bank account. This might require additional clarification if funds are non-refundable or restricted to website usage only.

Using “Credit”

• Pros:

  • 
    Avoiding Cash Expectations: “Credit” often implies that the balance is only usable within the system and isn’t transferable or refundable as cash, potentially reducing user withdrawal requests.
  • 
    Flexibility with Value and Usage Rules: The term “credit” allows you more flexibility if you ever want to implement a reward system, bonus points, or other internal value systems.

• Cons:

  • 
    Potential Legal Complexity: “Credit” can sometimes lead to regulatory scrutiny, as it might suggest a form of lending or bonus issuance depending on context and usage.
  • 
    Less Familiarity: Users may be more comfortable with a system they understand as “Rupees” rather than “credits,” especially when actual currency is involved.

Recommendation

Using “Rupees” seems like the better option here. It aligns well with prepaid recharge models, communicates a direct cash equivalent, and minimizes potential legal complications tied to the term “credit.” However, it’s a good idea to include clear terms explaining that the balance is for internal use only, non-refundable, and applicable exclusively within the website.

By framing it this way, you’re giving users a familiar experience while making it clear that their balance is in real money, just like a prepaid balance for other services.