I saw there are many threads discussing LLP/pvt ltd/ alpha membership etc. As I read more I get more confused and new threads comes up.
I am an individual trader who just want to know if there is a way for an individual trader to reduce tax liability from ~33% to 42% if he/she is earning more than 1cr to 5cr per year from Stock market (Stocks + F&O).
I don’t earn any of the above range currently but I am on track to earn >1cr this FY and thinking if there is a way other than splitting into multiple accounts for family members and HUF to reduce it from next FY.
Thanks for the quick reply. I just googled tax for partnership firm and I found its 30% plus around 12% surcharge which looks the same as individual (. I am not sure if there is a way like paying your partners (but i think that would be added to their individual income)? Unless I am missing something here. Could you please help.
Or is it once I start earning more than 5cr it can help reducing surcharge ?
All of your family members would be working partners, i.e. most of the profit would be divided equally between your family, and everyone would pay personal income tax. There are some clauses that only 90% of book/ 60%balance book profit can be distributed at max, but I think a CA/expert could confirm this with a proper example.
I searched more about partnership firms and found this article where Nithin mentioned that
A company or limited liability partnership (LLP) is created with those wanting their money to be managed being shareholders or partners. Their pooled funds are then used as trading capital. There are a couple of issues with this.
Firstly, an LLP with the objective of investing or trading is not allowed, so people use an alternate objective to create the LLP. This is a clear violation of MCA (Ministry of Corporate Affairs) rules.
Individuals have 10percent surcharge if your income is above 50lakhs. For partnership it’s 1cr.
Small savings of 10 percent of 30percent. That is 3 percent.
Yes. It will be. But you will get lower rates since each partner gets slab rates till 15lakhs. I am assuming they have not exhausted this limit.
Know one thing. There isn’t a lot of tax arbitrage possible. If it was then everybody would have done it.
This is the closest way I know in which you are legally saving some taxes without opening multiple accounts in family names.
In fact I have formed a firm of my family members.
As you have rightly mentioned, you can’t form an LLP or a private limited company. That’s why I suggested a partnership firm.
Again a very small savings.
Thanks a lot @Jason_Castelino . This makes sense, I will find out more details about and if you have any thread on how can I open a partnership firm and what are the considerations for the same then that would a big help again.
Just a partnership deed on a stamp paper will do.
Please do consult your CA. When you have 1cr income I do not think you should do all of this on your own.
The tax savings for 5 crore profit in partnership account will be significant compared to individual account as the individual has to pay huge surcharge.
