F&O trading expenses which can be claimed as business expense

Hi,

My wife is doing f&o trading and would like to know which all expenses can be claimed as business expense while filing income tax return,

  1. She is getting a loan from her friends and family for trading purpose and will pay 7% as interest to them. Can she claim the interest paid to them as business expense ? if so what is the proof/procedure to be maintained for accounts ?
  2. If I (husband) giving her some amount as loan for trading and if she pay interest to me, will that come under clubbing of income ? Can she claim the interest paid to me as business expense ?
  3. She is buying some higher end laptops, monitors and smartphones for trading purpose. Can we claim those as business expense or depreciation ?
  4. She is paying Internet bills, mobile recharge, electricity bills. Can we claim full amount of those bills as business expense or is there any limitation since the electricity is used for personal use also?
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Hi @PrakashRiti

check this article out by @Quicko :

If you have any questions after going through the article, we can ask the quicko team to help us out with the questions.

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  1. Interest paid on loan to family and friends can be claimed as an expense. You need to pay the interest through your business account and deduct TDS, if applicable.
  2. Interest paid to husband can be claimed as an expense. The money earned by the wife on the loan given by the husband will be clubbed in the husband’s income
  3. All laptops, monitors and mobile phones should be capitalized and depreciation can be claimed on them, provided they are being used for the business.
  4. In case of common expense between personal and business, only that percentage of expense can be claimed for business that can be apportioned to the business. It can be tricky to exactly figure out the exact percentage but you can calculate it by the usage on self vs business. For internet and mobile recharge, you can claim the full amount.
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This is not passive income like FD interest etc

Generating this income is individual skill and therefore there is no basis for clubbing. (Application of his/her technical or professional knowledge and experience)

citing Section 64(1)(ii)

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Thanks everyone for your response.

@Trishula_Capital regarding #1 and #2, my wife is an individual trader and using her personal savings accounts for F&O trading. The amount she getting as loan from her friends and family will be credited to this savings account and she will repay interest through this account only. Is it mandatory to have a separate business account ? There is no company registered in her name.

The section that you have quoted applies in the case of “Income of individual to include income of Spouse from a concern in which individual has substantial interest”. I don’t think that is the case here and hence this provision will not be applicable.

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In this case it is a sole proprietorship. You need not maintain a separate business account, as long as you are complying with the provisions of the IT act. I would suggest you to look into presumptive taxation as it would remove the hassle of maintaining books of accounts and simplify tax filing for you.

Still, there is no basis of clubbing of income, which you so surely wrote.

Presumptive taxation in stock trading is misguiding the OP.

@PrakashRiti kindly pay some fees and consult a couple of CAs. On open forum you will just end up being misguided. My humble request.
Same kind of posts came in another thread regarding Audit case by another forum member. It is very simple to maintain books and eventually you’ll be in sync with all the entire process.
There could be many periods when losses need to be carried forward, expenses properly accounted for, etc

A qualified CA will suggest specific directions that suit everything about you. one size doesn’t fit all.

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I agree. After further reading of the income tax act I have come to the conclusion that clubbing provision shall not be applicable. My earlier statement regarding clubbing provisions was wrong.

Do you care to elaborate on this statement

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Sure @Chirag1. I will consider discussing with CA.

Meanwhile, i would like to clear few things,

  1. If she getting loan from me and her friends, is it enough to maintain only books of accounts if we get any questions from tax department later ? she will not fall under tax auditing as her total turnover is less than 5 crore. As mentioned earlier, she is using only her savings account for all the F&O transactions and repaying the interest to friends through online transaction. Is there anything else required as proof or showing online transaction for paying interest is enough?

  2. The loan which she is getting from me will be used for buying stocks/liquidbees and use it as collateral for f&o trading. If this is the case, will clubbing of income applicable ?

Please advise.

I see this is happening quite often.

I will draw an analogy here.
No one can stop a person from putting (risking/betting/gambling) entire capital on a single trade,
but a trader will logically understand why not to do that.

Similar, in stock trading, a particular outcome of each FY is completely uncertain, and this business has reasonably high turnover. Recently, options TO got aligned otherwise Options bloated the TO.

Now in high TO business, you have to compulsory declare 6% profit on TO is crazy.
If one is running a small Kirana shop, its ok, bcos there is fixed markup on each sale.
In presumptive taxation, losses cant be carried forward, forget the rest of the accounting.
anyway, a lot is written about this, im not going to rewrite longer. hope you got the point.

#1. She can carry out F&O trading in her own individual capacity.
Audit not applicable for TO upto 5 or 10Cr ( referencing whichever FY in context )
Ensure 99.9% transactions digital, to be safe. If you are CA, you can do in cash and get away :slight_smile:
Lots of online material on how to maintain simple books.(Accounting). Zerodha tax PnL is a big bonus. File ITR-3 and also make sure if Advance tax is applicable.
There could be ( most likely not for indivduals + non-audit ) a case of TDS on the interest re-payments, I think its 10% over some threshold. But something to make clear.

Some Digital Loan deed like Email exchange to ensure proper terms of the Loan(s) and that the terms are sane and proper consideration with fair mkt value.

#2, The exact nature of capital deployment is unclear but as you called it loan, let her pay you same interest on that amount so you’re completely out of the loop.
All gains ( or losses ) arising from stocks / pledging / liquidbees dividend returns etc will all be in her books. This is a clean and simple way. You will show extra income as interest on loan to your IT.

still consult a CA, and double check everything.

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I’m not a expert, but i think this link may help you,
I tottaly agree with @Chirag1 , one should take the help of expert.

@Quicko if we enroll into a higher education say MBA, Phd Economics or NISM related to financial instruments - can we claim the academic fees as business expense?

Hi @viswaram

Section 80E allows a deduction for interest paid on repayment of education loan taken for higher education. However, a taxpayer can not claim a deduction on principal repayment.

Business expenses can be claimed for only those expenses incurred for the purpose of business. Interest on loan taken for business can be claimed as a business expense.

Read more about Section 80E - Claim Deduction for Education - Learn by Quicko.

can API subscription fees claimed as business expense @Quicko

Hi @gaurav_choudhary

Yes, you can claim it as a business expense if it is directly incurred for your business.