How much professional fee can we deduct in Taxation?

Taxation
1

Hi,

I have a family friend who performs trading from other’s accounts and he charges a fee for it.
e.g. If he makes 15% profit in a year, I will give him a 5% fee and the rest will be my profit. He told me that this 5% I can show as a professional fee. If there is a loss or the profit is less than 10% then he won’t get any fee.

Questions:

  1. Is this legal? That person has been doing this for the last 20+ years now for big people. He will operate my account and perform trading on my behalf.
  2. He told me that whatever profit I am sharing with him, I can deduct it from my taxation by claiming it as a Professional fee (I guess under Professional/Consultancy Expenses) and he will pay tax on it by filing the ITR. All the transactions will be in check so that it is recorded. Is there any limit on how much Professional fee we can show as a tax deduction?
  3. Has anyone done this before? Can someone please share their experience?
1 Like
2

@Quicko

3

Someday if noticed or complaint to SEBI he will be in mood of giving penalty to SEBI. :grimacing:

  1. Its not legal even he will be registered from SEBI, no one be able to trade other than own account as per SEBI. But other than trading from other’s account if he is licensed as AMC, PMS, AIF then he can be trade from your capital, not the trading account.
  2. Proof? If no, penalty by Income department someday. (Tax evasion)

Correct me @nithin @Quicko if any mistake or misinformation in above.

4
  1. Not legal for this person. Check this post.
  1. If someone offers you a service, I don’t see any issue showing that as professional fees. He will have to invoice you. But he can’t really invoice for this reason as it is not allowed.
1 Like
5

Hi @Jack_R

As rightly mentioned by Nithin, it is illegal to trade in someone else’s without a license.

Also, there is no such limit on the expense you can claim. However, having a receipt of the expenses is advisable in case of a demand/notice from the ITD.

6

Hi @Quicko

I have invested in a SEBI-registered PMS, and they have charged a Management Fee.

Can I show this Management Fee invoices as Expense while paying Long term and Short term capital gain tax?

Please help.

7

As per my knowledge, yes you can deduct the expense from the profit as brokerage charge.
Quicko can confirm.

Between, how was your experience with PMS? If you don’t mind, how much profit did you make? and how much they charge? And was it only investment or trading as well?