Hi Guys,
Hope you are doing well.
I want to know how I can register a business around my trading income.
Can I go with sole proprietorship?
Can I save more taxes?
Can I pay salary to my self?
Can I claim suff I use as an business expenses?
Please guide.
So much confused right now.
Thanks for starting this thread
i would also love hear around this topic from @t7support @GB26 @Jason_Castelino @neha1101 @AlgoEye @nithin
My view :
Bottomline is there is no one size fit all approach, calculate in excel pros ,cons etc.
PS: For any Tax related things its best to consult a good CA you will give you best guidance.
Can go through below who have shared there corporate account experience: Again only worth if large income.
PS: For any Tax related things its best to consult a good CA you will give you best guidance. Things changes quite rapidly in Taxation world, so consult a CA or Tax Advisor
You donât have setup a separate business for this. If you are actively trading, you have to show all trading as a business income while filing ITR (ITR3). When filing ITR3, you can show all expenses that you incur towards trading like internet, electricity, any infra/rent where you run trading from, your subscriptions, etc and pay taxes only on your net profits. By the way it doesnât make sense to pay salary to yourself, you still have to pay the same tax then right?
Btw, we have an entire module on taxation when trading, suggest you to go through this.
@nithin In one of the video in this thread the person says we can claim things like buying a car or its repair under expenses while trading in a corporate account is this true?
Donât go by the videos. While a company can be formed with objective clause as consulting or some other blah blah and some one can trade with that account - its illegal. An objective CA would clearly flag this. Those who are doing this are keeping themselves open for future penal action from regulators.
Besides all related party expenses has to be disclosed and TAX AO can also flag those expenses which may seem unnecessary to him as a business expense.
Few words of wisdom from Lou Manheim, Wallstreet (1987)
hmm⌠how can you logically show a repair expense of your car as a business expense (related trading the markets). Unless of course you show your car as the office where you sit and trade and hence itâs repair as an expense. 
You could setup a company and then buy the asset itself in the name of the company, but unless you are generating profits in tens of lakhs or in crores, I donât think it is worth the effort.
As a trader I think the mental framework should be to be ready for the worst case outcomes in all walks of life and then be prepared for it upfront. So assume that you will have a tax audit where an income tax officer asks why you have shown a certain expense and see if you can give a logical explanation to it today. If you can, only then maybe take that route.
tbh setting up a company might cause a lot of hassle down the line as you scale up, youâll fall under RBI guidelines maybe some restrictions from SEBI, requirements of AS, Ind AS, Audit Procedures, and what not thanks to companies and any other law that youâll fall under.
A slightly better alternative to this might be forming an LLP out of your family members or handling multiple DeMat accs of you and your family or if youâre under Hindu Law an HUF would come out as a better alternative.
Paying Salary would not make sense.
going sole prop would be any diff from what youâre doing right now.
yeah, you can claim stuff as business exp as long you can come up with an explanation for same if youâre audited.
Even if you do derive some tax benefits but the hassles that would come with setting up a co with lakhs and crores in profit and turnover and requirements of law would far outweigh the benefits.
thats pretty interesting
Hello
I already run a small scale manufacturing sole proprietorship (est. 2017) along with trading. So ill share my experience so far. You can take what applies to you.
Step 1: find an auditor (CA) preferably someone who has a lot of trading clients/someone who trades themselves and theyâll guide you to first register your business and get you GST Identification number (GSTIN). For this youâll need location of business and a board with your businessâs name on it, which the tax man will come inperson to verify as the last step before you are all set. CAUTION: once you do this you will have to file GST every moth, profit/loss doesnât matter. If no profit and no gain, still youâll have to file NULL return. Filling monthly GST isnât rocket science, youâll get the hang of it. In my company i use an auditor to do it, because of large number of transactions and it comes up to around 4k/month.
Step 2: All expenses that are essential for the running of your business can be claimed as âbusiness expencesâ like office rent, electricity, brokerage, employee salary, internet bill etc (a CA will help you out with the nuances). You will be able to claim GST credit for all your goods purchases that are essential for running your business like laptops/computers/smart phones, office furniture. You will also be able to claim depreciation year on year for all your goods purchases. There are a few caveats like buying a motorcycle/car for the personal use of proprietor can not be used for GST credit, although one can argue that it is âessentialâ for the running of the business. However you can claim depreciation loss.
In my case I buy CNC machines with a loan by pledging property. The machines pay back the loan and give my trading activity the benefit of âdepreciationâ. Eg: 1 Cr. Worth machine depreciates @ 15% per annum. So in the first year 15 Lakhs is depreciation loss (not real cash loss, only notional loss on paper) and comes on the left side of the balance sheet, which means 15 lakhs trading profit is completely offset by the depreciation and you wont have to pay a single Rupee as tax.
If you are gonna be trading at home, then your home becomes your office, you can claim whole or part of your houseâs electricity, internet bill, phone recharges etc (youâll need a seperate portion of your house allocated as your office, which has a sepatare enterance than the main enterance to your house i think, and a board with the business name & GSTIN on it)
You can bring in a few of your friends & family as âAnanlystsâ and pay them a salary. Budget for FY 2023-24 says no tax till 7.5lakhs/person)
All said and done, a good auditor who is updated with all the rules, someone who you have a good rapport with will be a much better guide for you than me or anyone else here. Please use all the info above as a starting point to do your own reserch.
Cheers!! Happy trading
You can not trade via your companyâs Current account. In india every brokerage account has to be tied to a savings bank acount.
So if you want to trade using your companyâs running capital, firstly you need to be a sole proprietorship (only a sole proprietorship allows to move cash freely, a partnership/LLP/PVT Ltd will not allow you to move cash freely.
Then youâll have to move the cash from your companyâs current account to your personal savings account that is tied to your brokerage account and only then use it for trading.
Disclaimer: Using your companyâs running capital for taking highly leveraged positions is a very risky proposition.
There is no hassle, derivative trading is already considered business income.
Registering as a company gives you other advantages like GST credit for purchase of goods that are essential for the running of the business and depreciation loss benefits.
Also you can show employees and their salary as business expences.
Registering as a company brings with it extra scrutiny, like GST & TDS filling every month. But the advantages out weigh the disadvantages imo
You may set off Depreciation loss from one business against profit of another business. So basically you are saying you wonât have enough profits from your own business. Otherwise your depreciation would have been adjusted towards your business profits first.
So just to save taxes you should start a loss making business.
What am I missing here?
So we are assuming all of them are jobless? And what about the salary that is paid to them? How do we take it back ?
Credit is not allowed on any of the assets which are purchased for the purpose of trading. By trading you are not providing any taxable services. Even the gst paid on brokerage is not allowed to be claimed. Depreciation on assets can be claimed. And that can be claimed irrespective of whether you trade as an individual or a company.
Somehow whatever you have mentioned is totally misleading information in my opinion.
Iâm a CA student and i can firmly say that in long run it is definitely not true
youâd have to employ people to take care of filings which can be straight ahead avoided furthermore by taking into account as you grow the impositions increase (CSR, CARO, etc.) and youâd attract use less attention of authorities if youâre really profitable if you donât want to raise and trade with other people money (proceeds form issue of capital and borrowings) it is not effecient to form a PVT Co. for trading.
Bro before you start accusing me of âmisleading peopleâ entertain the possibility that you may be missing something like you mentioned. also like Chetan_Nahata I also get my IT filings done with the help of 2 separate CAs (1 for monthly GST & TDS fillings + 1 for year end IT filling) why 2 CAs⌠long storyâŚ
so now i have a profit of 10L from the business, and a 20L profit from trading. I pay 0 income tax.
this works here because⌠how many businesses other than, capital intensive, manufacturing generate less revenue than the value of assets you own? in any commodity trading business? in some retail business? in an IT business? rarely⌠but⌠yes this is common in the manufacturing fieldâŚ
My wife is an employee of the company and draws an income of Rs. 20K every month, it is part of the expenses of the business. My dad is a ISO consultant for the business. are they jobless? no they contribute, my wife does tally data entry, and my dad ensures ISO compliance. why does the money need to come back?
ALL GST I pay out of my pocket, buying new CNC machines, new laptop, smart phone, refrigrator for employeeâs living quarters, air conditioning for my office, buying monthly consumables, paying for sensibull (when it wasnât free), GST from brokerage CAN BE OFFSET WITH SALES OF GOODS. anything and everything that you can make a case for as ânecessary to conduct businessâ is elegible for GST input credit. strangely the propreitorâs vehicle (car or bike) isnât elegible for input credit. but elegible for depreciation like you mentioned.
so what happens to people who donât do trading? well the depreciation loss gets carried forward. cash loss (i.e. loss arising as a result of expences>>>revenue) has a maximum carry forward time of 7 years, whereas depreciation loss has no time limit, you can carry it forward as long as you want.
I am sure of this stuff, because I HAVE DONE IT, and i am gonna do it this year as well. i can share my IT fillings with you, i dont see why notâŚ