@Anikethan how is this 43% calculated… We have like STT, GST on brokerage, Income tax etc… Is it all included in that 43% you mentioned or is it 43% extra tax apart from that ?
As per my calculations on approximately its shows 24% tax and charges… Am I missing out on something more on this?
FNO income is taxed under tax slabs (30% for above 10L)
4% edu cess on tax
37% surcharge on tax (for income above 5cr)
Effectively it is 42.74%
STT and other taxes get deducted from your FNO income
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Is it same for cash market ? I only trade equity delivery.
Here is an innovative strategy to reduce the FNO income by @Jason_Castelino :
This is applicable if you are in a 30% bracket and sitting on a good Business income
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I would recommend partnership firm with your family member.
Even as an individual, you have unlimited liability, and you mentioned trading in family members accounts anyway, so both have unlimited liability anyway.
This cuts your max tax rate a bit.
Hope this helps
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LTCG is clear, but STCG vs business income can still be an issue if you have many transactions.
From chapter 3,
Blockquote
For equity delivery based investments, if you are holding stocks for more than a year, you would have received some kind of dividend and even if you didn’t, you can show them all as investments and claim an exemption under the long term capital gain. If you are buying and selling stocks frequently (yes it is an open statement, but there is no rule which quantifies ‘frequent’) for shorter terms, it is best to declare that as non-speculative business income instead of STCG.
Another thing to keep in mind is that if investing/trading on the markets is your only source of income, and even if your trading activity is moderate, it is best to classify income from all your equity trades as a business income instead of capital gains. On the other hand, if you are salaried or have some other business as your primary source of business, it becomes easier to show your equity trades as capital gains even if the frequency is slightly higher.
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Partnership Firm also has unlimited liability. Moreover you dont even get the benefit of the basic exemption limit.
Is there something that I am missing here?
One of my friend who is a CA also suggested this. He said Max tax would be 30% + cess . Is this correct ?
What is the meaning of Unlimited Liability in the context of a trading firm ? It will be same as individual right ?
Benifit of Basic exemption limit is negligible compared to reduction of tax from 42.74 to 31.4 correct ?
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Categorising it as STCG or Business income is in our hands. Of course frequent BTST is subjected to be changed as Business income, but doing short swing trades, albeit frequently, can still be categorised as STCG. If AO has an objection, then we can fight it/ change it. Why to declare in the initial stage and pay unneccesary tax ?
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There is a surcharge of 12percent for income over 1cr. So effective rate comes to 34.944%.
So if you are expecting income in excess of 5cr, then this can be beneficial.
I will read more into this. Because I cant believe law makers missed this loophole. Usually such loopholes are covered. Individuals usually pay the least rate comparatively.
Yeah, still some of the difference will be negated by STT which cannot be deducted for investments.
I have not started trading overnight yet, so have not checked how much difference it might make.
In equity intraday alone, stt alone can easily remove say 20-40% of returns. Overnight i guess it will depend on holding period.
The best way in my opinion to scale a trading business is to remain a sole proprietor of your own trade. Getting involved in some other segment can create unnecessary obstacles and this means that your focus will be shifted from trading to some other thing. It is better to stay small and light instead of going heavy.
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Ok, agreed for a moment. But what will be the scale we are looking here ?
Let’s say 10 cr business income, 2 cr I claim expenses ( superficially) , then do you mean to say we pay around 3.3 cr as tax ?
How do larger traders, HNIs manage?
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wow 2 cr expenses, assuming this is not STT etc, what kind of business expenses do you show ?
My assumption so far has been that expenses will not have compounded growth to keep up with capital…
I could do unnecessary expenses to save tax but it would also hurt my future income.
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Arre… that’s why I told superficially, the point I was trying to make is the quantum of tax that would go out as we scale up.
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Not exactly… but correct in principle…
Individual:
Base tax rate of 30% (At a 5C income, all deductions are meaningless)
Above 5C income has a surcharge of 37% (37% of 30% base rate = 11.1%)
Plus Cess: 4%
For over 5C income, tax rate is 45.1%
Partnership:
Base tax rate of 30%
Above 1C income has a surcharge of 12% (12% of 30% base rate = 3.6%)
Plus Cess: 4%
For over 5C income, tax rate is 37.6%
These are my calcs, please correct me if I am wrong…
Anything other than a sole proprietorship or partnership firm has tons of obstacles… as elaborated in this article…
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