Hi ,
Appreciate if anyone could clear my doubt regarding Trading F&O with Personal Loan.
Scenario: Assume I take 1Cr Personal loan, Invest it in few Debt Funds, and Pledge them with the Broker for Margin. If by FY end I make a 25% return on F&O Trading itself (Also for simplicity ignoring the advance taxes).
Question1 : Can I take the benefit of tax exemption on the Interest amount paid on the Loan EMI, as I will be using it solely for F&O Trading only.
Question2: Now If I take Interest exemption benefit, My underlying Debt Fund also generates (6-7%) income Annually. So it the right assumption that only during my withdrawal of the debt fund, the related capital gains will be added or Do I need to show in the current FY ITR filing.
Question3: If I’m showing the loan EMI interest as business expense, Then assuming the loan EMI is 11% PA, The Underlying debt fund is giving me 7% PA, So its just 4% I have to repay yearly, As I will not deplete my Debt fund in any near future to pay capital Gains. Confused is this legal or is it a known loophole anybody can take advantage .
I would appreciate your concern, but Kindly don’t advise against Loan for Trading , Becoz Im a Quant trader who trades with the best R:R and RMS. Been consistently making >25% for the last 5 years. Hence checking this options to enhance my ROI. IN spite of that any loss occurs , I’ve enough reserves to pay back.
The interest paid on the loan amount can be claimed as an expense as it is used solely for F&O trading.
The capital gain will arise only when you sell the debt funds. However, interest received on debt funds will be taxed as “income from other source” and the same needs to be reported in the ITR.
Yes, the net effective interest payable will be 4%. However, the 7% interest generated from the underlying debt funds will be taxed as and when you earn the income as per your slab rate.
@Quicko Thank you very much for the clarification.
Just to reconfirm my understanding, So until I sell my debt funds and receive the interest to my Bank account, I need not show this income in the ITR unlike FD’s interest. Which ever FY I sell those debt funds , I need to show as “income from other sources” and pay the Taxes on that particular year. Is that understanding correct?
Dont keep writing debt funds, Specify as Growth option in Debt funds. It is only in Growth Debt funds that the Gain is realized when you “actually” sell units.
What you report as income is Sell value - Buy value.
in IDCW/dividend option is paid out periodically and is added to income in the FY it is rec’d like FD.
@Chirag1 If you have read the scenario description, I have clearly mentioned the amount will be pledged and will be used for F&O trade. Then it goes without saying its growth. Why will any options seller keep reducing pledged units by choosing Dividend option.
I guess a personal loan won’t suffice, you need to take a loan saying it is for FnO trading. Also what security will you offer against this loan - it cannot be collateral-free.
@viswaram Yeah Bank Representative itself mentioned not to state the usage as Trading but to take it as house renovation ,Sibling marriage and to clear my Parent outstanding loan . They are fine with it as I’ve a salaried account with same bank for 17+years and Cibil score is also fine. So my eligibility is fine from their side. So they didn’t mention or recommend to go with Trading specific loan. Not sure I can check this though ,
. They are fine with it as I’ve a salaried account with same bank for 17+years and Cibil score is also fine. So my eligibility is fine from their side. So they didn’t mention or recommend to go with Trading specific loan. Not sure I can check this though ,