Suppose I am giving Rs.10 Lakh to my brother to invest in stock. And say after 1 year, he made 1 lakh profit on it.
So if I want that money back that is Rs.10+1 = Rs.11 Lakh, then how will the tax be charged? Do I need to give tax on my principal amount also?
If 10 Lacs was your income and if you already paid tax for it, you need not pay any tax on 10 lacs. If not, you will be liable to pay tax on 10 lacs.
Meanwhile, Your brother will be liable to pay tax on 1 lac profit that he made from investments in stock in his account.
@Quicko - Please add any other points if I have missed something.
The brother need not pay any tax if he has sold the stock after 12 months as there is an exemption limit of 1 lack.
If it is short term gain, then he can still adjust against the 2.5 lack exemption limit assuming he does not have any other income provided Brother is a Resident. If the brother is a non resident then this exemption will not hold good. He cannot adjust this against the 2.5 lack exemption limit.