If a person earned 15 lakh from the stock market to save tax, can he form a private limited company and trade in the name of private limited? Can he save taxes or not?
you cannot avoid tax in this country, unless you deal with only cash.
2 Likes
A pvt ltd cannot have more than 50% revenue from trading activities unless it has NBFC licence.
and NBFC licence requirement is like minimum 2-5 Crore and some crores in assets.
So, pvt ltd for purely trading activities is out if question until one has like 10 Crores.
Then only u can enjoy the benefits of 25% tax vs 39% for individual . including all surcharge and cess.
So till then, keep giving taxes as per your slab which will never exceed 39% as total and keep showing the expenses to have some deduction in taxes. Expenses may include your computer cost, internet, mobile, study material, may be rent of room, stationary, maid, newspapers, refreshments, any expense on car, depreciation, any other cost which is related to trading activities.
pvt ltd can save maximum 14% of tax vs individual.
but it will attract other new documents and restrictions which is worth if u r earning over 2 Crores.
Hope this helps.
5 Likes
You can’t form a private limited just to trade in stocks. You’d fall into the RBI NBFC regulations if more than 50% of your income comes from financial assets.
In any case, Rs 15lks per year is not worthwhile for forming a company. Yes, taxation for a company is 25% and is lower than individual taxation of 39% (max slab). But if you want to take out money, you must pay taxes as a salary or dividend distribution tax. These will anyway be as per your income tax slabs, so in essence, you can pay 25% + 39% as taxes. It only makes sense if you don’t wish to take money out or book some expenses from the company, in which case you’d pay only 25%. All of this at Rs 15lks doesn’t make too much sense.
4 Likes
Wow @nithin Sir, you really reply
Sir may you please clear one more query, this is regarding HFT hedge funds, they are pvt ltd companies, example, alphagrep securities pvt ltd , apt portfolio pvt ltd , Tower research capital pvt ltd, and many more.
Are all these NBFC ??
If ones dream is to open a HFT hedge fund, then one can opt for pvt ltd once he/she reached to 10 Crores, right ? or is it really too soon ?
I meant what should be the recommendation for minimum money to open a pvt ltd, where whole future career is in trading business only.
Thanks
Ah, all of them are stock brokers themselves. If you have a stock broking license, then the NBFC regulations don’t apply.
You can also get a CAT3 AIF for an HFT hedge fund, but it isn’t very tax-efficient for the ones giving you money. But really, that is the only way to get to Rs 20 crores minimum with Rs 1 crore minimum from each investor/self.
Check the article that I had earlier linked to.,
If you just want to trade for yourself, it is quite straightforward to start scaling capital in your account. 
3 Likes
very very thankful @nithin Sir for quick reply
again another query, If I want to use my money only and not others, does making a pvt ltd with stock broker license to save tax(25% vs 39%) makes sense given , I am earning more than 2 Crores in profit a year ?
I don’t wanna take money out to me and I am okay to pay tax on director salary to whatever I withdraw.
Thanks
The cost of running a brokerage firm is quite high. In addition, you can’t utilize 100% of the funds, with a max of 90%. So unless you have a sizeable capital, it wouldn’t make sense. I guess at least Rs 20 to Rs 25 cr.
3 Likes
Very very thanks
Thank you for giving your precious time it like dream came true to small trader one day we will meetđź’Ż
Means approx 50 cr needed to start broker house with self trading Pvt Ltd
Already said this
The cost of running a brokerage firm is quite high. In addition, you can’t utilize 100% of the funds, with a max of 90%. So unless you have a sizeable capital, it wouldn’t make sense. I guess at least Rs 20 to Rs 25 cr.
1 Like
Hi @Nithin,
I noticed that both Kedia Securities and RARE Enterprises are registered as stockbrokers. Does that mean they are limited to investing only 90% of their capital? It seems like a waste of 10% of their resources, especially given the significant amounts of capital they manage.
Also, what about Zerodha itself when it comes to making investments? I read somewhere that Zerodha has invested in BSE. Are there any restrictions or limits on how much Zerodha can invest?
Thank you!
Ah, that 90% of the capital is in the case of intraday and F&O. Equity delivery, there are no issues.
where did you find that?
i couldn’t find RARE Enterprises
Nithin, I’m curious: how did Rakesh J (rip) and how does Vijay Kedia operate via their respective companies (i.e, Rare Enterprises and Kedia Securities).
In India, we don’t have the concept of LLC (like in the US) which can be used as investment vehicles.
Everyone likes to look up to Warren Buffett, but even he operated his investments via a company structure. Why is it that in India, we haven’t got this figure out yet?
1 Like
Yeah, a company in India needs to earn over 50% of its income from non-financial sources. Otherwise, it needs to be registered as an NBFC. People have taken the route of forming partnerships and LLPs, but it is slightly grey.
I don’t know about RARE and Kedia securities. @Meher_Smaran @mohitmehra, can you figure?
1 Like
So far, I’ve got only basic info regarding RARE enterprises and Kedia securities. Both of these are Private limited companies incorporated in 1992.
Meanwhile, found some info on RARE Equity Private Limited, which is an another company of RJ
Company’s business
It is not a NBFC
Will update more
Source: https://bond.bseindia.com/PPMFiles/2021/JUL/PPM/580/4325.pdf
2 Likes