Hello. I took a loan of 8 lakh rupees from my father with a promise to pay the 19000/month EMI for the next 5 years. As of now my plan is to use that fund with my existing fund for Option trading. However is the EMI amount is deductible from income tax or not? All the transactions are made using cheques and future EMIs will be paid using net banking.
Interest portion - Yes
Principal portion - No
What if money from close relatives is simply parked in trading account and is used for option buying or as margin for option selling? No interest generated, but used to generate trading profits.
Unless you are directly related by blood father, mother etc money from close relatives like uncle, aunt etc would be treated as a gift for which there is gift tax.
Yes. Father/Wife. What then?
No problem for money coming in. But you will have to pay tax on your trading profits as per your tax slab.
Question was mainly to understand if any clubbing provisions will affect the gifter…
No tax shall be incident on the gifter in the said case. No need to deduct TDS as well. Father, mother or wife can simply give money to you.
I will copy paste relevant information for your understanding from the following link. I am little lazy to type it out myself. Kindly excuse.
While the gift received is fully exempt, the income received on it isn’t.
Here is How Clubbing of Income Works;
Income on the gift received by Spouse/Minor Children – If a person decides to gift a certain amount to his spouse, or minor children then any income earned by the recipient on it shall be clubbed with the income of donor.!(data:image/svg+xml;charset=utf-8,)
Income on the gifts received by other relatives – In cases where the recipient is anyone other than spouse or minor children, the income generated will be taxed in the hands of the recipient.
Let’s go through a couple of scenarios to see how it works. Suppose you gift Rs 5 lakh to recipients in each of the following scenarios, and if each one of them puts the money into fixed deposit at 10% interest per annum, which works out to be Rs 50,000 a year this is how it would work:
Scenario 1: If the recipient is your wife then the income earned i.e. 50,000 will be added to your income for taxation, and you would pay taxes on that based on your tax slab. However if she reinvests this Rs 50,000 and earn Rs 5,000 (10% of 50,000) as interest, then the income on reinvestment, which in this case amounts to Rs 5,000 will be considered as her own income.
Scenario 2: If the recipient is your mother then the income earned will be taxed in her hands. So if she is retired and doesn’t have any other income, then she wouldn’t have to pay any tax as the income would be less than her basic exemption limit of Rs 3, 00,000.
So basically this is what I understand. Currently
- Wife → Husband, Clubbing provisions apply for interest income.
- Wife → Husband’s father - > Husband, Clubbing provisions do not apply.
Also, it seems like it puts a lot of discretionary power on the AO. If wife receives 5 lac, uses 5 lac for spending and invests her 4 lac. That wouldnt be so clear.
What about Equity MF investments, I suppose capital gains can also be clubbed. If they can be clubbed, what if said investment is only redeemed after 15 years - tracking this will be unusual,
Thats why we call Income Tax self assesment tax. We have to declare it ourselves. But if AO feels we have not declared it rightly, we will be issued a SCN. And then it goes on and on.
Just to relate it with an example. Lets say you are applying for a job. At the end of the resume you will give a declaration saying whatever information you have given is true. If you had lied and company then finds out you will be fired.
I know you will have alot of ifs and buts. But this is what it is.