Taxation on trading profits from a joint account between 2 people

Taxation
1

Me and my cousin are thinking to open a joint demat and Trading account on zerodha. If we start with different equity contribution and share fno trading profits according to our equities. How do we file for itr?
@AlgoGeek @siva @nithin

2

@Quicko

3

Are you going to trade in one person’s name or setup a partnership firm or pvt ltd or llp?

4

Not concrete yet, What do you recommend? And what are the compliance costs of starting a partnership or pvt company? @nithin

5

Hi @Aditya_Bhat,

In case, of joint holders, the first holder of an account is considered as an owner of the account i.e. his/her PAN will be linked to the profits made on that account. Hence he/she will be liable to pay taxes on the profits earned.

In your case, whoever is the first holder of the account will be taxed for profits earned from an account. And if the total income of a first holder falls under higher income tax slab rate then they will end up with paying higher taxes.
Here only the shareholding will be in joint names.
Since you both wish to share the profits and hold securities equally then incorporation of new Firm, PLC or LLP will be a better option. Since you both can transfer the funds to it and share the profit as per your contributions. The compliance cost will be higher but the tax burden can be reduced.

Hope this helps! :slight_smile:

1 Like
6

@ quicko Thank you so much, can you link me to some article which will explain more on how to form a partnership firm and reduce the tax liability… It would be awsm if in the future quicko can open a blog or become a teacher in the learn app. @nithin if you could make an arrangement then it would be really helpful.

7

I make a profit of Rs.100000 . On the advisory of Mr.x .
I paid Mr.x ; the advisory fees Rs.40000/= .

So ; Rs. 40000 is expense in my trade business .
So . I have to calculate my tax liability on the Rs.60000 only !

AM I RIGHT ?
Awaiting for the reply…

8

To register a Partnership Firm, an application form and the fees are to be submitted to the Registrar of State.
You can connect with us here at Quicko, we’ll be happy to help!

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9

Hi @Quicko

Me & my family members want to consolidate our trading accounts into one entity. We trade in F&O as well as invest in Stocks (taxed under Capital Gain). Both form approximately 50% of profits each, of course varying every year.

In this case, can you please advise on below Qs -
(1) Can we form a LLP or PLC without any NBFC related compliance / additional certification?
(2) Can we continue to treat F&O income as Business income and Stock profits as Capital gain under LLP or PLC?
(3) Which structure is better - PLC or LLP from ease of compliance (excluding Tax benefit of PLC)?

Appreciate if you could guide on the above.

Thanks.
Nakul

1 Like
10

Hi @Nakul_Rathi

  1. To incorporate the company having the main objective of trading you need to get an NBFC license from RBI. Also, there are so many years around compliances that needs to be followed for every PLC. Moreover, LLP is not allowed to do investment activity.
    When a company is incorporated with the main objective of trading, it comes under the purview of RBI since the company would be deriving more than 50% revenue from its financial assets, hence such company would have to take an NBFC license.
    If you can manage to pass through all those conditions, then only it would be wise to trade in the F&O segment as a registered Pvt. Ltd. Company.

  2. You can continue to treat F&O income as Business income and Stock profits as Capital gain under LLP or PLC

  3. LLP is better for ease of compliance

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11

Thank you for the detailed advice, appreciate it.
Would probably continue to manage individual accounts to keep it simple till the time scale justifies the efforts of compliance :slight_smile:
Thanks again!

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