While reading the topic in Zerodha Varsity I come across this sentence “taxation when trading is declared as a business income” . My question is, How to declare trading income as a business income? whether and individual investor/trader can do that? or is it required to open a trading firm for that?, if yes what sort of company I need to open? please clarify.
Thanks,
-Ravi.
Individual can also do this.
-
Benefit of declaring as business income is that u can claim expenses on ur taxable income which u get from trading.
Expenses like mobile, brokerage, internet etc -
U can carry forward short term losses. and these can be written off against short term gains. (carry fwd can be done for 5 or 7 years. Again, exact details will come from ur CA)
Example - u purchased some lots in futures, and made a loss of 1lac.
Later on, u made a profit of 2 lacs in futures or options or cash market (Including commodities),
Then you’re taxable business income will only be 1lac (profit - loss)
However, if u have profits from holding share for 1year+, then the profit here cannot be written off against any short term losses.
Points to note -
- Audit might be required, depending on ur scenario.
More details from ur CA or from varsity - The ITR form that u use will change. From the current year, I think its ITR-3, but check with a CA to determine which ITR to use.
- If you are declaring business income, then u qualify as a trader, and not an investor.
Business income iwll be added to ur existing income, and taxed as per slabs.
WHereas, for “investor”, short term gain is taxed at flat 15%, irrespective of income from other sources. - if u have loss making shares, then sell them before 1 year holding period , and repurchase at same price, if u really are bullish about the share. Then the losses u have made can be written off against any profits.
Whereas if u hold the shares for more than 1 year, then any losses cannot be adjusted against profits u make.
Hope this helps
1 Like
You have to use these words in your ITR filing and balance sheet. No need to open any firm.
" Profit / Loss from Stock Trading Business "
It is Better to avoid investment in the same Demat account and trading account.
You can keep separate trading and Demat account for Investment. This will avoid any issues with IT Dept queries. Also it is easy to maintain.
Or you make investment in your family members name. Show the money transferred to them as Gifts to them.
2 Likes
Nothing such is required , treatment of our portfolio for a trader and investor are different. You can be trader in your own name.
1 Like
Thanks, it really helps.
Also pl note, that although technically, a trader, in separate demat accounts, can use one demat for trading and the other for investments (1 year+ holding).
My CA has told me that sometimes this might be open to interpretation when filing taxes, so better put investment in a family member’s name if possible.;
Some CAs have said its perfectly fine, its really upto u
1 Like
at what stage or what constitutes as business income (intraday ,short term and f&o ) rather than investment /trading income or is it the choice of an individual to opt for ? please help.
F&o is a contract
So if trading fo then it’s a business irrespective of other factors
If. Only trading in. Cash mkt with almost daily transactions then its business.
But that’s loosely. Defined as per
If. Buying selling. Every. Few. Days or weeks you should be able to declare it as short term gains (15% tax)
I’d suggest u read the varsity section on taxation.
If FO is considered non speculative income, them why should I pay 30% tax on my gains, I should only pay 15%.
As I said earlier, it’s a business since fo is a contract and you’re profiting from that contract
Mutual funds constantly hedge their portfolio with FO positions, they are don’t pay 30% why should we?
Arbitrage funds don’t pay 30% why should we?
Thank you for the short and clear answer.
Furthermore, is there any limit to transfer as a gift to spouse/parents/kids?
Please guide.
Thank you.