Intraday and sebi rules

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madhu krishna (Querist)
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24 September 2017 I do intraday and earning well...Iam planning to register as sole proprietor and collect money from relatives and friends to invest hugh in intraday...my broker is ZERODHA...
1) IS their any complainces qnd rules I should follow from SEBI ?
2) is it good idea to have sole proprietor ? if not any idea please??
3) what is the tax treatment from my side and in hands of friends who give me money??

K Srinivas, CMA CS

K Srinivas, CMA CS (Expert)
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24 September 2017 1. I assume that you want to do intraday trading for yourself and not for clients. Therefore, no registration is required with SEBI.

K Srinivas, CMA CS

K Srinivas, CMA CS (Expert)
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24 September 2017 2. In the beginning, sole proprietorship is better. You may consider other options like Partnership firm or one man company as the business grows.

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K Srinivas, CMA CS

K Srinivas, CMA CS (Expert)
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24 September 2017 3. You can show the money lent by friends as loan and you can claim interest expense for the loan. Your friends have to report such interest income in their return and pay tax on it

madhu krishna

madhu krishna (Querist)
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25 September 2017 what if my friends give me money to do intraday for themself and not as loan?? any sebi rules?? what's tax treatment??

Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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01 August 2024 Engaging in intraday trading and operating as a sole proprietor involves several regulatory and compliance requirements. Here’s a detailed breakdown based on your queries:

### **1. SEBI Compliance and Rules**

**a. Compliance Requirements:**
- **Brokerage Registration**: Ensure that your broker, Zerodha, is SEBI-registered, which it is.
- **KYC Requirements**: All clients (including you and your friends) must complete KYC (Know Your Customer) requirements.
- **Margin and Risk Management**: Follow SEBI guidelines on margin requirements and risk management. Ensure you understand leverage and risk management practices.
- **Trading Limits**: Adhere to SEBI’s trading limits and guidelines to prevent market manipulation and ensure fair trading practices.

**b. Additional Compliance for Managing Funds:**
- **Investment Advisor Registration**: If you plan to provide advice on investments for a fee or manage investments on behalf of others, you may need to register as an Investment Advisor with SEBI.
- **Portfolio Management Services (PMS)**: If you are managing large sums of money on behalf of clients, you might need to register as a Portfolio Manager under SEBI regulations.

### **2. Sole Proprietorship vs. Other Structures**

**a. Sole Proprietorship:**
- **Pros**: Simple to set up, less regulatory burden, full control over business decisions.
- **Cons**: Limited liability protection; personal assets are at risk in case of business losses or legal issues.

**b. Alternative Structures:**
- **Partnership Firm**: Allows sharing of responsibilities and liabilities but involves partnership agreements.
- **Private Limited Company**: Offers limited liability protection, better credibility, and potential tax benefits but involves more compliance and regulatory requirements.

### **3. Tax Treatment**

**a. Tax Treatment for You:**
- **Income**: Intraday trading income is treated as speculative business income. It should be reported under "Income from Business or Profession" in ITR 3 or ITR 4.
- **Losses**: Speculative losses can only be set off against speculative profits. They can be carried forward for up to 4 years.
- **Tax Rate**: Speculative income is taxed at the applicable slab rate for individual taxpayers.

**b. Tax Treatment for Friends Who Give You Money:**
- **Investment vs. Loan**: If they give you money as an investment and not as a loan, it could be considered as capital contribution. If they expect returns, this might be considered as investment income.
- **Gifting Money**: If the money is given as a gift, there might be implications under the Income Tax Act. Gifts exceeding ₹50,000 are taxable under the head "Income from Other Sources" unless exempt under certain conditions.

**c. SEBI Rules for Managing Funds:**
- **Investment for Others**: If you are managing funds for others, you must comply with SEBI regulations related to fund management and advisory services.
- **SEBI Regulations**: Ensure compliance with SEBI regulations regarding the collection of funds, providing investment advice, and managing investments.

### **Summary**

1. **SEBI Compliance**: Ensure you meet all SEBI regulations regarding trading, investment advising, and fund management.
2. **Business Structure**: Consider the advantages and disadvantages of sole proprietorship versus other business structures.
3. **Tax Treatment**: Report intraday trading income as speculative business income and manage the tax implications of any funds received from friends or relatives based on whether they are investments, loans, or gifts.

### **Action Steps:**

1. **Consult a Tax Advisor**: For specific tax implications and compliance requirements.
2. **Review SEBI Guidelines**: Familiarize yourself with SEBI guidelines for managing funds and investment advisory.
3. **Consider Legal Structure**: Evaluate the pros and cons of different business structures before proceeding.

If you plan to take money from friends or relatives for intraday trading, it's crucial to ensure clear agreements and understand the regulatory implications thoroughly.