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Business on personal name or firm's name?

B S BHMRA (Managing Partner) (102 Points)

17 January 2011

Dear Friends,

1. What are the advantages/disadvantages of carrying on a business of "Online Commodities Trading" on client's behalf, on one's personal name, or by forming a Sole Proprietorship firm?

2. How will the income from such be counted as: either commission received or share of the profits received, and how will it be taxed? And whether Service Tax is liable to be paid by either party, the original client, or the the trader who trades on his behalf?

Thanks,

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3 Replies

CA PARAS BAFNA (Practising CA ) (33423 Points)
Replied 17 January 2011

It depends upon case to case.

If the person is carrying on other businesses also , then for the purpose of conveniency in preparing the financial records , separate proprietorship firm will be beneficial. In both the cases rates of taxation or other benefits will remain same.

Generally , you receive commission from clients for carrying out transactions on their behalf. So profit or loss will belong to them only. You will account for your commission income and claim expenses being incurred by you to carry on such business.

Service tax will be payable by the client.

If I assume that you are a sub-broker, and your commission income also exceeds Rs. 10.00 lac, then you will charge service tax on commission , which is being receivable by you from the main broker.

I keep open the discussion.

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B S BHMRA (Managing Partner) (102 Points)
Replied 19 January 2011

With due Thanks, I would like you to please clarify the following, in the same subject matter:

1. I am not a sub broker, but an independent freelance trader, under taking online commodities trading on behalf of clients. The commission for the same is on a mutual understanding of sharing of profits on a 50:50 basis. In such case will it be construed that I am giving a service to the client, and receiving a 50% share of his profits, and as such will I be liable to pay service tax on the amount I receive from the client? Will this onus fall on the client or myself?

Thanks & Regards!

prm.. (Individual) (95 Points)
Replied 24 July 2012

@ Paras Ji Bafna

Sir ji,

I trade in FNO Derivatives segment and this is the only business I do. I do not have any job or anoy other business.

I trade in my personal For example my Trading account is in my personal name , bank account savings account.

Now, should I form a prop firm and trade in prop firm ? Will there be any objections raised from ITO if I trade in personal name and transactions are higher ?

Sir, what do u advice ? Please note demat cant be open in firms name ( btw, I trade only derivatives fno no delivery based trading.