YOGESH (ENGINEER) (41 Points)
25 April 2009Dear All,
If I take loan from friends and relatives for trading in shares and mutual funds...
1) Will the loan amount treated as my income?
2) Can I show the interest paid on such loans as expenses and claim deduction from my earning though trading?
3) How can I decide if I can treat the trading gain/loss as capital gain/loss of income/loss from business for tax purpose?
Wirh Best Regards,
Yogesh
Mukund
(Accountant - Consultant)
(310 Points)
Replied 25 April 2009
Dear Yogesh
If you show your income for Share Trading as a Trader then you can treat Interest paid on loan as an expenses but if you are show as a capital gain then you can't get deduction of interest paid as an expenses. there for your have to decide first that you are trader or invester,
if you are a daily trade in shares & stock then my advice you to show your income/loss as a Share Traders & if you are not then go for invester & show profit as capital gain
YOGESH
(ENGINEER)
(41 Points)
Replied 25 April 2009
Dear Mukund,
Thanks for your responce.
Can I have any answer to point 1 in my question?
Also regarding point 3, you have suggested to show profits/loss as trader so that I can get deduction on loan interest. But I usaually trade once in a week. not daily. Also mostly I buy the shares. Frequency of selling is very less. Can I still be a trader?
How profit/loss of a trader are taxed?
With Best Regards,
Yogesh
vijay
(.)
(212 Points)
Replied 26 April 2009
Dear Mr. Mukund,
AS u have told that you are not dealing on regular basis then you are an investor not an Trader.
Regards
Vijay Kumar
Mukund
(Accountant - Consultant)
(310 Points)
Replied 26 April 2009
If you show income as a trader then you have to pay regular tax as per income slab but if you pay as capital gain , in case of shor term gain [ 1 year limit ] then tax will @ 15% & in case of long term you have not to pay any tax .
deepak K Gujrati
(CA-practice)
(966 Points)
Replied 26 April 2009
When any investment in shares and securities is made, the motive of investment is very important. If the motive of investment is to earn dividend or interest, then it is a n investment. But if the motive is to make profit by sale or purchase against every increase and decrease in share value then it will be trading profit & loss. But again if trading is done against delivery. But if there is no delivery of transaction, then it will be speculative transaction. Then volume of transaction is also very important.
In your case it appears to be an investment.and profit or loss shall be shortterm/ long term capital gain.
Taking of loan is not income in any circumstance.
If loan is taken for trading purposes, interest paid on loan canbe claimed as an expense.
YOGESH
(ENGINEER)
(41 Points)
Replied 17 July 2009
Dear Sirs,
Thanks for your replies....
I plan to start an investment companey to provide good returns to my clients on their investment. Here is what I do...
1) I have my initial corpus from my own fund (say 10 lacs). I take the amount (say 1 lac) from clients as a loan for which we execute a contract of stamp paper stating the period (5 years), rate of interest(12%pa), frequency of interest payment(quarterly) and terms of premature recall by client or premature repayment of principle by me.
2)I invest the amount in shares/mutual funds/fixed deposites over the period of 5 years and earn profit from it. The the frequency of purchase and sell in shares/mutual funds is mostly daily or weekly. No intraday / speculative tradings. I pay the agreed interest at agreed period as per contract irrespective of profit/loss from my investments.
3)At the end of the term, I return the principle and interest for last quarter to the client.
4)Thus, my income is (profit/loss from my investments in market and FDs)-(expenses for carrying out the investments)
Now please guide me...
a. If I do not invest all the loan principle in shares, will the principle still not be treated as my income aAs said by Deepak above?
b. Can I claim tmy activities to be a business even if I really do not trade very frequently as stated above.
c. Can I claim the periodic interest payouts to my clients as expenses? What other deductions/expenses I can claim?
d. In the initial period, I am making a loss since the amount of interest I pay will be much more that the profit from my investment.
-Can I carry forward such loasses?
-Can I offset these loasses against profits of my other business?
-What will be the criteria for keeping accounts for such business? Do I have to consider the entire loan amounts for calculating the turnover? Any any point of time, almost the entire loan amount plus my capital will be invested in either shares/mutual funds and FDs.
-For calculation of tax , what is the status of the invested principle (from my own funds and loans) and the anaccrued profit and loss in my accounts as on 31st of March?
Pointwise reply will be highly appreciated.
Best Regards,
Yogesh
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