I have borrowed money from a friend and used that amount to invest in the market. I have made profits and paid interest to the friend. Can I deduct these expenses from my income?
Hey,
You can report your trading income under the head ‘Business and Profession’ while filing your ITR, and claim the advisory fees as your business expense. You can also claim the interest paid as a business expense. Since the loan is taken to earn the trading income.
Interest paid on loan, are we supposed to deduct tds?
Hi @Akash,
Yes, interest paid on loan is subject to TDS and you need to file Form 26Q
You can also use this TDS calculator to know now the TDS amount, rate and due dates
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My CA told me that I cannot take loan for trading purposes. But the questions raised here imply that we can do that? Can anyone please clarify?
i have heard that : one can take loan from anyone for the trading investing share stock market business . and pay interest and also share the profit with the lenders , as per the terms and agreement . and thus reduce the tax lability in money earned !
is this right ?
You can take a loan from your friends or relatives for any purpose. However, you will not get a loan from a bank/financial institution specifically for trading purposes.
However, you can take an unsecured loan (personal/credit card) from a bank/financial institution and use it for specified purpose.
and i can also pay interest and share profit to the lenders as per terms and agreement ! right ?
and thus i pay tax on the profit after deducting the (profit and interest shared with the lenders ) . right ?
Thank you for inputs.
I have one more question please.
I am managing trading account of my sister in law. Can i take salary from her and can she show it as an expense?
She would come under the definition of family as per Income Tax Rules.
Can I receive salary from my relatives?
Or would it be better to take gift from her to get my share (obviously she would not be able to show it as expense then).
i think she can pay interest to lenders and show it as expenses .
and she can pay profit share and show it as expenses .
and can pay salary and show it as expenses !
am i right ?
Hi @HIREiN,
If a loan is received from friends/ relatives then interest on the loan can be paid on a reasonable basis but profit can not be shared with the lender.
Hello @Sumit_Gupta,
Yes, you can take salary from your sister-in-law against the service you are providing i.e. managing her trading account and she can claim such amount paid as an expense.
can pay/share money (from the profit) in the name of salary or advisory professional fees etc . ? and thus can claim such amount paid as an expense. ?
is this allowed ?
do i have to deduct TDS or make any formal MOU agreement for such kind of arrangement as per mutual understanding ?
This is so confusing. Different experts have different answers. Two CAs I talked to said that - don’t pay salary to family members (Family means siblings, parents, parents in law, sister/brothers in law/kids). They said this is not allowed as per income tax provisions.
Hello @Sumit_Gupta,
If you transfer income to a relative at arm’s length price (reasonable price) for the professional service provided is allowable under the Income Tax Act.
Hope this clarifies!
2 years back ; i had taken the over draft (loan/borrow) from the bank and given/lend to my friend .
the loan was settled between amongst all the parties after a year .
the bank had charged me the interest which i had paid from my pocket .
BUT , that time , i neither charged any interest to my friend nor he paid any interest to me .
now . my friend is paying the interest of that loan in this year .
query : will that interest will be my income in this year ? or can i setoff this income with the interest paid by me , 2 years back ?
Hi @HIREiN,
The amount of interest received from your friend on the loan is taxable in your hands under the head “Income from Other Sources”.
Hope this clarifies!
If a person taken loan and invested in stock market and earned profit. Can he pay interest to creditor or can he pay interest to creditor for intraday income
Hey @Vikash689,
Income from intraday trading is considered business income. If you have taken a loan to do intraday trading you can claim the interest paid on the loan as an expense.
Hope this helps!
How to prove that loan was taken for intraday trading purpose.