Mtf intrest treatment

Income Tax Income from Capital Gains
1

Subject: Clarification on Accounting Treatment of Margin Trading Fund Interest for Income from Share Trading

Respected Sir,

I am an individual taxpayer engaged in share trading activities, including intraday trading, short-term capital gains (STCG), and long-term capital gains (LTCG). I am planning to undertake trading through the Margin Trading Fund (MTF) facility provided by brokers.

In the course of earning short-term capital gains through margin trading, I understand that interest is charged on the borrowed funds under the Margin Trading Fund facility. I seek your kind guidance on the correct accounting and tax treatment of this margin trading fund interest in my books of account.

I have received differing opinions from various Chartered Accountants regarding the MTF interest.

Specifically, I request clarification on the following points:

  1. Whether the interest charged on margin trading funds can be treated as a deductible expense against my other income or business income(where i will also show capital gain)
  2. If treated as part of the cost of acquisition, whether such interest can be adjusted against the sale consideration while calculating short-term or long-term capital gains.
  3. The proper manner of reflecting this interest in financial records to comply with the Income Tax Act.

This clarification is important for me to maintain accurate books of account and to file my tax returns correctly. I would appreciate your guidance on the appropriate treatment of margin trading fund interest when reported as part of individual share trading income under intraday, STCG, and LTCG categories.

Thank you for your assistance. I look forward to your kind response.

Yours sincerely,

MOB NO 8917374260

2

Hi @Praveen_Agarwal,

Interest charged on MTF loans can be claimed as a deductible expense against business income from share trading, including intraday and short-term trading. You should include it in your Profit & Loss account under trading expenses or finance costs.

For delivery-based trades reported as capital gains, MTF interest cannot be added to the cost of acquisition. Only actual purchase price and brokerage/transaction costs are considered for computing STCG or LTCG.

Also, maintaining separate entries for MTF interest in your books ensures accurate accounting and correct reporting in your ITR.

Hope this helps!