Tax on funds taken from family member to trade

Income Tax Income from Capital Gains
1

I hold an account with Zerodha Broker using my Pan Card. However, I use 50% of my funds and 50% of my uncle’s funds for trading (this can be considered a loan amount). For my uncle’s fund, I pay him a monthly interest amount. In this case, how do we calculate the income tax.
Case 1:

  1. Do I need to pay income tax for all full profit amount or
  2. I need to deduct this interest component amount as interest expenses in the Trading & Profit/Loss Account, and then calculate the Net Profit and Pay tax to the Net Profit Amount.

Case2: If I consider my uncle’s fund as an Investment

  1. In this case, assume I made profit of 10 lakhs, so I need to calculate the tax for full 10 laksh and the tax amount should be divided between me and my uncle or
  2. After dividing the profit amount assume 5 lakhs for me and 5 lakhs for my uncle. So I need to pay tax for my 5 lakhs profit with individual tax slab and the same applicable for my uncle.
    Please advise.
2

Hey @karvj27,

Assuming that the transactions were made via bank transfer and there is a proper loan agreement,

In case one, you can deduct the interest component as an expense and pay taxes on the net profit.

In case two, you will have to bear the entire tax liability. The fund is a loan and hence, the amount will be treated as your investment only and you will have to pay tax on the profits.

Hope this helps!

3

Hi Surbhi

Thank you so much for the quick response. Thanks for sharing the details.