For individuals engaged in trading as a business, it is crucial to optimize financial management and maximize profits. One effective strategy is to claim all expenses directly connected to the trading business as legitimate business expenses. By doing so, traders can potentially reduce their taxable income and retain more of their hard-earned profits.
In this article, we will explore the concept of claiming trading business expenses, understand what qualifies as deductible expenses, and highlight the benefits they can bring to traders.
Q Can I claim all my expenses?
A No. The expenses incurred must be entirely and solely connected to business and professional income.
Q So what expenses can be claimed against trading income?
A Here is a list of expenses that you can claim as a trader:
- Rent Expense: Traders can claim the rent paid for office space as a valid business expense. Proper documentation, such as rent receipts and agreements, should be maintained as proof.
- Internet and Communication: Since trading heavily relies on the internet, expenses such as internet service provider bills, mobile data plans, and phone bills can be claimed if they are incurred for business purposes.
- Market Data and Research: Subscriptions to market data providers, research services, and financial analysis tools are essential for traders to stay updated and make informed decisions. These costs can be claimed as business expenses.
- Office Supplies: Costs associated with office supplies like stationery, printing, etc. are deductible expenses.
- Electricity Expense: Traders can claim electricity expenses for their office.
- Legal & Professional Fees: If you hire accountants, tax professionals, or legal advisors to assist with your trading business, their fees can be deducted as business expenses.
- Finance Costs: If traders take loans for their trading business, the interest paid on those loans can be claimed as deductible expenses.
- Trading Expenses: Charges and fees directly associated with trading, such as brokerage fees, turnover fees, clearing charges, exchange transaction charges, STT (Securities Transaction Tax), stamp duty, and GST (Goods and Services Tax), are valid business expenses.
Securities Transaction Tax (STT) is not eligible for deduction against capital gains, as per the announcement of Budget 2008.
- Depreciation: Traders can also claim depreciation on any asset that has been used by the trader for business purposes.
- Any other expense directly related to the trading business.
Q Are there expenses that cannot be claimed against trading income?
A Yes, here is a list of expenses that a trader cannot claim:
- Personal Expenses: Expenses incurred for personal purposes unrelated to the trading business cannot be claimed as business expenses. This includes personal purchases, entertainment expenses, vacations, and personal bills.
- Fines and Penalties: Fines, penalties, or any legal consequences resulting from non-compliance or unlawful activities cannot be claimed as business expenses.
- Tax: Any form of tax paid on the income earned, such as income tax, advance tax, goods and services tax (GST), and other applicable taxes, cannot be claimed as an expense. Taxes are obligations to the government and are not eligible for deduction. However, you can claim Securities Transaction Tax (STT), Stamp Duty and Commodities Transaction Tax (CTT) provided corressponding income is offered as business income.
- Other applicable provisions: Expenses paid in cash for an amount exceeding Rs. 10,000 in a single day cannot be claimed as a deduction. To qualify for deduction, payments must be made through electronic clearing systems, account payee checks, or account payee bank drafts.
Q What else should I take care of?
A You should ensure that:
- The invoice is issued in your (trader's) name, and the invoice date falls within the relevant financial year.
- It is crucial to preserve bills, invoices, or any other proof of payments made.
- You should deduct TDS (Tax Deducted at Source) according to the applicable TDS section.
- If an expense is incurred for both personal and business purposes, you can only claim a reasonable portion of it towards business.
PS : Traders who opt for the Presumptive Scheme u/s 44AD are not allowed to claim expenses.
