A trader can claim all the expenses directly connected to the trading income as a deductible. The expenses incurred should be wholly and exclusively in relation to business and professional income. Therefore, these expenses include business expenses such as:
- Rent Expense – If the trader has an office in rented premises, you can claim the rent paid as a valid expense. Hence, you must save the rent receipts and rent agreement for future references.
- Insurance Expense – You can claim insurance expenses on assets used for business purposes.
- Repairs & Maintenance – Expense paid for repairs of the laptop, furniture, or any other equipment for business purposes are deductible.
- Office Supplies – Expense like stationery expense, printing expense, tea coffee expenses, etc. is a valid deductible.
- Electricity Expense – Electricity Expense for office claimed as an expense is deductible. If you are working from home, you can claim electricity expenses proportionally.
- Membership Fees– If you pay any membership fee for a trading platform or for a platform related to trading, it is deductible. For example, a trader can claim the membership fee paid for becoming a member of the trader’s club. However, if he pays membership fees of a golf club for his recreational purpose, it cannot be claimed
- Legal & Professional Fees– Any fee paid to a professional for their services is deductible as a valid expense. This includes tax return filing, tax audit, legal advice, consultancy services, etc.
- Books & Subscriptions – If a trader pays for subscriptions of magazines or purchased books related to trading, it is deductible.
- Depreciation – It means claiming the cost of the asset as expense over the life of the asset. As per the IT Act, we cannot claim the cost of the asset as an expense; however, you can claim the depreciation on the asset as an expense. For example, You have purchased a high-end computer for Rs 10 lakhs. The depreciation rate is 60%. Hence, you can claim 6 lakhs as depreciation in the 1st year (10,00,000*60%). And can carry forward the remaining amount to next year.
- Mobile & Internet Expense – Expense incurred to pay mobile bills, telephone bills and internet charges can be claimed. It is deductible if the expense if it is for business purpose.
- Finance Costs – If you take a loan for your trading business, you can claim interest paid on such a loan as a deductible expense.
- Trading Expenses – All charges and expenses paid for the purpose of trading are deductible. This includes Brokerage, Turnover Fees, Clearing Charges, Exchange Transaction Charges, STT, Stamp Duty, GST, etc.
- Other Business Expenses – Any other expense that is directly related to your trading business can be claimed as a valid expense
Can I claim Tax paid as Business Expense?
- STT – Securities Transaction Tax is paid on trading in securities i.e. equity shares and equity mutual funds. The trader can claim STT paid as a valid business expense if he reports such income as a business income
- Stamp Duty – Stamp Duty is an expense on the transfer of securities. Therefore, the trader can claim Stamp Duty paid as a valid business expense if he reports such income as a business income
- CTT – Commodities Transaction Tax is on trading in commodities. The trader can claim CTT paid as a valid business expense
- Input GST – CGST, SGST, IGST is on trading expenses is deductible as a valid business expense. Only if is the trader has no GST registration. If the trader has registration under GST, they can claim the credit of Input GST against Output GST. Hence, they are not allowed double deductions.
- Tax on Income – Tax paid on income such as Income Tax or tax paid on sales such as GST cannot be claimed as a business expense
Note: Trader having income they classify Capital Gains cannot claim any trading expense except Brokerage. This can happen in the case of traders investing in equity delivery and mutual funds.
CGST, SGST, IGST paid on expenses is deductible as a valid business expense only if is the business has no GST Registration. If the business is registered under GST, they can claim the credit of Input GST against Output GST. Hence, they are not allowed double deductions. Thus, they cannot claim GST paid as a business expense.