Profit from the sale of virtual digital assets such as cryptocurrency and NFTs would be subject to a flat 30% tax, according to the Union Budget 2022.

On payments made for the transfer of digital assets, a 1% TDS will also be applied.

Gains from the transfer of digital assets like Ethereum, Bitcoin, and other cryptocurrencies are taxed at a flat rate of 30%, with no deductions allowed except for the cost of purchase. In addition to the tax, the individual will be required to pay a 4% cess.

Regardless of whether the benefit is short-term or long-term, the individual who has profited from cryptocurrency transactions must pay the tax. Moreover, except for the cost of acquisition, which is the purchase price, the government would not allow other costs such as platform fees, broker fees, or internet charges to be subtracted as expenses from the profit. Even if the individuals’ total income is less than 2.5 lakhs, such income will be taxable.

Example of Calculation of tax on Crypto:

Suppose Mr Wazir purchased Bitcoin of 40,000 INR and sold the same for 70,000 INR

Here the Profit is: 30,000 INR

Tax: 9000 INR

Cess: 4% at 9000 = 360 INR

Total tax liability: 9360/- INR

This is why crypto taxation is being interpreted as

“Your gain becomes our gain, and your loss becomes your loss”

The deadline has been extended due to difficulties being faced by the taxpayers due to the prevailing Coronavirus situation, the notification said, adding that the deadline has also been extended due to problems being faced while e-filing of various audit reports under the provisions of the Income Tax Act 1961.

The following extensions has been provided by the government :

1) Due Date to furnish Tax Audit Report under Income Tax Act :

Existing Date :- 15th January, 2022

Extended To :- 15th February, 2022

2) Due Date for Income Tax Return for Audit Case:

Existing Date :- 15th February, 2022

Extended to :- 15th March, 2022

3) Due Date to furnish Tax Audit Report under Section 92E Income Tax Act(Transfer Pricing) :

Existing Date :- 31st January, 2022

Extended To :- 15th February, 2022

4) Due Date for Income Tax Return for reports submitted under Section 92E of Income Tax Act(Transfer Pricing):

Existing Date :- 28th February, 2022

Extended to :- 15th March, 2022

The Details of same is as under:

“On consideration of difficulties reported by the taxpayers and other stakeholders in filing of Income Tax Returns and various reports of audit for the Assessment Year 2021-22 under the Income-tax Act, 1961(the “Act”), Central Board of Direct Taxes (CBDT) has decided to further extend the due dates for filing of Income Tax Returns and various reports of audit for the Assessment Year 2021-22. The details are as under:

1. The due date of furnishing of Return of Income for the Assessment Year 2021-22, which was 31st July 2021 under sub-section (1) of section 139 of the Act, as extended to 30th September 2021 vide Circular No.9/2021 dated 20.05.2021, is hereby further extended to 31st December 2021;
2. The due date of furnishing of Report of Audit under any provision of the Act for the Previous Year 2020-21, which is 30th September 2021, as extended to 31st October 2021 vide Circular No.9/2021 dated 20.05.2021, is hereby further extended to 15th January 2022;
3. The due date of furnishing Report from an Accountant by persons entering into an international transaction or specified domestic transaction under section 92E of the Act for the Previous Year 2020-21, which is 31st October 2021, as extended to 30th November 2021 vide Circular No.9/2021 dated 20.05.2021, is hereby further extended to 31st January 2022;
4. The due date of furnishing of Return of Income for the Assessment Year 2021-22, which is 31st October 2021 under sub-section (1) of section 139 of the Act, as extended to 30th November 2021 vide Circular No.9/2021 dated 20.05.2021, is hereby further extended to 15th February 2022;
5. The due date of furnishing of Return of Income for the Assessment Year 2021-22, which is 30th November 2021 under sub-section (1) of section 139 of the Act, as extended to 31st December, 2021 vide Circular No.9/2021 dated 20.05.2021, is hereby further extended to 28th February, 2022;
6. The due date of furnishing of belated/revised Return of Income for the Assessment Year 2021-22, which is 31st December, 2021 under sub-section (4)/sub-section (5) of section 139 of the Act, as extended to 31st January, 2022, vide Circular No.9/2021 dated 20.05.2021, is hereby further extended to 31st March, 2022;

It is also clarified that the extension of the dates as referred to in clauses (9), (12) and (13) of Circular No.9/2021 dated 20.05.2021 and in clauses (1), (4) and (5) above shall not apply to Explanation 1 to section 234A of the Act, in cases where the amount of tax on the total income as reduced by the amount as specified in clauses (i) to (vi) of sub-section (1) of that section exceeds rupees one lakh. Further, in case of an individual resident in India referred to in sub-section (2) of section 207 of the Act, the tax paid by him under section 140A of the Act within the due date (without extension under Circular No.9/2021 dated 20.05.2021 and as above) provided in that Act, shall be deemed to be the advance tax.

Synopsis of above is given below:

TDS (Tax Deduction at Source) TDS stands for Tax deduction at source. TDS was implemented to curb the evasion of tax by deducting tax at source only. Under this arrangement, the person who is paying money to someone will deduct some amount from amount payable, deposit it to government and the person of whom such sum was deducted shall claim it while filing Income Tax Return.

What is Brokerage or Commission?

Commission or Brokerage includes any payment received / receivable (directly or indirectly) by a person acting on behalf of another person for – Services rendered (except the professional services); or Any service in the course of buying / selling of goods; or In relation to any transaction to any asset, thing or valuable article (except securities).

Person required to deduct TDS u/s 194H Payer

Every person, except Individual and HUF whose gross receipt in the preceding year did not exceed Rs 1 crore in case of business or Rs 50 Lakhs in case of profession.

Payee

Any Resident Thus, section 194H is not applicable in case of payment of interest to a non-resident. If such payment is made to non-resident then tax will be deducted under section 195.

Which is the due time for deduction?

At the time of credit or payment, whichever is earlier.

Rate of TDS

5 %. If the payee doesn’t furnish his PAN, then TDS is to be deducted at the rate of 20% No surcharge, education cess or SHEC shall be added to the basic rates

Threshold Limit

No TDS where amount does not exceed Rs 15,000 in a financial year.

Note: If the aggregate amount of brokerage or exceed Rs 15,000 in a financial year then TDS will be deducted on the entire amount paid during the financial year.

No TDS under following situations

• Any payment of insurance commission referred to in section 194D.
• When a person make an application to the assessing officer under section 197 for deduction of tax at NIL rate or at a lower rate.
• Any commission or brokerage payable by BSNL or MTNL to their public call office franchisees.
• Payment of commission to employees and employee directors. It shall form part of salary income and is liable to TDS u/s 192, not u/s 194H.

Frequently Asked Questions

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TDS stands for Tax deduction at source. TDS was implemented to curb the evasion of tax by deducting tax at source only. Under this arrangement, the person who is paying money to someone will deduct some amount from amount payable, deposit it to government and the person of whom such sum was deducted shall claim it while filing Income Tax Return.

Section 194J – TDS on Professional Services, Technical Services, Royalty, Director Fees and Non-compete fees

Provisions of section 194J requires every person to deduct TDS on the following payment made to a resident person –

• Fees for professional services;
• Fees for technical services;
• Royalty;
• Remuneration / fees / commission paid to director of the company (excluding salary);
• Fees paid for not carrying out any activity in relation to any business or profession;
• Fees paid for not sharing any technical know-how, copyright, trade mark, patent or any other business or commercial rights of alike nature.

Note: Remuneration paid to director shall be liable to TDS u/s 192 i.e. TDS on salary. Only amount paid as fees to director shall be liable to TDS u/s 194J.

Professional services meaning

As per 194J Professional Services means services rendered by a person in the course of carrying on profession of

• Medical
• Legal
• Engineering
• Architectural
• Accountancy
• Technical consultancy,
• Interior decoration,
• Advertising,
• Company Secretary,
• Film artist or
• Authorised Representative
• Following professional Services related to sports activities have been notified by CBDT for Section 194J
  • Sports Persons, Sports Columnists, Trainers and Coaches, Team Physicians., Anchors, Commentators, Event Managers, Physiotherapists, Referees and Umpires.

Persons required to deduct TDS u/s 194J

Payer: Every person, except Individual and HUF whose gross receipt in the preceding year did not exceed Rs 1 crore in case of business or Rs 50 Lakhs in case of profession.

Note: No TDS to be deducted by Individual or HUF for professional fees paid for personal purpose, even if his turnover exceeds the above mentioned limits.

Payee: Any Resident

Thus, section 194J is not applicable in case of payment of interest to a non-resident. If such payment is made to non-resident then tax will be deducted under section 195.

Which is the due time for deduction?

At the time of credit or payment, whichever is earlier.

Rate of TDS

• Payment made by Person engaged only in business of operation of Call center: 2 %. If the payee doesn’t furnish his PAN, then TDS is to be deducted at the rate of 20%
• Payment made by any other person: 10 %. If the payee doesn’t furnish his PAN, then TDS is to be deducted at the rate of 20%
• No surcharge, education cess or SHEC shall be added to the basic rates

Threshold Limit

No TDS where amount does not exceed Rs 30,000 in a financial year. The limit of Rs 30,000 is for each type of payment. However, this threshold is not applicable for payment made for director’s fees.

Note: If the aggregate amount of brokerage or exceed Rs 30,000 in a financial year then TDS will be deducted on the entire amount paid during the financial year.

Frequently Asked Questions

Q. Is TDS applicable on legal services like services of Chartered Accountant, Advocate etc?

A. Yes, TDS is applicable on legal services if the aggregate amount exceeds INR 30,000 during the financial year.

Q. Should a person deduct TDS if the consultancy services of a professional are availed for the personal use?

A. No, the taxpayer is not required to deduct TDS for the services availed for personal use.

Q- Whether TDS needs to be deducted on amount inclusive of GST?

A- No, TDS needs to be deducted only on basic value i.e. Value excluding GST.

Written by : Viral Jain

PAN stands for Permanent Account Number. It is a ten-digit alphanumeric number, issued in the form of a laminated tamper proof card, by the Income Tax Department of India.
PAN is unique to an individual or entity and it is valid across India. PAN Card has details like your PAN, name, date of birth and photograph. PAN once allotted to an individual or entity is valid for lifetime.

Decoding PAN

A typical Permanent Account Number would look like CFZPP7167R.The logic behind the array of numbers and alphabets is as follows:
First three characters i.e. “CFZ” in the above PAN are alphabetic series running from AAA to ZZZ. Fourth character i.e. “P” in the above PAN represents the status of the PAN holder. Each holder type is uniquely defined by a letter from the list below:

• “P” stands for Individual.
• “F” stands for Firm.
• “C” stands for Company.
• “G” stands for Government.
• “H” stands for HUF.
• “L” stands for Local Authority.
• “J” stands for Artificial juridical person.
• “A” stands for AOP.
• “B” stands for Body of individuals(BOI)
• “E” stands for LLP
• “T” stands for TRUST etc.

Fifth character i.e. “P” in the above PAN represents first character of the PAN holder’s last name/surname.
Next four characters i.e. “7167” in the above PAN are sequential number running from 0001 to 9999.
Last character i.e. “R” in the above PAN is an alphabetic check digit.

When it is mandatory to obtain a PAN?

1. Any person whose total income exceeds the maximum amount not chargeable to tax.
2. Individuals carrying on any business or profession whose total sales, turnover, or gross receipts are or is likely to exceed Rs 5,00,000 in any financial year.
3. For obtaining Import Export code by Importer/Exporter.
4. For obtaining Import Export code by Importer/Exporter.
5. Individuals who are entitled to receive any sum or income after deduction of tax at source.
6. Individuals who intend to do specified financial transactions where PAN is compulsorily required.

This rule do not apply to Central Government, State Governments and the Consular Offices.

Penalty in case of having multiple PANs

As per Section 139A of Income Tax Act, 1961 a person can hold only one PAN. Fine of Rs 10,000 can be imposed for holding more than one PAN.

• HUF is not defined under income tax act but it is same as defined in Hindu law. As the name suggest, this is for Hindu families only, however buddhist, jain, sikh are counted as hindu only for the purpose of formation of HUF.
• It consists of all persons lineally descended from a common ancestor (i.e. Wife, children and children’s spouse if living together). The head of the family (i.e. father/any elected person in case of death of father) is called karta which operates the business of the HUF. Father, sons and daughters are the coparceners of HUF and have a right to demand partition. Since Wife is not a coparcener of HUF and cannot demand partition, but wife is the member of HUF. However married female continues to have the coparcenary interest in her father’s property.
• HUF usually has assets which come from gift, a will, or ancestral property, or property acquired from the sale of joint family property or property contributed to the common pool by members of HUF.
• Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2(31) of the Income-tax Act, 1961. That implies that it is a separate entity in the eyes of law. Separate Income Tax Return has to be filed for HUF also.

How HUF is formed?

HUF does not arise from contract, but it is a creation of Law. After marriage as soon as a child is Born, HUF comes into existence.

What documents are required for HUF formation?

• PAN application form duly filled in and signed by the karta
• An affidavit by the karta of the HUF stating the name, father name’s and address of all the coparceners.
• Copy of documents like proof of identity, address and date of birth in respect of all individual and karta of HUF.

Tax Benefits on formation of HUF

As HUF has a separate legal identity, there are various tax benefits available to HUF also.

• HUF has its own PAN card, therefore you can files separate income tax return other than individual account and split your family income.
• HUF is entitles to open saving accounts same as individual saving accounts.
• Deductions and exemptions can be claimed under the income tax act as it is taxed separately.
• HUF can take an insurance policy on the life of its members.
• HUF is taxed at same individual rates.
• Investments can be made from HUF income, any returns earned or received from these investments are taxable in the hands of HUF.
• Salaries paid to HUF member for contribution in functioning can be claimed as expense.
• Capital gains is not attracted in case of asset distribution on partition.
• No clubbing of income u/s 64.
• No tax liability on gift.
• Can Transfer individual property to family.
• Members of HUF can get loans from HUF

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• Tax Deducted at Source commonly known as TDS, is a system of deduction of tax at the point of generation of income. E-Commerce is a huge platform which is growing at an unprecedented rate all over the world. Thus, to widen the Tax base, In the Union Budget 2020, Section 194-O was introduced
• According to Section 194-O, an E-Commerce operator is required to deduct TDS for facilitating any sale of goods or providing services through an e-Commerce participant.
• It’s applicable from 1st October 2020.
• Now to get a better clarity, let’s go deeper to understand what E-commerce operator and participants are and what will the impact from the introduction be.

Who are e-commerce operator and participants?

• E-Commerce Operator: An E-Commerce operator is a person who owns, operates, or manages a digital/electronic facility for the sale of goods and services. He is responsible for making payments to the e- Commerce participant on such sales. For example, Amazon, Flipkart, Snapdeal, Swiggy, Zomato, Uber etc.
• E-Commerce Participant: An E-Commerce participant means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce. 

What does the Section 194-O say?

Where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform,

• E-Commerce operators should deduct TDS @1% 
• at the time of credit of the amount of sale of goods, services, or both to the account of an e-commerce participant or 
• at the time of making payment to an e-Commerce participant, by any other mode, 

whichever is earlier

If the E-Commerce participant does not furnish PAN, TDS must be deducted at the rate of 5%, as per provisions of Section 206AA.

Exceptions

E-commerce operator is not required to deduct TDS if, the gross amount of sale of goods, services, or both during the previous year of the E-commerce participant being a resident individual or HUF does not exceed Rs 5 lakh and if the participant has furnished his PAN or Aadhaar.
No TDS will be deducted if the participant is a non-resident.
Impact:

Example

Pre TDS scenario

If Mr. A bought gadget from M/s E-retail through an e-commerce operator for ₹10,000, M/s/ E-retail received ₹9,000 for such sale (after deduction of commission, service fee etc.) from the e-commerce operator.

Post TDS scenario

Under the provisions of section 194-O, the e-commerce operator will now deduct tax at source at 1% before remitting the payment to M/s. E-retail i.e.

Amount paid by customer  10,000

Less: Commission/ service fee 1,000

Less: TDS @1% of 10,000=  100

Amount credited or paid to M/s E-retail’s account = 8,900

When TDS is to be deducted?

For example, M/s. E-retail is selling its products through Flipkart. Mr. A buys this product online from M/s E-retail for  49,500 on 10th October 2020.

Flipkart credits the account of M/s E-retail on 10th October 2020, but Mr. A makes the payment directly to M/s E-retail on 25th October 2020.

Here, Flipkart is required to deduct TDS at the time of credit to the party or making payment, whichever is earlier.

In this case, TDS should be deducted on 10th October 2020.

Thus, the income tax department plans to bring the unorganized sector into the tax net and widen the overall tax base. The move to tax e-commerce transactions at source was one way to reduce litigation.

Budget 2020 had amended the scope of section 194-N of the Income-tax Act, 1961. The new law on TDS on cash withdrawal has come into effect from July 1, 2020. The scope of Section 194N has been substantially enhanced by the Finance Act, 2020. Earlier only single TDS rate and single threshold limit was prescribed for deducting tax on cash withdrawal. Now, a banking co., or a co-op. bank or a post office is required to deduct tax at two different rates considering two different threshold limits.

Rate of TDS

Important Points related to Cash withdrawal from Bank 

• This limit is applicable to individual Bank (Private and Public Both), Co-op Bank and Post office. Ex: If you have account in two banks say PNB and SBI, then you can withdraw 20 Lakhs/ 1 Crores from each Bank. The limit presecribed in section is for each individual Bank, Co-op Bank and Post office.
• This section is applicable to all type of accounts including Saving / Current / Cash Credit / Overdraft.
• TDS shall be deducted on amount exceeding Rs 20 lakhs / 1 Crore only. Ex: If you have withdrawn 25 Lakhs, then TDS shall be deducted on Rs 5 Lakhs only, not on total 25 Lakhs. Similary, if a person has withdrawn more than 1 Crore, then TDS shall be deducted only on amount in excess of Rs 1 Crore.
• The amount deducted as TDS shall be refunded or used against your tax liability at the time of filing of Income Tax Return. Due to this, funds of taxpayers remain blocked for the entire year.
• The condition of filing ITR is for all last 3 years. If you have filed ITR for only 1 or 2 years, then rate of TDS shall be 2% up to 1 Crore and 5% for amount exceeding 1 crore respectively.

Let’s understand this in detail. There are two types of cost incurred in any business namely Variable cost and Fixed Cost.

Variable Cost

Variable cost means cost which varies directly with levels of output. These are direct costs that mean costs that change as per the level of production. Examples of variable costs are material cost, wages, packing expense, transportation cost, etc. If you will produce 1 unit, then raw material for only 1 unit shall be consumed but if you produce 1000 units then raw material of 1000 units shall be consumed. In simple terms, no output no variable cost.

Fixed cost

Fixed cost which is fixed in nature which means they are going to be incurred irrespective of the level of output. These costs do not change with the level of output. For example, rent expense of factory. The rent expense is going to be incurred whether you produce 1 unit of output or you produce 1000 units of output. Other examples of fixed costs are watchman salary, depreciation, interest on the loan, property taxes, etc.

Every business needs to recover both of these costs since both costs are expenses of a business. Whether it is the variable cost or fixed cost, it is the expense of the company and it reduces profit. Now one point is understood that variable costs are incurred only when output is produced but fixed costs are permanent in nature. So, if a product is sold, its variable cost shall be recovered. But what is the level where fixed costs are recovered since they are not directly linked to output? Here the concept of “Break-even point” comes into the picture. The Break-even point is the level where your fixed costs are recovered. Here is the calculation of How the break-even point is calculated.

Break even point = Fixed Cost / Contribution per Unit

Now, what is the contribution per unit? Contribution means Sales price per unit less Variable cost per unit. Contribution in simple meaning denotes margin per unit. The word contribution implies here the participation by each unit in recovering fixed costs of business. Suppose a product is sold for Rs 10 per unit and its variable cost (raw material, wages, etc) amounts to Rs 7 per unit. Here the contribution margin is 10-7=3 Rs per unit which means every unit sold will contribute Rs 3 towards recovering the fixed cost of business. Now let’s suppose the sum total of rent, depreciation, interest expenses come to Rs 15,000 per month. So, the fixed cost of the company is Rs 15,000 per month. What is the break-even point of this company per month?

Break even point = Fixed Cost / Contribution per unit

So, it will be 15,000 / 3 = 5,000 Units per month. This figure shows that 5,000 units need to be sold at a minimum to recover all costs of business. If less than 5,000 units are sold, the business will make a loss. If more than 5,000 units are sold, the business will make a profit. The concept of the Break-even point plays a very crucial role in taking decision-related to expenses, sales level, production level, and other financial matters.

# Total contribution varies with no of units.

There are lots of complexities involved in the calculation of Break-even point like Semi-variable costs, changing contribution margin at different levels of sales, non-availability of Information, changing sales prices, product mix which means some products are sold in a bundle, the different contributions of different products, calculation of depreciation, calculation of interest, apportionment of fixed overheads, apportionment of common costs like rent of head office, account department salary, etc. We at Finance help you in taking the right decision for your business by making accurate calculations, compiling data, performing data analysis, giving growth navigation solutions, shaping new strategies, and resolving problems.

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Type of Entity

For starting a business, first of all you need to choose “Type of Entity” for your business. There are various kinds of entities like Proprietorship Firm, Partnership Firm, Limited Liability Partnership, Private Limited Company, One Person Company, Public Limited Company, Trust and etc. Considering your business idea, type of industry, future plan and other things, you need to choose one from these forms. Every form of entity has own advantages and disadvantages.

Sources of Fund

Money is said to be lifeline of business. For running every business, you need funds. Basically, every business requires two type of funds namely fixed capital and working capital. Fixed capital is the amount which you require for purchasing assets, giving deposits and incorporation expenses. Working capital is the amount which is required for running day to day business activities of organization. There are various sources of funds like own fund, loan from kins and relatives, Bank Loan like CC / OD / Term Loan, Seed Funding, Angel Investment, Deposit from Public etc.

Registration required

India Stands at 63^rd Position in the world for Ease of doing business ranking. There are various Registrations and Licenses which you need to take before starting business. The different kind of registrations are GST Registration, Permanent Account number, Tax Deduction Account Number, Professional Tax Registration, Provident Fund Registration, Employee State Insurance Registration, Factories Act Registration, Food Safety License (in case of food industry), Shop and Establishment Act License, ISO Certification, Import Export Code, Trademark Registration, MSME License and many other licenses as applicable to particular industry.

Compliance

After getting registration, various laws are to be complied and different returns are to be filed with government. For example, GST Returns filing is to be done every month or Quarter, TDS return filing is to be filed every quarter, Income tax return is to be filed every year, Advance Income tax is to be paid within due date of payment, Provident Fund and Employee State Insurance returns are to be filed every month, various compliances are required to be done under Companies Act and Limited Liability Partnership Act etc. Furthermore, many of these licenses are to be renewed yearly or at regular interval of some definite time period.

Setting up Internal controls

Internal controls are the processes designed to provide assurance that operations are running smoothly without disruptions, financial statement give reliable report and all applicable laws are complied with. Examples of internal controls are defining Standard operating procedures, segregation of duties, setting up reporting channel and reviewing policies. Internal controls are implemented manually as well as with the help of technology.

Book Keeping and Accounting

Accounting is said to be backbone of every business. Accounting and Book Keeping service is the process of recording financial transactions, summarizing, analyzing, and reporting these transactions to business owners. The various reports prepared are Trading and Profit & loss Statement, Balance Sheet, Cash flow statement, Age-wise debtors’ analysis, Cost report, Break even point sales report, Ratio analysis, Segment reports etc. These reports give insights of financial position of Business.

Internal Audit

Internal audit is an independent, objective assurance and consulting activity to evaluate and improve the effectiveness of risk management, control, and governance processes. Internal audit covers checking of effectiveness of internal controls, checking accounting process of organization, checking all legal compliances, performing physical verification, checking inventory management and reviewing transaction pocessing system.

Investment Decision

Everyone knows that the best way to make money is to let your money work for you. A business man needs to pay great attention to whether to re-invest profit in business or to invest in some other things. The other investment options are Fixed Deposits, Shares and Securities, Mutual Funds, Properties, Liquid Funds etc. One need to select balanced portfolio for investment.

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Demat Account is an account that is utilized to buy, sell and hold shares and securities in electronic format. The full name of Demat account is a dematerialized account. In India, NSDL and CDSL are depositories which provide free Demat Account services. Demat Account is the first and foremost requirement for trading in shares, Investment in IPO etc.

Can a demat account be opened for a minor?

Yes. Demat account can be opened in the name of a minor. The account will be operated by a guardian till the minor becomes major. Guardian has to be the father or in his absence mother. In absence of both, father or mother, the guardian can be appointed by court.

Can a trading account be opened in the name of a minor?

Trading account can be opened in the name of the minor only for the sole purpose of sale of securities which minor has possessed by way of investment in IPO (Initial Public Offer), inheritance, corporate action, off market transfers under the following reason like Gift, Donation, Transfer between family members etc.

That means Trading in open market is not allowed in Minor’s account but applying IPO is allowed in Minor’s Demat Account.

However, such an account will be operated by the natural guardian till the minor becomes a major.

Does minor need a bank account before opening a demat or trading account?

No, a separate bank account on minor’s name is not required. Simply add minor to any of your (Guardian) bank account. This is sufficient to open demat / trading account.

Anyway, for tax purpose, minor income is added to the parent’s income, it doesn’t make sense to have a separate bank account

How to apply for IPO in Minor’s Demat Account?

Most of the intermediaries do not allow applying for IPO directly through their application. However, a minor can use net banking ASBA with their demat account details to apply.

What are the income tax implications in the case of Minor?

The minor’s income is added in father or mother whose income is more. The provision of Income tax says: “Any income that accrues or is paid to a minor, other than income earned by minor by his talent or skills, is added to the parent’s income under section 64(1A) and the parent will be taxed just like if it were their own income.”

Whether the natural guardian and the minor are required to comply with know your client (KYC) norms at the time of opening demat/ trading account for the minor?

Yes. The guardian and the minor have to strictly comply with the applicable KYC norms.

Can a minor’s demat/ trading account be continued when he/she becomes major?

Yes. A minor’s demat/ trading account can be continued when the minor becomes major. However, on attaining majority, the erstwhile minor should confirm the balance in his/her account and he/she has to complete formalities as are required for opening a demat/ trading account to continue in the same account/s.

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