Income Tax Department Notices: Proprietary trading brokers are brokers of stocks, bonds or other securities who trade for themselves. This means that they do not trade for clients. They trade stocks or any other security with their own money for their own profit.
The Income Tax Department has sent notices to several proprietary trading brokers. They are accused of misusing their trading terminals. They are also accused of showing third party trades as loan entries. This information has been given by people directly associated with the case. Most of these notices have been sent between February and March this year. The notices have asked about a large number of unsecured loan entries. In some cases, these entries are worth crores of rupees.
Meaning of Proprietary Trading Broker
Proprietary Trading Broker refers to a broker of stocks, bonds or other securities who trades for himself. This means that they do not trade for clients. They trade stocks or any other security with their own money for their own profit. Income tax officials suspect that these entries have been made to hide income from commission. It is possible that proprietary trading brokers may have allowed unauthorized traders to use their proprietary accounts, in return for which they may have received commission.
Questions have been asked under section 68
A person associated with the matter said, “IT notices were sent to many brokers in March. Some were sent notices in mid-February.” A tax expert aware of the matter said, “In the notice, brokers have been asked to explain the amount credited to their accounts under section 68 of the Income Tax Act.” He said that the basis of the Income Tax Department’s suspicion is that the people who have been given unsecured loans of crores of rupees have not even filed income tax returns. They have also not been able to tell about the source of their income and their financial status.
IT department can impose penalty
Most of these cases are of assessment year 2022-23 and 2023-24. Notices have been sent only to those brokers who have not been able to give satisfactory answers to the questions of the Income Tax Department. If they do not give complete information about the loan entries, then the Income Tax Department can consider it as unaccounted income and can impose penalty and interest on it. Moneycontrol first reported the misuse of proprietary trading accounts in December 2022. After this, Moneycontrol had discovered many facts in its investigation in 2023.
SEBI is also concerned about the misuse of proprietary trading accounts
SEBI has also expressed concern over the misuse of proprietary trading accounts. To prevent this, the market regulator is planning to use new monitoring tools. Industry sources say that after SEBI tightened the margin rules, some brokers found another way. They allowed professional traders to trade through proprietary accounts. Such professional traders are called jobbers.
