Accounting treatment of Profit In arbitrage business

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HEMAL M JHAVERI (Querist)

13 November 2009 Dear All

I want to know what is the accouting treatment of profit sharing in arbitrage business for dealers for Stock broker & for investors.I also want guidenance on what basis we can share the profit generated by this business and TDS applicable or not.

Lalit

Lalit (Expert)

17 December 2009 There could be three accounting treatment,

1. you can pay arbitrage commission. For that you have to make agreement with dealer to pay commission of sharing basis and TDS provisions for commission would be applicable.

2. You can employ dealers and can pay salary to them. If you opt this treatment then you have to pay them a fix basic salary and variable performance incentive to them. In this case, TDS provisions for salary would be applicable.

3. If you are a main broker, you can share your profits. For that, you have to make agreement for sharing of profits with dealers. In the agreement, you should made provisions such as margin would be payable upfront by the dealer and if he fails to do so, you would charge interest on your funding and you and dealer would share profit with a fix ratio, etc. In this case, you are not required to deduct TDS.

Lalit

Lalit (Expert)

17 December 2009 If you opt for third option, you have to check exchange regulations whether the allow this arrangement.

HEMAL M JHAVERI

HEMAL M JHAVERI (Querist)

19 December 2009 Thank you very much for solving my quary,Can you provide me a soft copy of format of such kind of agreement for point no.1 & 3 If Possible.

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