rather than lookig at it as starting a business to make loss so that you dont have to pay tax on trading income. think of it as using trading income to boost profits on a manufacturing business, where profit margins are paper thin.
also know that the machines were not bought with cash, so there is no question of opportunity cost. the machines were bought by pledging land.
so heres how the game is played:
you got land? pledge it for something capital intensive (doesnt mean you go buy a bentley) but generates cash flow… something in the maufacturing sector preferably… CNC machine, laser cutting machine, water jet cutting machine, plastic injection moulding machine, aluminium pressure die casting machine via a loan. look out for subsidies/PLI schemes (the one i went for was Tamil Nadu government’s NEEDS scheem for 1st gen entrepreneurs = 25% subsidy… i.e you can buy machines for 1Cr, but loan principle is only 75L). one more is the CGTMSE scheme where MSME’s can borrow upto 5Cr, collateral free!!!
now it’ll take 2 years to get the business to stand on its own 2 feet, in my case I had to support the business with 30L in the first 2 years, i.e. promoter’s capital…
manufacturing business are not known for the profits they generate, but are known for the tremendrous cash flows. in my case i was rotating 10-12 L every month + had access to around 30L (20% of turnover) as overdraft facility. i use my overdraft facility only on wednesday, thursday and friday (i trade ONLY NIFTY)… so every thursday i have the ability to deploy 30L not my cash (it is dangerous I know, but my loss will not be the burden of my lenders/creditors, if a take a big hit, i can still pay off people, thus my increased risk appetite)
yes you cant be doing it if it is a pvt ltd company. but mine is a sole proprietorship. also you are right there are clauses in the T&C of some loans that you cant be using the loan for speculative stuff. but i saw no such thing in cash credit facility or over draft facility with baja finance flexi hybrid loan and ICICI overdraft account. so leagally i am in the clear.
you see the spikey spikey pattern in my account value curve? it is beacsue of what i explained earlier… i get money into my zerodha account on wednesday… i take positions (WITH UPSIDE RISK ONLY) i.e. CE options contracts trading at Rs. 1-2…without hedge (i never take overnight downside risk NO MATTER HOW BULLISH THINGS SEEM)
on thursday’s i go all-in with company funds+persona funds+overdraft funds for intra-day…(i do ONLY far far far OTM options, i dont aim for anything beyond 0.2-0.5% on capital deployed).
after i am done on thursday, i place a withdrawal request and receive back the funds on friday and refill my overdraft account… so i pay interest ONLY for those 3 days.
overdraft interst @ 18% (plus the 1% annual maintenace cahrge) comes out to approx Rs. 55 per lakh rupees per day… so for any given expiry (include Rs. 9 + GST transaction charges on zerodha)…for 3 days i spend around Rs. 200 per lakh…
so assume 30 lakh on any given expiry… 10L my funds + 10L company running capital (both interest free) + 10L overdraft funds (Rs. 2000 cost of capital)…