NEW DELHI: People earning more than Rs 10 lakh a year may save up to Rs 41,040 in income tax, if slabs proposed by the Direct Taxes Code (DTC) bill come into effect, experts said.
Similarly, tax burden would reduce by Rs 21,540 for those earning annual income between Rs 5 lakh and Rs 10 lakh, while those making Rs 2 lakh to 5 lakh could be richer by Rs 7,660, Deloitte Haskins & Sells Partner Neeru Ahuja said.
According to the bill presented in the Lok Sabha today, income from Rs 2-5 lakh is likely to attract tax rate of 10 per cent; 20 per cent in the Rs 5-10 lakh bracket and 30 per cent above Rs 10 lakh.
At present, income between Rs 1.60 lakh and Rs 5 lakh attracts 10 per cent tax, while the rate is 20 per cent for the Rs 5-8 lakh bracket and 30 per cent for above Rs 8 lakh.
The bill proposes to raise income tax exemption limit to Rs 2 lakh from the current Rs 1.60 lakh.
"For the individuals, DTC tax slabs are certainly beneficial. Their tax liabilities will go down," DSK Legal Partner Balbir Singh Mastan said.
For senior citizens, exemption limit is proposed to be raised to Rs 2.5 lakh from Rs 2.40 lakh.
Individuals over 65 years, or senior citizens, could see tax burden lessen by Rs 4,420, if they earn Rs 5 lakh a year, while those earning Rs 10 lakh will save Rs 18,300 tax.
Senior citizens earning Rs 15 lakh annually could save Rs 37,800 in case the bill is enacted.
Tuesday, August 31, 2010
Pension products likely to make tax exemption cut
NEW DELHI: Pension products offered by insurers and mutual funds could be included in the long-term savings schemes eligible for tax concession available to individual under the new Direct Taxes Code provided they meet the norms laid out by the government.
The DTC Bill tabled in Parliament does not mention these schemes, creating the impression that investment in them will not be eligible for tax benefits, which could have reduced their attractiveness to individuals.
“We will soon hold discussions with the department of financial services on the guidelines for pensions funds eligible for tax benefits,” a Central Board of Direct Taxes (CBDT) official told ET.
However, these pension products will have to follow the uniform framework prescribed by the department of financial services for retirement products to be eligible for concessions.
These guidelines will specify details such as how much money can be withdrawn one time and when to discourage premature withdrawal and will ensure that they encourage long-term retirement savings.
“The idea is to treat all pension products that follow an agreed framework and are in actual term a long-term savings on par,” the official added.
The new DTC proposes `1 lakh exemption for individual taxpayers for contributions to retirement savings including provident funds, gratuity funds, new pension scheme, superannuation funds. Investments in these schemes will not be taxed at any stage — contribution, accumulation or withdrawal — as these are being including under the EEE category or Exempt-Exempt-Exempt category.
However, confusion prevailed over the tax treatment of these products in the industry. “Pension funds run by mutual fund houses don’t get covered under the DTC. This would create disparity vis-a-vis other pension products,” UTI chairman and managing director UK Sinha said at an ADB conference in the capital.
Tax experts said the CBDT will have to separately notify such funds to make them eligible for tax benefits as the Bill as such does not provide for it.
The Bill lists out the schemes that will be eligible for incentives in the `1 lakh limit, but also gives the authorities the power to add more schemes.
“Clearly, if any other scheme or fund is to be covered for this deduction, then it needs to be specially notified by the government,” said Vikas Vasal, executive director, KPMG.
The DTC Bill tabled in Parliament does not mention these schemes, creating the impression that investment in them will not be eligible for tax benefits, which could have reduced their attractiveness to individuals.
“We will soon hold discussions with the department of financial services on the guidelines for pensions funds eligible for tax benefits,” a Central Board of Direct Taxes (CBDT) official told ET.
However, these pension products will have to follow the uniform framework prescribed by the department of financial services for retirement products to be eligible for concessions.
These guidelines will specify details such as how much money can be withdrawn one time and when to discourage premature withdrawal and will ensure that they encourage long-term retirement savings.
“The idea is to treat all pension products that follow an agreed framework and are in actual term a long-term savings on par,” the official added.
The new DTC proposes `1 lakh exemption for individual taxpayers for contributions to retirement savings including provident funds, gratuity funds, new pension scheme, superannuation funds. Investments in these schemes will not be taxed at any stage — contribution, accumulation or withdrawal — as these are being including under the EEE category or Exempt-Exempt-Exempt category.
However, confusion prevailed over the tax treatment of these products in the industry. “Pension funds run by mutual fund houses don’t get covered under the DTC. This would create disparity vis-a-vis other pension products,” UTI chairman and managing director UK Sinha said at an ADB conference in the capital.
Tax experts said the CBDT will have to separately notify such funds to make them eligible for tax benefits as the Bill as such does not provide for it.
The Bill lists out the schemes that will be eligible for incentives in the `1 lakh limit, but also gives the authorities the power to add more schemes.
“Clearly, if any other scheme or fund is to be covered for this deduction, then it needs to be specially notified by the government,” said Vikas Vasal, executive director, KPMG.
Monday, August 30, 2010
DIRECT TAX CODE 2011-12 put as a BILL
DTC Bill, first returns should be filed after 31 March, 2013 reports CNBC-TV18. It will be effective from April 1, 2012.
It is learnt that short-term capital gains will be taxed at income tax rates while short-term capital gains for companies is flat at 30%. Besides, the new DTC Bill will have dividend distribution tax of 5% for both equity mutual funds (MFs) and unit linked insurance policies (ULIPs).
According to it, minimum alternate tax (MAT) on book profit will be at 20% while Dividend Distribution Tax (DDT) will be levied at 15%. Also, income distributed by mutual funds to unit holders will be at 5%. Tax on branch profits is at 15%, on net wealth above Rs 1 crore is 1% while exemption limit hiked to Rs 2 Lakh.
The special economic zone (SEZs) will be allowed profit linked tax deduction under DTC. Also SEZs notified as on March 31,2012 will get tax break and that started by March 2014 will get also get tax subsidy.
It is learnt that short-term capital gains will be taxed at income tax rates while short-term capital gains for companies is flat at 30%. Besides, the new DTC Bill will have dividend distribution tax of 5% for both equity mutual funds (MFs) and unit linked insurance policies (ULIPs).
According to it, minimum alternate tax (MAT) on book profit will be at 20% while Dividend Distribution Tax (DDT) will be levied at 15%. Also, income distributed by mutual funds to unit holders will be at 5%. Tax on branch profits is at 15%, on net wealth above Rs 1 crore is 1% while exemption limit hiked to Rs 2 Lakh.
The special economic zone (SEZs) will be allowed profit linked tax deduction under DTC. Also SEZs notified as on March 31,2012 will get tax break and that started by March 2014 will get also get tax subsidy.
Friday, August 27, 2010
WARREN BUFFET'S INVESTMENT ADVICE FOR 2010
It happened during the dot-com bubble, when Buffett was mocked for refusing to join the party. And it happened again last year. As the Dow Jones Industrial Average ($INDU) tumbled below 7,000, Buffett came under fire for having jumped into the crisis too early and too boldly, making big bets on Goldman Sachs (GS, news, msgs) and General Electric (GE, news, msgs) during the fall of 2008, and urging the public to plunge into shares.
Now it's time for those critics to sit down for their traditional three-course meal: humble pie, their own words and crow.
On Saturday, Buffett's Berkshire Hathaway (BRK.A, news, msgs) reported that net earnings rocketed 61% last year to $5,193 per share, while book value jumped 20% to a record high. Berkshire's Class A shares, which slumped to nearly $70,000 last year, have rebounded to $120,000.
Those bets on GE and Goldman? They've made billions so far. And anyone who took Buffett's advice and invested in the stock market in October 2008, even through a simple index fund, is up about 25%.
This is nothing new, of course. Anyone who held a $10,000 stake in Berkshire Hathaway at the start of 1965 has about $80 million today.
How does he do it? Buffett explained his beliefs to new investors in his letter to stockholders Saturday:
Stay liquid. "We will never become dependent on the kindness of strangers," he wrote. "We will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses."
Buy when everyone else is selling. "We've put a lot of money to work during the chaos of the last two years. It's been an ideal period for investors: A climate of fear is their best friend. . . . Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble."
Don't buy when everyone else is buying. "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance," Buffett wrote. The obvious corollary is to be patient. You can only buy when everyone else is selling if you have held your fire when everyone was buying.
Value, value, value. "In the end, what counts in investing is what you pay for a business -- through the purchase of a small piece of it in the stock market -- and what that business earns in the succeeding decade or two."
Don't get suckered by big growth stories. Buffett reminded investors that he and Berkshire Vice Chairman Charlie Munger "avoid businesses whose futures we can't evaluate, no matter how exciting their products may be."
Diversify your portfolio
Most investors who bet on the auto industry in 1910, planes in 1930 or TV makers in 1950 ended up losing their shirts, even though the products really did change the world. "Dramatic growth" doesn't always lead to high profit margins and returns on capital. China, anyone?
Understand what you own. "Investors who buy and sell based upon media or analyst commentary are not for us," Buffett wrote.
"We want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it's one that follows policies with which they concur."
Defense beats offense. "Though we have lagged the S&P in some years that were positive for the market, we have consistently done better than the S&P in the 11 years during which it delivered negative results. In other words, our defense has been better than our offense, and that's likely to continue."
Timely advice from Buffett for turbulent times.
This article was reported by Brett Arends for The Wall Street Journal.
Now it's time for those critics to sit down for their traditional three-course meal: humble pie, their own words and crow.
On Saturday, Buffett's Berkshire Hathaway (BRK.A, news, msgs) reported that net earnings rocketed 61% last year to $5,193 per share, while book value jumped 20% to a record high. Berkshire's Class A shares, which slumped to nearly $70,000 last year, have rebounded to $120,000.
Those bets on GE and Goldman? They've made billions so far. And anyone who took Buffett's advice and invested in the stock market in October 2008, even through a simple index fund, is up about 25%.
This is nothing new, of course. Anyone who held a $10,000 stake in Berkshire Hathaway at the start of 1965 has about $80 million today.
How does he do it? Buffett explained his beliefs to new investors in his letter to stockholders Saturday:
Stay liquid. "We will never become dependent on the kindness of strangers," he wrote. "We will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses."
Buy when everyone else is selling. "We've put a lot of money to work during the chaos of the last two years. It's been an ideal period for investors: A climate of fear is their best friend. . . . Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble."
Don't buy when everyone else is buying. "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance," Buffett wrote. The obvious corollary is to be patient. You can only buy when everyone else is selling if you have held your fire when everyone was buying.
Value, value, value. "In the end, what counts in investing is what you pay for a business -- through the purchase of a small piece of it in the stock market -- and what that business earns in the succeeding decade or two."
Don't get suckered by big growth stories. Buffett reminded investors that he and Berkshire Vice Chairman Charlie Munger "avoid businesses whose futures we can't evaluate, no matter how exciting their products may be."
Diversify your portfolio
Most investors who bet on the auto industry in 1910, planes in 1930 or TV makers in 1950 ended up losing their shirts, even though the products really did change the world. "Dramatic growth" doesn't always lead to high profit margins and returns on capital. China, anyone?
Understand what you own. "Investors who buy and sell based upon media or analyst commentary are not for us," Buffett wrote.
"We want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it's one that follows policies with which they concur."
Defense beats offense. "Though we have lagged the S&P in some years that were positive for the market, we have consistently done better than the S&P in the 11 years during which it delivered negative results. In other words, our defense has been better than our offense, and that's likely to continue."
Timely advice from Buffett for turbulent times.
This article was reported by Brett Arends for The Wall Street Journal.
Thursday, August 26, 2010
CELEB FINANCIAL PLANNERS Global explains CAPITAL GAINS TAX
Capital Gains Tax
What Does Capital Gains Tax Mean?
A type of tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price.
Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor. An investor can own shares that appreciate every year, but the investor does not incur a capital gains tax on the shares until they are sold.
CELEB FINANCIAL PLANNERS Global explains Capital Gains Tax
Most countries' tax laws provide for some form of capital gains taxes on investors' capital gains, although capital gains tax laws vary from country to country. In the U.S., individuals and corporations are subject to capital gains taxes on their annual net capital gains.
It is important to note that it is net capital gains that are subject to tax because if an investor sells two stocks during the year, one for a profit and an equal one for a loss, the amount of the capital loss incurred on the losing investment will counteract the capital gains from the winning investment.
Dividends that are distributed attract a tax of 15 per cent. Short term capital gains attract a tax of 10 per cent under Section 111A. There is merit in equating the rates and hence increased the rate of tax on short term capital gains under Section 111A and Section 115AD to 15 per cent. This encourages investors to stay invested for a longer term.
STT paid will be treated like any other deductible expenditure against business income. Further, the levy of STT, in the case of options, is to be only on the option premium where the option is not exercised, and the liability to be on the seller. In a case where the option is exercised, the levy is to be on the settlement price and the liability will be on the buyer. There will be no change in the present rates.
Commodities Transaction Tax (CTT) introduced on the same lines as STT on options and futures.
The undermentioned assets is brought under the scope of capital assets and has been excluded from the scope of personal effects:
Archeological collections
Paintings
Drawings
Sculptures
Any work of art
Ceiling prescribed for investment in Long-Term Specified Bonds (LTSB) for claiming the exemption of long-term capital gains:
All the capital gains arising from transfer of any long-term capital assets is exempt if such gains are invested in Long-Term Specified Bonds. From April 1, 2007, ceiling of Rs 5 million has been stipulated for investments in such bonds made during any financial year.
Notifying of such bonds in Official Gazette is dispensed. Bond issued by NHAI or by REC on or after 01.04.07 & redeemable after three years will be LTSB. Bond issued between 01.04.06 & 31.03.07 will be deemed to be LTSB.
Short-term Capital gains tax Long-term capital gains tax
Sale transactions of securities which attracts STT:- 10% NIL
Sale transaction of securities not attracting STT:-
Individuals (resident and non-residents) Progressive slab rates 20% with indexation;
10% without indexation (for units/ zero coupon bonds)
Partnerships (resident and non-resident) 30%
Individuals (resident and non-residents) 30%
Overseas financial organisations specified in section 115AB 40% (corporate)
30% (non-corporate) 10%
FIIs 30% 10%
Other Foreign companies 40% 20% with indexation;
10% without indexation (for units/ zero coupon bonds)
Local authority 30%
Co-operative society Progressive slab rates
A capital gain is income derived from the sale of an investment. A capital investment can be a home, a farm, a ranch, a family business, or a work of art, for instance. In most years slightly less than half of taxable capital gains are realized on the sale of corporate stock. The capital gain is the difference between the money received from selling the asset and the price paid for it.
"Capital gains" tax is really a misnomer. It would be more appropriate to call it the "capital formation" tax. It is a tax penalty imposed on productivity, investment, and capital accumulation.
The capital gains tax is different from almost all other forms of taxation in that it is a voluntary tax. Since the tax is paid only when an asset is sold, taxpayers can legally avoid payment by holding on to their assets--a phenomenon known as the "lock-in effect."
There are many unfairnesses imbedded in the current tax treatment of capital gains. One is that capital gains are not indexed for inflation: the seller pays tax not only on the real gain in purchasing power but also on the illusory gain attributable to inflation. The inflation penalty is one reason that, historically, capital gains have been taxed at lower rates than ordinary income. In fact, "most capital gains were not gains of real purchasing power at all, but simply represented the maintenance of principal in an inflationary world."
Another unfairness of the tax is that individuals are permitted to deduct only a portion of the capital losses that they incur, whereas they must pay taxes on all of the gains. That introduces an unfriendly bias in the tax code against risk taking. When taxpayers undertake risky investments, the government taxes fully any gain that they realize if the investment has a positive return. But the government allows only partial tax deduction if the venture goes sour and results in a loss.
There is one other large inequity of the capital gains tax. It represents a form of double taxation on capital formation. This is how economists Victor Canto and Harvey Hirschorn explain the situation:
A government can choose to tax either the value of an asset or its yield, but it should not tax both. Capital gains are literally the appreciation in the value of an existing asset. Any appreciation reflects merely an increase in the after-tax rateof return on the asset. The taxes implicit in the asset's after-tax earnings are already fully reflected in the asset's price or change in price. Any additional tax is strictly double taxation.
Take, for example, the capital gains tax paid on a pharmaceutical stock. The value of that stock is based on the discounted present value of all of the future proceeds of the company. If the company is expected to earn Rs.100,000 a year for the next 20 years, the sales price of the stock will reflect those returns. The "gain" that the seller realizes from the sale of the stock will reflect those future returns and thus the seller will pay capital gains tax on the future stream of income. But the company's future Rs.100,000 annual returns will also be taxed when they are earned. So the Rs.100,000 in profits is taxed twice--when the owners sell their shares of stock and when the company actually earns the income. That is why many tax analysts argue that the most equitable rate of tax on capital gains is zero.
What Does Capital Gains Tax Mean?
A type of tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price.
Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor. An investor can own shares that appreciate every year, but the investor does not incur a capital gains tax on the shares until they are sold.
CELEB FINANCIAL PLANNERS Global explains Capital Gains Tax
Most countries' tax laws provide for some form of capital gains taxes on investors' capital gains, although capital gains tax laws vary from country to country. In the U.S., individuals and corporations are subject to capital gains taxes on their annual net capital gains.
It is important to note that it is net capital gains that are subject to tax because if an investor sells two stocks during the year, one for a profit and an equal one for a loss, the amount of the capital loss incurred on the losing investment will counteract the capital gains from the winning investment.
Dividends that are distributed attract a tax of 15 per cent. Short term capital gains attract a tax of 10 per cent under Section 111A. There is merit in equating the rates and hence increased the rate of tax on short term capital gains under Section 111A and Section 115AD to 15 per cent. This encourages investors to stay invested for a longer term.
STT paid will be treated like any other deductible expenditure against business income. Further, the levy of STT, in the case of options, is to be only on the option premium where the option is not exercised, and the liability to be on the seller. In a case where the option is exercised, the levy is to be on the settlement price and the liability will be on the buyer. There will be no change in the present rates.
Commodities Transaction Tax (CTT) introduced on the same lines as STT on options and futures.
The undermentioned assets is brought under the scope of capital assets and has been excluded from the scope of personal effects:
Archeological collections
Paintings
Drawings
Sculptures
Any work of art
Ceiling prescribed for investment in Long-Term Specified Bonds (LTSB) for claiming the exemption of long-term capital gains:
All the capital gains arising from transfer of any long-term capital assets is exempt if such gains are invested in Long-Term Specified Bonds. From April 1, 2007, ceiling of Rs 5 million has been stipulated for investments in such bonds made during any financial year.
Notifying of such bonds in Official Gazette is dispensed. Bond issued by NHAI or by REC on or after 01.04.07 & redeemable after three years will be LTSB. Bond issued between 01.04.06 & 31.03.07 will be deemed to be LTSB.
Short-term Capital gains tax Long-term capital gains tax
Sale transactions of securities which attracts STT:- 10% NIL
Sale transaction of securities not attracting STT:-
Individuals (resident and non-residents) Progressive slab rates 20% with indexation;
10% without indexation (for units/ zero coupon bonds)
Partnerships (resident and non-resident) 30%
Individuals (resident and non-residents) 30%
Overseas financial organisations specified in section 115AB 40% (corporate)
30% (non-corporate) 10%
FIIs 30% 10%
Other Foreign companies 40% 20% with indexation;
10% without indexation (for units/ zero coupon bonds)
Local authority 30%
Co-operative society Progressive slab rates
A capital gain is income derived from the sale of an investment. A capital investment can be a home, a farm, a ranch, a family business, or a work of art, for instance. In most years slightly less than half of taxable capital gains are realized on the sale of corporate stock. The capital gain is the difference between the money received from selling the asset and the price paid for it.
"Capital gains" tax is really a misnomer. It would be more appropriate to call it the "capital formation" tax. It is a tax penalty imposed on productivity, investment, and capital accumulation.
The capital gains tax is different from almost all other forms of taxation in that it is a voluntary tax. Since the tax is paid only when an asset is sold, taxpayers can legally avoid payment by holding on to their assets--a phenomenon known as the "lock-in effect."
There are many unfairnesses imbedded in the current tax treatment of capital gains. One is that capital gains are not indexed for inflation: the seller pays tax not only on the real gain in purchasing power but also on the illusory gain attributable to inflation. The inflation penalty is one reason that, historically, capital gains have been taxed at lower rates than ordinary income. In fact, "most capital gains were not gains of real purchasing power at all, but simply represented the maintenance of principal in an inflationary world."
Another unfairness of the tax is that individuals are permitted to deduct only a portion of the capital losses that they incur, whereas they must pay taxes on all of the gains. That introduces an unfriendly bias in the tax code against risk taking. When taxpayers undertake risky investments, the government taxes fully any gain that they realize if the investment has a positive return. But the government allows only partial tax deduction if the venture goes sour and results in a loss.
There is one other large inequity of the capital gains tax. It represents a form of double taxation on capital formation. This is how economists Victor Canto and Harvey Hirschorn explain the situation:
A government can choose to tax either the value of an asset or its yield, but it should not tax both. Capital gains are literally the appreciation in the value of an existing asset. Any appreciation reflects merely an increase in the after-tax rateof return on the asset. The taxes implicit in the asset's after-tax earnings are already fully reflected in the asset's price or change in price. Any additional tax is strictly double taxation.
Take, for example, the capital gains tax paid on a pharmaceutical stock. The value of that stock is based on the discounted present value of all of the future proceeds of the company. If the company is expected to earn Rs.100,000 a year for the next 20 years, the sales price of the stock will reflect those returns. The "gain" that the seller realizes from the sale of the stock will reflect those future returns and thus the seller will pay capital gains tax on the future stream of income. But the company's future Rs.100,000 annual returns will also be taxed when they are earned. So the Rs.100,000 in profits is taxed twice--when the owners sell their shares of stock and when the company actually earns the income. That is why many tax analysts argue that the most equitable rate of tax on capital gains is zero.
Wednesday, August 25, 2010
THE TYCOON WHO ALWAYS GETS HIS TIMING RIGHT
IF there is one similarity between wildlife photography and corporate
M&A, it is timing. A few seconds can make a world of difference between
deep frustration and sheer delight and nobody knows this better
than Ajay G Piramal, a committed wildlife photographer and ace
deal maker. Quite a few times in a business career spanning nearly
three decades, Mr Piramal has had to take decisions affecting thousands
of shareholders, employees and involving money worth hundreds
of crores in a matter of hours, if not seconds.
When French drug maker Roche was looking for a buyer following
a controversy and the sudden departure of its India head in the early
1990s, Mr Piramal was there, willing to iron out the wrinkles, pay the
money and take on the risks. When Boehringer Mannheim, the German
drug major, wished to exit after a controversy in the quality of
drugs, Mr Piramal was once again at hand, ready to do the deal.
So, it should have been no surprise to investors that when Abbott
Labs, the sleepy US giant, whose market cap in India is still less than
that of a Biocon despite being present in India for many more years,
wanted to expand through acquisition, Mr Piramal was the man they
sought. Only this time, he was on the other side as the seller.
At a net present value of $3.2 billion, Abbott’s purchase of Piramal
Healthcare’s branded generics unit is smaller than Daiichi Sankyo’s
purchase of Ranbaxy which was at over $4.6 billion. But in terms of
valuation, Abbott’s deal is far bigger and ambitious. It values Piramal’s
branded generics business at nine times its 2010 sales compared with
Ranbaxy’s four times. Based on 2010 earnings before interest, tax and
depreciation, (EBITDA), the price paid by Abbott is nearly 30 times.
Daiichi’s deal was done at about 22 times. The numbers are even
more impressive considering that Abbot bought just one unit while
Ranbaxy sold the entire company.
“It is a great deal. Piramal has bought cheap and sold for a fantastic
price,” said Jacob Mathew, managing director, MAPE Advisory
Group, a boutique investment banking firm.
Quite a lot of the credit for this should go to Mr Piramal alone.
Much before anybody else, he saw value in branded generics, building
a portfolio of brands that would compete strongly in the local market.
But unlike other Indian pharma industrialists such as Parvinder
Singh, Dr Anji Reddy, he never saw much value in generic exports,
taking on the multinationals on their home turf. He is known to tell
his close advisors that there was no money to be made there and he
didn’t want to take on multinationals at their own game.
His first opportunity though came at a time of deep crisis. The Datta
Samant-led strike had wrecked Mumbai’s textile industry and
Morarjee Gokuldas, Piramal’s textile firm, had suffered like others. He
was in his early 30s and had just taken over as the chairman of the
group following the death of his father and brother. The landscape
looked bleak. The prospect of spending decades running a textile
business did not appeal to him.
This was when he heard from a friend that Nicholas Laboratories, an
Australian MNC, was exiting India. Though many large suitors were in
the race, Piramal, then 33, convinced Mike Barker, the person in
charge of the sale, to sell to him. His next opportunity came with Roche
and then Boehringer Mannheim, two multinationals which were in
trouble and looking to sell. Piramal did the deals overnight.
“Immediately after the buyout in 1988, he made a presentation to
the board saying that he would make Nicholas Piramal among the top
three companies in India by 2000. Board members were sceptical at
that time, but he achieved his target,” says Mahesh Gupta, MD,
Ashok Piramal group who had helped Ajay Piramal clinch many early
deals as group CFO.
He never paid a lot of money for his purchases. A shrewd Mumbaiker,
he knew the value of real estate that many of his targets owned.
While his first priority was to build the pharma portfolio, he never lost
sight of the non-pharma opportunities that his deals can engender. One
of the biggest acquisitions was the Rs 157 crore that he paid Hoechst
when he bought Rhone Poulenc. He almost recovered the entire investment
by selling property belonging to Rhone in central Mumbai.
At the press conference in Mumbai on Friday, Mr Piramal almost became
emotional when he talked about the value created in the pharma
business. “When we entered the domestic pharma business 22 years
ago, people were exiting from it. We created a future in it and time has
come to look for newer opportunities.” Normally shy and reclusive, he
is not known to talk about his achievements. But considering what he
has done, it would be difficult to grudge him a bit of chest-thumping.
M Sabarinath
M&A, it is timing. A few seconds can make a world of difference between
deep frustration and sheer delight and nobody knows this better
than Ajay G Piramal, a committed wildlife photographer and ace
deal maker. Quite a few times in a business career spanning nearly
three decades, Mr Piramal has had to take decisions affecting thousands
of shareholders, employees and involving money worth hundreds
of crores in a matter of hours, if not seconds.
When French drug maker Roche was looking for a buyer following
a controversy and the sudden departure of its India head in the early
1990s, Mr Piramal was there, willing to iron out the wrinkles, pay the
money and take on the risks. When Boehringer Mannheim, the German
drug major, wished to exit after a controversy in the quality of
drugs, Mr Piramal was once again at hand, ready to do the deal.
So, it should have been no surprise to investors that when Abbott
Labs, the sleepy US giant, whose market cap in India is still less than
that of a Biocon despite being present in India for many more years,
wanted to expand through acquisition, Mr Piramal was the man they
sought. Only this time, he was on the other side as the seller.
At a net present value of $3.2 billion, Abbott’s purchase of Piramal
Healthcare’s branded generics unit is smaller than Daiichi Sankyo’s
purchase of Ranbaxy which was at over $4.6 billion. But in terms of
valuation, Abbott’s deal is far bigger and ambitious. It values Piramal’s
branded generics business at nine times its 2010 sales compared with
Ranbaxy’s four times. Based on 2010 earnings before interest, tax and
depreciation, (EBITDA), the price paid by Abbott is nearly 30 times.
Daiichi’s deal was done at about 22 times. The numbers are even
more impressive considering that Abbot bought just one unit while
Ranbaxy sold the entire company.
“It is a great deal. Piramal has bought cheap and sold for a fantastic
price,” said Jacob Mathew, managing director, MAPE Advisory
Group, a boutique investment banking firm.
Quite a lot of the credit for this should go to Mr Piramal alone.
Much before anybody else, he saw value in branded generics, building
a portfolio of brands that would compete strongly in the local market.
But unlike other Indian pharma industrialists such as Parvinder
Singh, Dr Anji Reddy, he never saw much value in generic exports,
taking on the multinationals on their home turf. He is known to tell
his close advisors that there was no money to be made there and he
didn’t want to take on multinationals at their own game.
His first opportunity though came at a time of deep crisis. The Datta
Samant-led strike had wrecked Mumbai’s textile industry and
Morarjee Gokuldas, Piramal’s textile firm, had suffered like others. He
was in his early 30s and had just taken over as the chairman of the
group following the death of his father and brother. The landscape
looked bleak. The prospect of spending decades running a textile
business did not appeal to him.
This was when he heard from a friend that Nicholas Laboratories, an
Australian MNC, was exiting India. Though many large suitors were in
the race, Piramal, then 33, convinced Mike Barker, the person in
charge of the sale, to sell to him. His next opportunity came with Roche
and then Boehringer Mannheim, two multinationals which were in
trouble and looking to sell. Piramal did the deals overnight.
“Immediately after the buyout in 1988, he made a presentation to
the board saying that he would make Nicholas Piramal among the top
three companies in India by 2000. Board members were sceptical at
that time, but he achieved his target,” says Mahesh Gupta, MD,
Ashok Piramal group who had helped Ajay Piramal clinch many early
deals as group CFO.
He never paid a lot of money for his purchases. A shrewd Mumbaiker,
he knew the value of real estate that many of his targets owned.
While his first priority was to build the pharma portfolio, he never lost
sight of the non-pharma opportunities that his deals can engender. One
of the biggest acquisitions was the Rs 157 crore that he paid Hoechst
when he bought Rhone Poulenc. He almost recovered the entire investment
by selling property belonging to Rhone in central Mumbai.
At the press conference in Mumbai on Friday, Mr Piramal almost became
emotional when he talked about the value created in the pharma
business. “When we entered the domestic pharma business 22 years
ago, people were exiting from it. We created a future in it and time has
come to look for newer opportunities.” Normally shy and reclusive, he
is not known to talk about his achievements. But considering what he
has done, it would be difficult to grudge him a bit of chest-thumping.
M Sabarinath
Tuesday, August 24, 2010
CELEBRATION OF 2 YEARS OF EXISTENCE AND CHANGE IN LEGAL STATUS OF THE COMPANY
CELEB FINANCIAL PLANNERS Global
CLIENTELE- CELEBRITIES- CINESTARS, TELEVISION STARS, CRICKETERS, BUSINESSMEN AND ENTREPRENEURS..
http://www.cfpglobal.com/- Visit my company’s website..as soon as you open this page..in one of the new tabs or new window..
We are Independent Financial planners, who are responsible for designing a financial plan that will take the client from where he is now to where he wants to be in the future, i.e. a plan that satisfies his needs and objectives.
we analyze his needs and objectives
Match these with appropriate products and services.
Work out a financial plan
Implement the plan
Provide ongoing review to ensure the chosen investment strategies continue to match his changing objectives
Modify the investment solutions as required.
As we have the required technical and an intuitive skill sets which is enforced because of the theory behind investing, economics and strategies we have, we can create a practical plan for you.
We will be implementers, a make-it- happen professionals. We give you recommendations and then educate and advise to take actions.
Every financial planning we do is supported by research and training
Charges: fee for service basis
1. We charge according to the plans to be made- the profile category.
2. We charge for work on hourly rate also.
3. We take one time service charge which is for the financial plan we make for the first time and then renewal fees every six month which will be a nominal percentage of the first time charge.
The financial planning will include the following in detailed analysis.
n Consumption and Savings Planning
n Debt Planning
n Insurance Planning
n Investment Planning
n Retirement Planning
n Estate Planning
n Income Tax Planning
The financial plan would broadly include the following in phases- PROCESS
ð First free consultation with individual fact sheet analysis.
ð The disclosure of financial services guide with all terms and conditions
ð Preliminary financial analysis and subsequent detailed input gathering from client.
ð Concerns – problem areas identification analysis.
ð Designing of the financial plan with recommendations
ð Implementation of the financial plan with projections for years ahead.
ð Review of the financial plan after regular periods.
“Our vision is to re-write the rule book by helping our clients navigate the most efficient way to tax free cash, savings, investments, relaxed retirement years and most importantly to make the clients achieve financial independence and security. We aim to achieve this goal by making the most of the generous tax breaks available and by helping clients make the best use of their wealth, whilst providing a confidential and safe home for all their financial needs. Put simply, our aim is to assist high net-worth individuals and bodies to grow and enjoy their wealth."
Becoming a client of Celeb Financial Planners Global is a simple but exciting process. We will conduct a completely free initial consultation to tailor our services ensuring we comfortably meet your expectations and provide you with the maximum benefits.
We will explain the importance of being fully independent, providing you with a full explanation of our costs and charges. We pride ourselves in ensuring all our clients are never rushed, nor feel pressurized into doing something they don’t want to or do not fully understand.
After all as a client, you are either going to be our best advert or our worst nightmare! Our aim is to ensure you are always happy, so we work very hard to ensure that your objectives are met.
The category profile we cater to is:
ð CRICKETERS with more than 100 lacs as net worth.
ð CINESTARS with more than 150 lacs as net worth.
ð BUSINESSMEN with more than 30 lacs as net income .
ð High Networth Individuals with more than 10 lacs as annual compensation.
Please feel free to contact me @
Ajit Panicker, Chief Financial planner; +919811536424; contact@cfpglobal.com;ajitkpanicker@cfpglobal.com, ajitkpanickercfp@gmail.com www.cfpglobal.com
CLIENTELE- CELEBRITIES- CINESTARS, TELEVISION STARS, CRICKETERS, BUSINESSMEN AND ENTREPRENEURS..
http://www.cfpglobal.com/- Visit my company’s website..as soon as you open this page..in one of the new tabs or new window..
We are Independent Financial planners, who are responsible for designing a financial plan that will take the client from where he is now to where he wants to be in the future, i.e. a plan that satisfies his needs and objectives.
we analyze his needs and objectives
Match these with appropriate products and services.
Work out a financial plan
Implement the plan
Provide ongoing review to ensure the chosen investment strategies continue to match his changing objectives
Modify the investment solutions as required.
As we have the required technical and an intuitive skill sets which is enforced because of the theory behind investing, economics and strategies we have, we can create a practical plan for you.
We will be implementers, a make-it- happen professionals. We give you recommendations and then educate and advise to take actions.
Every financial planning we do is supported by research and training
Charges: fee for service basis
1. We charge according to the plans to be made- the profile category.
2. We charge for work on hourly rate also.
3. We take one time service charge which is for the financial plan we make for the first time and then renewal fees every six month which will be a nominal percentage of the first time charge.
The financial planning will include the following in detailed analysis.
n Consumption and Savings Planning
n Debt Planning
n Insurance Planning
n Investment Planning
n Retirement Planning
n Estate Planning
n Income Tax Planning
The financial plan would broadly include the following in phases- PROCESS
ð First free consultation with individual fact sheet analysis.
ð The disclosure of financial services guide with all terms and conditions
ð Preliminary financial analysis and subsequent detailed input gathering from client.
ð Concerns – problem areas identification analysis.
ð Designing of the financial plan with recommendations
ð Implementation of the financial plan with projections for years ahead.
ð Review of the financial plan after regular periods.
“Our vision is to re-write the rule book by helping our clients navigate the most efficient way to tax free cash, savings, investments, relaxed retirement years and most importantly to make the clients achieve financial independence and security. We aim to achieve this goal by making the most of the generous tax breaks available and by helping clients make the best use of their wealth, whilst providing a confidential and safe home for all their financial needs. Put simply, our aim is to assist high net-worth individuals and bodies to grow and enjoy their wealth."
Becoming a client of Celeb Financial Planners Global is a simple but exciting process. We will conduct a completely free initial consultation to tailor our services ensuring we comfortably meet your expectations and provide you with the maximum benefits.
We will explain the importance of being fully independent, providing you with a full explanation of our costs and charges. We pride ourselves in ensuring all our clients are never rushed, nor feel pressurized into doing something they don’t want to or do not fully understand.
After all as a client, you are either going to be our best advert or our worst nightmare! Our aim is to ensure you are always happy, so we work very hard to ensure that your objectives are met.
The category profile we cater to is:
ð CRICKETERS with more than 100 lacs as net worth.
ð CINESTARS with more than 150 lacs as net worth.
ð BUSINESSMEN with more than 30 lacs as net income .
ð High Networth Individuals with more than 10 lacs as annual compensation.
Please feel free to contact me @
Ajit Panicker, Chief Financial planner; +919811536424; contact@cfpglobal.com;ajitkpanicker@cfpglobal.com, ajitkpanickercfp@gmail.com www.cfpglobal.com
Monday, August 23, 2010
WHAT IS INFLATION?
What Is Inflation?
Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every rupee you own buys a smaller percentage of a good or service. The value of a rupee does not stay constant when there is inflation. The value of a rupee is observed in terms of purchasing power, which is the real, tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 6% annually, then theoretically a Rs1 pack of gum will cost Rs1.06 in a year. After inflation, your rupee can't buy the same goods it could beforehand. There are several variations on inflation:
• Deflation is when the general level of prices is falling. This is the opposite of inflation.
• Hyperinflation is unusually rapid inflation. In extreme cases, this can lead to the breakdown of a nation's monetary system. One of the most notable examples of hyperinflation occurred in Germany in 1923, when prices rose 2,500% in one month!
• Stagflation is the combination of high unemployment and economic stagnation with inflation. This happened in industrialized countries during the 1970s, when a bad economy was combined with OPEC raising oil prices.
In recent years, most developed countries have attempted to sustain an inflation rate of 2-3%. Causes of Inflation Economists wake up in the morning hoping for a chance to debate the causes of inflation. There is no one cause that's universally agreed upon, but at least two theories are generally accepted: Demand-Pull Inflation - This theory can be summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase. This usually occurs in growing economies. Cost-Push Inflation - When companies' costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports.
Costs of Inflation
Almost everyone thinks inflation is evil, but it isn't necessarily so. Inflation affects different people in different ways. It also depends on whether inflation is anticipated or unanticipated. If the inflation rate corresponds to what the majority of people are expecting (anticipated inflation), then we can compensate and the cost isn't high. For example, banks can vary their interest rates and workers can negotiate contracts that include automatic wage hikes as the price level goes up. Problems arise when there is unanticipated inflation:
• Creditors lose and debtors gain if the lender does not anticipate inflation correctly. For those who borrow, this is similar to getting an interest-free loan.
• Uncertainty about what will happen next makes corporations and consumers less likely to spend. This hurts economic output in the long run.
• People living off a fixed-income, such as retirees, see a decline in their purchasing power and, consequently, their standard of living.
• The entire economy must absorb repricing costs ("menu costs") as price lists, labels, menus and more have to be updated.
• If the inflation rate is greater than that of other countries, domestic products become less competitive.
People like to complain about prices going up, but they often ignore the fact that wages should be rising as well. The question shouldn't be whether inflation is rising, but whether it's rising at a quicker pace than your wages. Finally, inflation is a sign that an economy is growing. In some situations, little inflation (or even deflation) can be just as bad as high inflation. The lack of inflation may be an indication that the economy is weakening. As you can see, it's not so easy to label inflation as either good or bad - it depends on the overall economy as well as your personal situation.
How Is It Measured?
Measuring inflation is a difficult problem for government statisticians. To do this, a number of goods that are representative of the economy are put together into what is referred to as a "market basket." The cost of this basket is then compared over time. This results in a price index, which is the cost of the market basket today as a percentage of the cost of that identical basket in the starting year.
Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every rupee you own buys a smaller percentage of a good or service. The value of a rupee does not stay constant when there is inflation. The value of a rupee is observed in terms of purchasing power, which is the real, tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 6% annually, then theoretically a Rs1 pack of gum will cost Rs1.06 in a year. After inflation, your rupee can't buy the same goods it could beforehand. There are several variations on inflation:
• Deflation is when the general level of prices is falling. This is the opposite of inflation.
• Hyperinflation is unusually rapid inflation. In extreme cases, this can lead to the breakdown of a nation's monetary system. One of the most notable examples of hyperinflation occurred in Germany in 1923, when prices rose 2,500% in one month!
• Stagflation is the combination of high unemployment and economic stagnation with inflation. This happened in industrialized countries during the 1970s, when a bad economy was combined with OPEC raising oil prices.
In recent years, most developed countries have attempted to sustain an inflation rate of 2-3%. Causes of Inflation Economists wake up in the morning hoping for a chance to debate the causes of inflation. There is no one cause that's universally agreed upon, but at least two theories are generally accepted: Demand-Pull Inflation - This theory can be summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase. This usually occurs in growing economies. Cost-Push Inflation - When companies' costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports.
Costs of Inflation
Almost everyone thinks inflation is evil, but it isn't necessarily so. Inflation affects different people in different ways. It also depends on whether inflation is anticipated or unanticipated. If the inflation rate corresponds to what the majority of people are expecting (anticipated inflation), then we can compensate and the cost isn't high. For example, banks can vary their interest rates and workers can negotiate contracts that include automatic wage hikes as the price level goes up. Problems arise when there is unanticipated inflation:
• Creditors lose and debtors gain if the lender does not anticipate inflation correctly. For those who borrow, this is similar to getting an interest-free loan.
• Uncertainty about what will happen next makes corporations and consumers less likely to spend. This hurts economic output in the long run.
• People living off a fixed-income, such as retirees, see a decline in their purchasing power and, consequently, their standard of living.
• The entire economy must absorb repricing costs ("menu costs") as price lists, labels, menus and more have to be updated.
• If the inflation rate is greater than that of other countries, domestic products become less competitive.
People like to complain about prices going up, but they often ignore the fact that wages should be rising as well. The question shouldn't be whether inflation is rising, but whether it's rising at a quicker pace than your wages. Finally, inflation is a sign that an economy is growing. In some situations, little inflation (or even deflation) can be just as bad as high inflation. The lack of inflation may be an indication that the economy is weakening. As you can see, it's not so easy to label inflation as either good or bad - it depends on the overall economy as well as your personal situation.
How Is It Measured?
Measuring inflation is a difficult problem for government statisticians. To do this, a number of goods that are representative of the economy are put together into what is referred to as a "market basket." The cost of this basket is then compared over time. This results in a price index, which is the cost of the market basket today as a percentage of the cost of that identical basket in the starting year.
Sunday, August 22, 2010
Friday, August 20, 2010
Missed the income tax return (ITR) filing deadline of 31st July?
Missed the income tax return (ITR) filing deadline of 31st July?
The deadline for filing income tax returns for an individual assessee is 31st July. In spite of your best intentions and efforts (or, out of plain laziness!), you couldn’t file your income tax return on time. You missed the due date!
What happens if you do not file the income tax return by the deadline?
What happens if you miss the deadline of July 31st for filing your tax returns? Is there any penalty? If yes, how much is the penalty? Is there anything you can do to make this right?
These are the questions troubling many of us who have not been able to file income tax returns by the due date of 31st July.
Let’s understand what the implications of not filing the income tax return on time are, and the steps you can take to correct the situation.
Scenario 1: You do not have any Net Tax payable
(Net Tax Payable is any tax payable after the TDS and advance tax paid are considered)
If this is the case, you are relatively lucky!
The income tax return for a given assessment year can be filed any time till the end of that assessment year without any penalty. If it is filed after the end of the assessment year, there is a lump-sum penalty of Rs. 5,000.
For the current Assessment Year 2008-09, we are filing returns for the Financial Year 2007-08.
(Do not understand terms like Financial Year and Assessment Year? Please read “Income Tax (IT) Jargon – Financial Year (FY), Assessment Year (AY) and Previous Year (PY)”)
Even if you miss the last date of filing the return (31st July), you can file the return any time till 31st March 2009 without paying any penalty.
If you file the return after 31st March 2009, there would be a penalty of Rs. 5,000.
Scenario 2: You do have some Net Tax payable
(Net Tax Payable is any tax payable after the TDS and advance tax paid are considered)
If you do need to pay any balance tax, there is some financial implication.
The basic principle remains the same: The income tax return for a given assessment year can be filed any time till the end of that assessment year without any penalty. If it is filed after the end of the assessment year, there is a lump-sum penalty of Rs. 5,000.
On top of this, there is a penalty of 1% per month on the net tax payable.
So, if you miss the 31st July deadline of filing the return, you can file the return any time till 31st March 2009 by paying a 1% per month penalty on the outstanding tax payable amount.
If you file the return after 31st March 2009, you would have to pay a 1% per month penalty on the outstanding tax payable amount, and there would be a lump-sum penalty of Rs. 5,000.
Let’s take an example.
Say, your income tax liability for the year is Rs. 40,000.
You have TDS (Tax Deducted at Source) of Rs. 30,000, and you have paid an advance tax of Rs. 6,000.
Thus, the remaining tax payable by you is:
Net Tax Payable = Income tax liability for the year – TDS – Advance tax paid
Thus, in our example,
Net Tax Payable
= Rs. 40,000 – Rs. 30,000 – Rs. 6,000
= Rs. 4,000.
Case 1: File income tax return before the end of assessment year
Say you file your income tax return on 17th September, 2008.
In this case, you would be filing your return 2 months late (partial months are considered as full months).
Amount payable = Net Tax Payable + Interest for 2 months at the rate of 1% per month
Thus,
Amount payable
= Rs. 4,000 + (2% of Rs. 4,000)
= Rs. 4,000 + Rs. 80
= Rs. 4,080
Case 2: File income tax return after the end of assessment year
Say you file your income tax return on 4th June, 2009.
In this case, you would be filing your return 11 months late (partial months are considered as full months).
On top of this, you would be filing the income tax return after the end of the assessment year for which you are filing the return.
(Do not understand terms like Financial Year and Assessment Year? Please read “Income Tax (IT) Jargon – Financial Year (FY), Assessment Year (AY) and Previous Year (PY)”)
So, in this case,
Amount payable = Net Tax Payable + Interest for 11 months at the rate of 1% per month + Lump sum penalty of Rs. 5,000
Thus,
Amount payable
= Rs. 4,000 + (11% of Rs. 4,000) + Rs. 5,000
= Rs. 4,000 + Rs. 440 + Rs. 5,000
= Rs. 9,440
Additional Scenario: You have losses that you need to carry forward
This applies irrespective of whether you have any net tax payable or not.
(To understand carry forward of loss and set-off of losses better, please read “Set Off and Carry Forward of Losses – Capital Gains and House Property”)
If you do not file the income tax return for a year by the due date, a loss for that year can not be carried forward.
The only exception to this rule is loss from house property – this loss can be carried forward even if the IT return is not filed in time.
Thus, if you have a loss from any of the heads of income (except for the head “Income from house property”), and you file your income tax return late, you would not be able to carry forward your losses. Thus, you would lose the benefit of set off of these losses against the income of the next year.
(Please read “Set Off and Carry Forward of Losses – Capital Gains and House Property” to understand carry forward of loss and set-off of losses better)
Conclusion
Not filing a return on time does have financial implications, especially if you have a net income tax payable and / or if you have losses to be carried forward.
This can really hurt especially if the losses to be carried forward are significant.
Therefore, your best option is to ensure that you file the income tax return by the deadline.
So what if you couldn’t file your income tax return (ITR) on time this year. Come back to read “Lessons to be learnt from filing income tax return for this year” to know what you can do to make the process of IT return filing smoother next year!
The deadline for filing income tax returns for an individual assessee is 31st July. In spite of your best intentions and efforts (or, out of plain laziness!), you couldn’t file your income tax return on time. You missed the due date!
What happens if you do not file the income tax return by the deadline?
What happens if you miss the deadline of July 31st for filing your tax returns? Is there any penalty? If yes, how much is the penalty? Is there anything you can do to make this right?
These are the questions troubling many of us who have not been able to file income tax returns by the due date of 31st July.
Let’s understand what the implications of not filing the income tax return on time are, and the steps you can take to correct the situation.
Scenario 1: You do not have any Net Tax payable
(Net Tax Payable is any tax payable after the TDS and advance tax paid are considered)
If this is the case, you are relatively lucky!
The income tax return for a given assessment year can be filed any time till the end of that assessment year without any penalty. If it is filed after the end of the assessment year, there is a lump-sum penalty of Rs. 5,000.
For the current Assessment Year 2008-09, we are filing returns for the Financial Year 2007-08.
(Do not understand terms like Financial Year and Assessment Year? Please read “Income Tax (IT) Jargon – Financial Year (FY), Assessment Year (AY) and Previous Year (PY)”)
Even if you miss the last date of filing the return (31st July), you can file the return any time till 31st March 2009 without paying any penalty.
If you file the return after 31st March 2009, there would be a penalty of Rs. 5,000.
Scenario 2: You do have some Net Tax payable
(Net Tax Payable is any tax payable after the TDS and advance tax paid are considered)
If you do need to pay any balance tax, there is some financial implication.
The basic principle remains the same: The income tax return for a given assessment year can be filed any time till the end of that assessment year without any penalty. If it is filed after the end of the assessment year, there is a lump-sum penalty of Rs. 5,000.
On top of this, there is a penalty of 1% per month on the net tax payable.
So, if you miss the 31st July deadline of filing the return, you can file the return any time till 31st March 2009 by paying a 1% per month penalty on the outstanding tax payable amount.
If you file the return after 31st March 2009, you would have to pay a 1% per month penalty on the outstanding tax payable amount, and there would be a lump-sum penalty of Rs. 5,000.
Let’s take an example.
Say, your income tax liability for the year is Rs. 40,000.
You have TDS (Tax Deducted at Source) of Rs. 30,000, and you have paid an advance tax of Rs. 6,000.
Thus, the remaining tax payable by you is:
Net Tax Payable = Income tax liability for the year – TDS – Advance tax paid
Thus, in our example,
Net Tax Payable
= Rs. 40,000 – Rs. 30,000 – Rs. 6,000
= Rs. 4,000.
Case 1: File income tax return before the end of assessment year
Say you file your income tax return on 17th September, 2008.
In this case, you would be filing your return 2 months late (partial months are considered as full months).
Amount payable = Net Tax Payable + Interest for 2 months at the rate of 1% per month
Thus,
Amount payable
= Rs. 4,000 + (2% of Rs. 4,000)
= Rs. 4,000 + Rs. 80
= Rs. 4,080
Case 2: File income tax return after the end of assessment year
Say you file your income tax return on 4th June, 2009.
In this case, you would be filing your return 11 months late (partial months are considered as full months).
On top of this, you would be filing the income tax return after the end of the assessment year for which you are filing the return.
(Do not understand terms like Financial Year and Assessment Year? Please read “Income Tax (IT) Jargon – Financial Year (FY), Assessment Year (AY) and Previous Year (PY)”)
So, in this case,
Amount payable = Net Tax Payable + Interest for 11 months at the rate of 1% per month + Lump sum penalty of Rs. 5,000
Thus,
Amount payable
= Rs. 4,000 + (11% of Rs. 4,000) + Rs. 5,000
= Rs. 4,000 + Rs. 440 + Rs. 5,000
= Rs. 9,440
Additional Scenario: You have losses that you need to carry forward
This applies irrespective of whether you have any net tax payable or not.
(To understand carry forward of loss and set-off of losses better, please read “Set Off and Carry Forward of Losses – Capital Gains and House Property”)
If you do not file the income tax return for a year by the due date, a loss for that year can not be carried forward.
The only exception to this rule is loss from house property – this loss can be carried forward even if the IT return is not filed in time.
Thus, if you have a loss from any of the heads of income (except for the head “Income from house property”), and you file your income tax return late, you would not be able to carry forward your losses. Thus, you would lose the benefit of set off of these losses against the income of the next year.
(Please read “Set Off and Carry Forward of Losses – Capital Gains and House Property” to understand carry forward of loss and set-off of losses better)
Conclusion
Not filing a return on time does have financial implications, especially if you have a net income tax payable and / or if you have losses to be carried forward.
This can really hurt especially if the losses to be carried forward are significant.
Therefore, your best option is to ensure that you file the income tax return by the deadline.
So what if you couldn’t file your income tax return (ITR) on time this year. Come back to read “Lessons to be learnt from filing income tax return for this year” to know what you can do to make the process of IT return filing smoother next year!
Thursday, August 19, 2010
SECTION 37(1) of the income tax Act. 1961- Business Expenditure
SECTION 37(1) OF THE INCOME TAX ACT, 1961
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessing Officer disallowed advances made by assessee in year in question to its sister concern in view that basic information was not provided so as to arrive at a conclusion of nexus between advances and assessee’s over-draft and, therefore, adverse inference had to be drawn to effect that assessee had utilized interest bearing loans to make advances to sister concern - Accordingly, Assessing Officer also disallowed interest liability - Prima facie, it appeared that for a certain number of days amount was paid from borrowed funds to sister concern - Whether Assessing Officer was required to examine as to what extent benefit of borrowed funds was granted by way of allowing advance to sister concern - Held, yes [matter remanded back to Assessing Officer]
Facts
The assessee had made certain advances in the year in question to its sister concern. The Assessing Officer was of the view that the basic information was not provided so as to arrive at a conclusion of the nexus between the advances and the assessee’s over-draft and, therefore, adverse inference had to be drawn to the effect that the assessee had utilized interest bearing loans to make the advances to the sister concern and ultimately disallowed interest liability. The Tribunal held that the case was covered by the decision of the Tribunal in the case of IT Appeal No. 804 (Delhi) of 1986 and the Supreme Court decision in the case of East India Pharmaceuticals Works Ltd. v. CIT [1997] 224 ITR 627/91 Taxman 185 and, accordingly, vacated the disallowance. On appeal, the High Court upheld the disallowance. On second appeal, the Supreme Court held that certain statements were produced before the authorities, notice of which had not been taken by the High Court and since the High Court had proceeded on an erroneous factual basis, the matter should be remanded back to the High Court to consider the material produced by the assessee. Accordingly, the impugned order of the High Court was set aside and the matter was remitted back to the High Court for fresh disposal.
Held
From the reading of the decision of the Tribunal, it appeared that the Tribunal had examined the decision at a macro level and not in the manner in which the Tribunal ought to have examined the matter in view of the evidence which was placed before it. It might be that the assessee might not have utilized the loan amount for the benefit of the sister concern or might have utilized the said amount. For that purpose, it was for the Tribunal to consider the same or the Tribunal ought to have given a direction to the Assessing Officer and thereafter examined the matter and recorded a finding in that behalf. [Para 6]
Prima facie, it appeared that for a certain number of days the amount was paid from the borrowed funds to the sister concern. However, that was required to be examined by the Assessing Officer as to what extent the benefit of borrowed funds was granted by way of allowing the advance to the sister concern. It was on that amount that the interest was to be calculated and disallowed. The Assessing Officer would have to calculate the exact tax for which the amount was utilised out of the borrowed funds. [Para 7]
Thus, the matter was remanded to the Assessing Officer for the aforesaid exercise and it was after that exercise, the Assessing Officer would make an appropriate order as to what extent the interest was to be disallowed. [Para 8]
Case Referred to
East India Pharmaceuticals Works Ltd. v. CIT [1997] 224 ITR 627/91 Taxman 185 (SC) [Para 4].
Sanjeev Khanna for the Appellant. O.S. Bajpai for the Respondent.
Judgment
B.C. Patel, CJ. - On remand made by the Supreme Court in Civil Appeal No. 1479/2004 in the case of M/s. Motor General Finance Ltd. v. Commissioner of Income-tax, Delhi Decided on 25-2-2004, this appeal is listed before us for hearing.
2. From the order of the Tribunal, it transpires that there was a specific ground with regard to the disallowance of Rs. 10 lakhs in respect of fresh advances made in the year in question to the sister concern by the appellant. In all, the loan granted to the sister concern extended to the tune of Rs. 47,67,740.
3. The Assessing Officer was of the view that the basic information was not provided so as to arrive at a conclusion of the nexus between the advances and the assessee’s over-draft and, therefore, adverse inference had to be drawn to the effect that the assessee had utilised interest bearing loans to make the advances to the sister concern and ultimately, considering this aspect, came to the conclusion that interest liability charged to the profit and loss account or to the like after taking a sum of Rs. 10 lakhs pertaining to this advance.
4. It appears that before the Income-tax Appellate Tribunal, some material was placed on record which has been examined and this is clear from a reading of paragraphs 7 and 8 of the order made by the Income-tax Appellate Tribunal. It was submitted before the Tribunal that in this way loan of Rs. 47,67,740 to the sister concern was entirely out of the profit of the year. No disallowance of interest was warranted. The Tribunal thereafter examined the matter and, after going through the relevant record, held that the issue is covered by the decision of the Tribunal in the case of ITA No. 804/Delhi/86, which vacated the addition after considering the case laws on the points and also in view of the Supreme Court decision in the case of East India Pharmaceuticals Works Ltd. v. CIT [1997] 224 ITR 6271 that vacated the disallowance, as submitted before the Assessing Officer. It is against this order that the appeal has been preferred before this Court.
5. In view of this, the court answered the question in negative, i.e., in favour of the revenue and against the assessee. It is against this order that the assessee preferred an appeal before the Supreme Court which was disposed of on 25-2-2004. The Supreme Court held as under :—
“We have seen from the file that, as contended by the learned counsel, certain statements were produced before the authorities, notice of which has not been taken by the High Court. The contents of these statements would have vital importance on the ultimate decision that the High Court may have to take. Therefore, we think it appropriate that since the High Court has proceeded on an erroneous factual basis, this matter should be remanded back to the High Court to consider the material produced by the appellant which is found at pages 70-74 of the appeal papers and decide the case on that basis.
In view of the above, we allow this appeal, set aside the impugned order of the High Court and remit the matter back to the High Court for fresh disposal.”
6. In view of the aforesaid order, we are hearing this appeal and we have to examine pages 70-74 of the appeal papers. Reading pages 70-74 and the decision of the Tribunal, particularly, paragraph 8 thereof, it appears that the Tribunal has examined the decision at a macro level and not in the manner in which the Tribunal ought to have examined the matter in view of the evidence which was placed before it. It may be that the assessee may not have utilised the loan amount for the benefit of the sister concern or may have utilised the said amount. For that purpose, it was for the Tribunal to consider the same or the Tribunal ought to have given a direction to the Assessing Officer and thereafter examined the matter and record a finding in this behalf.
7. Prima facie, it appears to us that, as indicated at page 72, for certain number of days the amount was paid from the borrowed funds to the sister concern. The amount was advanced to the sister concern. However, that is required to be examined by the Assessing Officer as to what extent the benefit of borrowed funds was granted by way of allowing the advance to the sister concern. It is on that amount that the interest is to be calculated and disallowed. The Assessing Officer will have to calculate the exact tax for which the amount was utilised out of the borrowed funds. We could have remanded the matter to the Tribunal for doing the exercise but in view of the fair statement made by the learned counsel that let it be remanded to the Assessing Officer so as to enable him to calculate the exact number of days for use of the borrowed funds, we remand it to the Assessing Officer. It goes without saying that pages 70-74 (File before the Supreme Court) will have to be examined by the Assessing Officer for arriving at a correct conclusion.
8. The matter is remanded to the Assessing Officer for the aforesaid exercise and it is after this exercise, the Assessing Officer will make an appropriate order as to what extent the interest is to be disallowed.
The appeal is disposed of.
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessing Officer disallowed advances made by assessee in year in question to its sister concern in view that basic information was not provided so as to arrive at a conclusion of nexus between advances and assessee’s over-draft and, therefore, adverse inference had to be drawn to effect that assessee had utilized interest bearing loans to make advances to sister concern - Accordingly, Assessing Officer also disallowed interest liability - Prima facie, it appeared that for a certain number of days amount was paid from borrowed funds to sister concern - Whether Assessing Officer was required to examine as to what extent benefit of borrowed funds was granted by way of allowing advance to sister concern - Held, yes [matter remanded back to Assessing Officer]
Facts
The assessee had made certain advances in the year in question to its sister concern. The Assessing Officer was of the view that the basic information was not provided so as to arrive at a conclusion of the nexus between the advances and the assessee’s over-draft and, therefore, adverse inference had to be drawn to the effect that the assessee had utilized interest bearing loans to make the advances to the sister concern and ultimately disallowed interest liability. The Tribunal held that the case was covered by the decision of the Tribunal in the case of IT Appeal No. 804 (Delhi) of 1986 and the Supreme Court decision in the case of East India Pharmaceuticals Works Ltd. v. CIT [1997] 224 ITR 627/91 Taxman 185 and, accordingly, vacated the disallowance. On appeal, the High Court upheld the disallowance. On second appeal, the Supreme Court held that certain statements were produced before the authorities, notice of which had not been taken by the High Court and since the High Court had proceeded on an erroneous factual basis, the matter should be remanded back to the High Court to consider the material produced by the assessee. Accordingly, the impugned order of the High Court was set aside and the matter was remitted back to the High Court for fresh disposal.
Held
From the reading of the decision of the Tribunal, it appeared that the Tribunal had examined the decision at a macro level and not in the manner in which the Tribunal ought to have examined the matter in view of the evidence which was placed before it. It might be that the assessee might not have utilized the loan amount for the benefit of the sister concern or might have utilized the said amount. For that purpose, it was for the Tribunal to consider the same or the Tribunal ought to have given a direction to the Assessing Officer and thereafter examined the matter and recorded a finding in that behalf. [Para 6]
Prima facie, it appeared that for a certain number of days the amount was paid from the borrowed funds to the sister concern. However, that was required to be examined by the Assessing Officer as to what extent the benefit of borrowed funds was granted by way of allowing the advance to the sister concern. It was on that amount that the interest was to be calculated and disallowed. The Assessing Officer would have to calculate the exact tax for which the amount was utilised out of the borrowed funds. [Para 7]
Thus, the matter was remanded to the Assessing Officer for the aforesaid exercise and it was after that exercise, the Assessing Officer would make an appropriate order as to what extent the interest was to be disallowed. [Para 8]
Case Referred to
East India Pharmaceuticals Works Ltd. v. CIT [1997] 224 ITR 627/91 Taxman 185 (SC) [Para 4].
Sanjeev Khanna for the Appellant. O.S. Bajpai for the Respondent.
Judgment
B.C. Patel, CJ. - On remand made by the Supreme Court in Civil Appeal No. 1479/2004 in the case of M/s. Motor General Finance Ltd. v. Commissioner of Income-tax, Delhi Decided on 25-2-2004, this appeal is listed before us for hearing.
2. From the order of the Tribunal, it transpires that there was a specific ground with regard to the disallowance of Rs. 10 lakhs in respect of fresh advances made in the year in question to the sister concern by the appellant. In all, the loan granted to the sister concern extended to the tune of Rs. 47,67,740.
3. The Assessing Officer was of the view that the basic information was not provided so as to arrive at a conclusion of the nexus between the advances and the assessee’s over-draft and, therefore, adverse inference had to be drawn to the effect that the assessee had utilised interest bearing loans to make the advances to the sister concern and ultimately, considering this aspect, came to the conclusion that interest liability charged to the profit and loss account or to the like after taking a sum of Rs. 10 lakhs pertaining to this advance.
4. It appears that before the Income-tax Appellate Tribunal, some material was placed on record which has been examined and this is clear from a reading of paragraphs 7 and 8 of the order made by the Income-tax Appellate Tribunal. It was submitted before the Tribunal that in this way loan of Rs. 47,67,740 to the sister concern was entirely out of the profit of the year. No disallowance of interest was warranted. The Tribunal thereafter examined the matter and, after going through the relevant record, held that the issue is covered by the decision of the Tribunal in the case of ITA No. 804/Delhi/86, which vacated the addition after considering the case laws on the points and also in view of the Supreme Court decision in the case of East India Pharmaceuticals Works Ltd. v. CIT [1997] 224 ITR 6271 that vacated the disallowance, as submitted before the Assessing Officer. It is against this order that the appeal has been preferred before this Court.
5. In view of this, the court answered the question in negative, i.e., in favour of the revenue and against the assessee. It is against this order that the assessee preferred an appeal before the Supreme Court which was disposed of on 25-2-2004. The Supreme Court held as under :—
“We have seen from the file that, as contended by the learned counsel, certain statements were produced before the authorities, notice of which has not been taken by the High Court. The contents of these statements would have vital importance on the ultimate decision that the High Court may have to take. Therefore, we think it appropriate that since the High Court has proceeded on an erroneous factual basis, this matter should be remanded back to the High Court to consider the material produced by the appellant which is found at pages 70-74 of the appeal papers and decide the case on that basis.
In view of the above, we allow this appeal, set aside the impugned order of the High Court and remit the matter back to the High Court for fresh disposal.”
6. In view of the aforesaid order, we are hearing this appeal and we have to examine pages 70-74 of the appeal papers. Reading pages 70-74 and the decision of the Tribunal, particularly, paragraph 8 thereof, it appears that the Tribunal has examined the decision at a macro level and not in the manner in which the Tribunal ought to have examined the matter in view of the evidence which was placed before it. It may be that the assessee may not have utilised the loan amount for the benefit of the sister concern or may have utilised the said amount. For that purpose, it was for the Tribunal to consider the same or the Tribunal ought to have given a direction to the Assessing Officer and thereafter examined the matter and record a finding in this behalf.
7. Prima facie, it appears to us that, as indicated at page 72, for certain number of days the amount was paid from the borrowed funds to the sister concern. The amount was advanced to the sister concern. However, that is required to be examined by the Assessing Officer as to what extent the benefit of borrowed funds was granted by way of allowing the advance to the sister concern. It is on that amount that the interest is to be calculated and disallowed. The Assessing Officer will have to calculate the exact tax for which the amount was utilised out of the borrowed funds. We could have remanded the matter to the Tribunal for doing the exercise but in view of the fair statement made by the learned counsel that let it be remanded to the Assessing Officer so as to enable him to calculate the exact number of days for use of the borrowed funds, we remand it to the Assessing Officer. It goes without saying that pages 70-74 (File before the Supreme Court) will have to be examined by the Assessing Officer for arriving at a correct conclusion.
8. The matter is remanded to the Assessing Officer for the aforesaid exercise and it is after this exercise, the Assessing Officer will make an appropriate order as to what extent the interest is to be disallowed.
The appeal is disposed of.
Wednesday, August 18, 2010
How to avoid paying taxes on interest income?
Do you wonder why interest earned from your FDs or interest bearing securities like bonds gets reduced due to tax deducted at source?
Does it irritate you that tax has been charged even though you aren't eligible to pay taxes? Here, we tell you about why TDS applied and ways to avoid this tax deduction if you meet certain criteria.
Why should I know this?
If you are like most Indians, chances are the bulk of your liquid savings are in a bank account or in an FD. Some of us are invested in bonds. While these fixed income instruments are good for guaranteed returns, they are relatively tax inefficient instruments because you end up paying taxes on the interest income that you earn.
This tax is usually deducted at source, and there might be a situation where tax is being deducted even though you are not eligible for paying taxes. This could result in a cash flow problem because your tax outflow is today, but your refund might take many months to arrive.
How much is the TDS on interest from deposits and securities?
The tax on interest income is deducted at source, i.e., at the bank where you hold your deposit, or from the issuer of the bond who pays you interest. The rate of this TDS is a flat 10% if your interest income exceeds a certain limit. Unlike salary income where TDS is according to your tax slab, the TDS on your interest income is irrespective of the tax slab applicable to you.
Lets understand the above by way of an example. Radha, a 27-year-old woman, is employed and also has an FD at a bank. The following is her income and taxability situation.
Salary income: Rs. 1.40 lakhs per annum
FD interest income: Rs. 30,000 per annum
Statutory exemption limit for women: Rs. 1.90 lakhs annually
As Radha earns more than Rs. 10,000, she will be liable to a tax deduction at source. However, as we can see, Radha's total income (salary + interest income) is below the annual exemption of Rs. 1.90 lakhs available to women. Nevertheless, taxes will be deducted from her interest income at the bank where she holds her FD.
As you can imagine, this can cause some cashflow problems for Radha if she is going to get lesser cash in hand, even though she should never have been taxed on the interest.
How can I avoid undue deduction from interest income?
If your analysis shows that your total income is below the taxable slab, then there are provisions in the Income Tax Act under which you legally avoid having tax deducted from your interest earned on your FDs and bonds.
You will need to furnish a declaration using the prescribed form to the bank or entity responsible for deducting tax. This declaration needs to state that no tax deduction is required because the income level does not fall into the taxable slab.
What are these prescribed forms?
Different forms are used for different sources of income and types of taxpayers.
Form 15G: Applicable for a resident individual, other than a senior citizen
Form 15H: Applicable for a senior citizen (These forms can be downloaded online)
What incomes can be declared in the above forms?
The declaration in Forms 15G and 15H can be furnished mainly if the taxpayer has income from:
Interest on securities
Interest other than interest on securities, like FDs
What should I take care of while using these forms?
1. The declaration should be filed only if tax on total estimated income for the relevant year is nil.
2. Delivery of the form to the entity deducting your TDS must be made any time before receiving the income either directly or by credit to the account.
3. The entity to whom the declaration is given must file one copy of the declaration with Commissioner Income Tax before 7th day of the next month.
4. A false declaration is liable to prosecution and fine.
consult your FINANCIAL DOCTOR
AJIT PANICKER
Chief Financial Planner
ajitkpanicker@cfpglobal.com
CELEB FINANCIAL PLANNERS Global
http://www.cfpglobal.com/
Do you wonder why interest earned from your FDs or interest bearing securities like bonds gets reduced due to tax deducted at source?
Does it irritate you that tax has been charged even though you aren't eligible to pay taxes? Here, we tell you about why TDS applied and ways to avoid this tax deduction if you meet certain criteria.
Why should I know this?
If you are like most Indians, chances are the bulk of your liquid savings are in a bank account or in an FD. Some of us are invested in bonds. While these fixed income instruments are good for guaranteed returns, they are relatively tax inefficient instruments because you end up paying taxes on the interest income that you earn.
This tax is usually deducted at source, and there might be a situation where tax is being deducted even though you are not eligible for paying taxes. This could result in a cash flow problem because your tax outflow is today, but your refund might take many months to arrive.
How much is the TDS on interest from deposits and securities?
The tax on interest income is deducted at source, i.e., at the bank where you hold your deposit, or from the issuer of the bond who pays you interest. The rate of this TDS is a flat 10% if your interest income exceeds a certain limit. Unlike salary income where TDS is according to your tax slab, the TDS on your interest income is irrespective of the tax slab applicable to you.
Lets understand the above by way of an example. Radha, a 27-year-old woman, is employed and also has an FD at a bank. The following is her income and taxability situation.
Salary income: Rs. 1.40 lakhs per annum
FD interest income: Rs. 30,000 per annum
Statutory exemption limit for women: Rs. 1.90 lakhs annually
As Radha earns more than Rs. 10,000, she will be liable to a tax deduction at source. However, as we can see, Radha's total income (salary + interest income) is below the annual exemption of Rs. 1.90 lakhs available to women. Nevertheless, taxes will be deducted from her interest income at the bank where she holds her FD.
As you can imagine, this can cause some cashflow problems for Radha if she is going to get lesser cash in hand, even though she should never have been taxed on the interest.
How can I avoid undue deduction from interest income?
If your analysis shows that your total income is below the taxable slab, then there are provisions in the Income Tax Act under which you legally avoid having tax deducted from your interest earned on your FDs and bonds.
You will need to furnish a declaration using the prescribed form to the bank or entity responsible for deducting tax. This declaration needs to state that no tax deduction is required because the income level does not fall into the taxable slab.
What are these prescribed forms?
Different forms are used for different sources of income and types of taxpayers.
Form 15G: Applicable for a resident individual, other than a senior citizen
Form 15H: Applicable for a senior citizen (These forms can be downloaded online)
What incomes can be declared in the above forms?
The declaration in Forms 15G and 15H can be furnished mainly if the taxpayer has income from:
Interest on securities
Interest other than interest on securities, like FDs
What should I take care of while using these forms?
1. The declaration should be filed only if tax on total estimated income for the relevant year is nil.
2. Delivery of the form to the entity deducting your TDS must be made any time before receiving the income either directly or by credit to the account.
3. The entity to whom the declaration is given must file one copy of the declaration with Commissioner Income Tax before 7th day of the next month.
4. A false declaration is liable to prosecution and fine.
consult your FINANCIAL DOCTOR
AJIT PANICKER
Chief Financial Planner
ajitkpanicker@cfpglobal.com
CELEB FINANCIAL PLANNERS Global
http://www.cfpglobal.com/
Monday, August 16, 2010
EIGHT THINGS FINANCIAL PLANNERS WON'T TELL YOU
More people are flocking to financial planners these days, convinced they need professionals to help them navigate the market's stormy seas.
Unfortunately, not all planners are created equal. Some are thinly disguised investment salespeople, and many don't have the background or inclination to offer true, comprehensive financial advice.
So before you sign on with a planner, or implement the advice offered, make sure you know these secrets the planner may be keeping. Such as:
1. I have no qualifications for this job.
Anyone can claim to be a financial planner. There are no education, experience or ethical requirements and no government agency that regulates planners as planners.
Of the estimated 250,000 people calling themselves financial planners, only about 56,500 have earned the Certified Financial Planner mark -- the best-known financial planning designation. Fewer still are a Chartered Financial Consultant (ChFC) or Personal Financial Specialist (PFS), the financial planning designations offered by the insurance and accounting industries, respectively.
Even if your planner has one of these designations, you're not home free. It generally takes years of experience and ongoing education -- not to mention integrity and ethics -- to become a truly good planner.
2. I have no obligation to put your interests ahead of my own.
Real financial planners take seriously their duties as fiduciaries -- professionals who are trusted to think of their clients' needs first and foremost.
Most of those who call themselves planners, though, are really in the business of selling investments. As such, they may face scrutiny from various government agencies over their sales tactics. But instead of being obligated to create the best financial plan for you, they're only required by law not to sell you something that's utterly unsuitable.
Your best bet: Ask for, and read, a copy of any code of ethics with which your planner is required to comply (usually as part of his professional designation). It may be slow reading, but you'll get an idea of the standard by which your planner operates. The word "fiduciary," for example, does not appear in the Society of Financial Services Professionals' code of professional responsibility, but members of the fee-only National Association of Personal Financial Advisors are required to take a fiduciary oath promising "to act in good faith and in the best interests of the client."
3. I'm not being paid the way you think.
"Commissions" became a dirty word in the 1990s, when even the big brokerage houses like Merrill Lynch decided that people would rather pay fees than have advisers compensated by commissions for the investments they sold.
True fee-only financial planners are still a rare breed, however. The leading association for fee-only planners, NAPFA, has fewer than 800 members.
Most financial advisers still get some or most of their income from commissions, according to FPA. Many finesse the situation by calling themselves "fee-based" planners, or by simply avoiding the issue of how they get compensated.
Commissions aren't bad, per se. But they do create a built-in conflict of interest. Your planner should volunteer information about how she gets paid. If you have to ask, you should at least get a straight answer.
4. I'm looking at only one small portion of your overall finances.
A good financial planner looks at every aspect of his or her clients' financial situations, from their budgets to their estate plans. That's the only way to give truly customized, comprehensive planning advice.
Many of those calling themselves financial planners, however, focus on one narrow aspect of a client's monetary condition -- usually the area that corresponds with whatever financial training they've received.
One reader told me her adviser, who mostly prepares tax returns for a living, insisted she get a home-equity line of credit to pay off her credit card bills. His reasoning was that she would be better off paying a tax-deductible interest rate on a home loan rather than paying nondeductible credit card interest.
The problem was that this reader was so deeply in debt that she couldn't qualify for a reasonable rate. An adviser with a broader background in financial planning would have recognized that a home-equity line would do nothing to curb her real problem, which was overspending. Meanwhile, she had cash sitting in low-interest accounts that could have been used to pay off her debt.
Your best bet: If your adviser has a narrow focus, get a second opinion -- or, better yet, look for a real financial planner who can evaluate your entire financial picture.
5. The only products I understand are the ones I'm selling.
The old saw goes like this: When all you have is a hammer, everything looks like a nail.
Advisers who lack training in comprehensive financial planning often know only what their companies tell them about the various investments they're told to sell. An insurance agent, for example, might sing the praises of variable annuities -- not realizing that annuities should only be considered after tax-favored retirement options, such as 401(k)s and IRAs, have been exhausted and less expensive alternatives, such as index funds or tax-efficient mutual funds, have been considered.
I still remember a conversation a few years ago in which an insurance agent launched into a passionate defense of variable annuities, only to confess -- after much probing -- that he had never heard of alternatives like tax-efficient mutual funds and didn't know how much could be invested in a 401(k) or Roth IRA.
Likewise, a stockbroker might push individual stocks or mutual funds, when the best use for your money might be increasing your emergency fund or paying down your mortgage.
6. I can't beat the market.
Many people think a financial planner can help them supercharge their investment returns. Many of the best financial planners, however, believe they're doing well if their clients' portfolios simply match the market averages. They don't even try for more, convinced that such efforts are a waste of their time and effort -- and of their clients' money.
Those who do try often fall woefully short. The more they trade, the more money they spend in commissions and fees, and the farther they fall behind the market benchmarks.
Good financial planners concentrate on making sure their clients are well-diversified and that other aspects of their finances -- their budgets, credit ratings, insurance coverage, tax situations, estate plans and retirement accounts -- are in the best shape possible. In contrast to the adviser who's trying to keep secrets, however, these good planners are upfront about the fact that they're not trying to beat the market.
Your best bet: Understand that good, comprehensive financial planning doesn't ensure outsized returns. A plan should, however, allow you to improve your credit, minimize your taxes, protect your assets, take care of your heirs and grow your wealth over time.
7. I won't save you from yourself.
The best financial planners didn't let their clients overdose on technology stocks during the 1990s and insisted they stay invested during the roller-coaster ride of the past few years. The worst encouraged their clients to chase every hot trend, whether it was dot-coms or excessive investments in real estate. Many planners fall somewhere in between -- trying to make the case for diversification and common sense, but lacking the confidence and experience to insist their clients not make suicidal moves.
Your best bet: Avoid planners who don't have a consistent philosophy or who are constantly talking about the next hot trend. And take some responsibility for your actions: Don't be a trend-chaser or insist on wild swings in course, especially if your credentialed, experienced planner advises otherwise.
8. I have a checkered past.
Sooner or later, most financial planners will have a run-in with an unhappy client. If those disputes regularly escalate to lawsuits, however, or your adviser has been disciplined by a regulatory board, that's a red flag. The worst offenders skip from job to job or industry to industry, hoping their past never catches up with them.
Unfortunately, not all planners are created equal. Some are thinly disguised investment salespeople, and many don't have the background or inclination to offer true, comprehensive financial advice.
So before you sign on with a planner, or implement the advice offered, make sure you know these secrets the planner may be keeping. Such as:
1. I have no qualifications for this job.
Anyone can claim to be a financial planner. There are no education, experience or ethical requirements and no government agency that regulates planners as planners.
Of the estimated 250,000 people calling themselves financial planners, only about 56,500 have earned the Certified Financial Planner mark -- the best-known financial planning designation. Fewer still are a Chartered Financial Consultant (ChFC) or Personal Financial Specialist (PFS), the financial planning designations offered by the insurance and accounting industries, respectively.
Even if your planner has one of these designations, you're not home free. It generally takes years of experience and ongoing education -- not to mention integrity and ethics -- to become a truly good planner.
2. I have no obligation to put your interests ahead of my own.
Real financial planners take seriously their duties as fiduciaries -- professionals who are trusted to think of their clients' needs first and foremost.
Most of those who call themselves planners, though, are really in the business of selling investments. As such, they may face scrutiny from various government agencies over their sales tactics. But instead of being obligated to create the best financial plan for you, they're only required by law not to sell you something that's utterly unsuitable.
Your best bet: Ask for, and read, a copy of any code of ethics with which your planner is required to comply (usually as part of his professional designation). It may be slow reading, but you'll get an idea of the standard by which your planner operates. The word "fiduciary," for example, does not appear in the Society of Financial Services Professionals' code of professional responsibility, but members of the fee-only National Association of Personal Financial Advisors are required to take a fiduciary oath promising "to act in good faith and in the best interests of the client."
3. I'm not being paid the way you think.
"Commissions" became a dirty word in the 1990s, when even the big brokerage houses like Merrill Lynch decided that people would rather pay fees than have advisers compensated by commissions for the investments they sold.
True fee-only financial planners are still a rare breed, however. The leading association for fee-only planners, NAPFA, has fewer than 800 members.
Most financial advisers still get some or most of their income from commissions, according to FPA. Many finesse the situation by calling themselves "fee-based" planners, or by simply avoiding the issue of how they get compensated.
Commissions aren't bad, per se. But they do create a built-in conflict of interest. Your planner should volunteer information about how she gets paid. If you have to ask, you should at least get a straight answer.
4. I'm looking at only one small portion of your overall finances.
A good financial planner looks at every aspect of his or her clients' financial situations, from their budgets to their estate plans. That's the only way to give truly customized, comprehensive planning advice.
Many of those calling themselves financial planners, however, focus on one narrow aspect of a client's monetary condition -- usually the area that corresponds with whatever financial training they've received.
One reader told me her adviser, who mostly prepares tax returns for a living, insisted she get a home-equity line of credit to pay off her credit card bills. His reasoning was that she would be better off paying a tax-deductible interest rate on a home loan rather than paying nondeductible credit card interest.
The problem was that this reader was so deeply in debt that she couldn't qualify for a reasonable rate. An adviser with a broader background in financial planning would have recognized that a home-equity line would do nothing to curb her real problem, which was overspending. Meanwhile, she had cash sitting in low-interest accounts that could have been used to pay off her debt.
Your best bet: If your adviser has a narrow focus, get a second opinion -- or, better yet, look for a real financial planner who can evaluate your entire financial picture.
5. The only products I understand are the ones I'm selling.
The old saw goes like this: When all you have is a hammer, everything looks like a nail.
Advisers who lack training in comprehensive financial planning often know only what their companies tell them about the various investments they're told to sell. An insurance agent, for example, might sing the praises of variable annuities -- not realizing that annuities should only be considered after tax-favored retirement options, such as 401(k)s and IRAs, have been exhausted and less expensive alternatives, such as index funds or tax-efficient mutual funds, have been considered.
I still remember a conversation a few years ago in which an insurance agent launched into a passionate defense of variable annuities, only to confess -- after much probing -- that he had never heard of alternatives like tax-efficient mutual funds and didn't know how much could be invested in a 401(k) or Roth IRA.
Likewise, a stockbroker might push individual stocks or mutual funds, when the best use for your money might be increasing your emergency fund or paying down your mortgage.
6. I can't beat the market.
Many people think a financial planner can help them supercharge their investment returns. Many of the best financial planners, however, believe they're doing well if their clients' portfolios simply match the market averages. They don't even try for more, convinced that such efforts are a waste of their time and effort -- and of their clients' money.
Those who do try often fall woefully short. The more they trade, the more money they spend in commissions and fees, and the farther they fall behind the market benchmarks.
Good financial planners concentrate on making sure their clients are well-diversified and that other aspects of their finances -- their budgets, credit ratings, insurance coverage, tax situations, estate plans and retirement accounts -- are in the best shape possible. In contrast to the adviser who's trying to keep secrets, however, these good planners are upfront about the fact that they're not trying to beat the market.
Your best bet: Understand that good, comprehensive financial planning doesn't ensure outsized returns. A plan should, however, allow you to improve your credit, minimize your taxes, protect your assets, take care of your heirs and grow your wealth over time.
7. I won't save you from yourself.
The best financial planners didn't let their clients overdose on technology stocks during the 1990s and insisted they stay invested during the roller-coaster ride of the past few years. The worst encouraged their clients to chase every hot trend, whether it was dot-coms or excessive investments in real estate. Many planners fall somewhere in between -- trying to make the case for diversification and common sense, but lacking the confidence and experience to insist their clients not make suicidal moves.
Your best bet: Avoid planners who don't have a consistent philosophy or who are constantly talking about the next hot trend. And take some responsibility for your actions: Don't be a trend-chaser or insist on wild swings in course, especially if your credentialed, experienced planner advises otherwise.
8. I have a checkered past.
Sooner or later, most financial planners will have a run-in with an unhappy client. If those disputes regularly escalate to lawsuits, however, or your adviser has been disciplined by a regulatory board, that's a red flag. The worst offenders skip from job to job or industry to industry, hoping their past never catches up with them.
Monday, August 9, 2010
Retirement is our right and we should decide when to retire
CELEB FINANCIAL PLANNERS Global: Retirement is one phase of life though everyone wants to get in, but the phase being so morose without any excitement and no cash surpluses to enjoy , that each individual tries to postpone his retirement by 5-15 years, according to many government organizations the retirement age varies form 58-62 years, but people would still go in for another stint of work for say 10 years, the reasons are many, responsibilities are still left, nothing left after providing education for children and getting their jobs settled and also their marriage in many cases.
Do we really realize, that life has a right to be spend by your name for your personal recreation also , at least in the retirement. Now the problem arises because we do not have the retirement fund available with us, enough to even feed us the way we used to when in job, how can one think of recreation , long holidays or playing golf.
Here comes in the responsibility of a well read Financial planner who, creates a retirement corpus for you and actually plans and starts this when probably you got into your first job, because the corpus needs to be such that you are able to spend with same expenditure as you were able to when in job, live upto the same expenses, for this there are various plans available in forms of NPS(new pension scheme), pension plans like Retiresurance from idbi fortis, ICICI pru lifetime pension maxima,icici pru lifestage pension advantage,LIC new jeevan dhara-1, and good annuity plans. The calculation of the retirement corpus is done taking into consideration your current monthly household expenses, inflation @8%, also that the increment in your salary or income every year to be 10% atleast.
Pls consult a well read and experienced financial planner
Ajit panicker
Chief financial planner
CELEB FINANCIAL PLANNERS Global
http://www.cfpglobal.com/
Do we really realize, that life has a right to be spend by your name for your personal recreation also , at least in the retirement. Now the problem arises because we do not have the retirement fund available with us, enough to even feed us the way we used to when in job, how can one think of recreation , long holidays or playing golf.
Here comes in the responsibility of a well read Financial planner who, creates a retirement corpus for you and actually plans and starts this when probably you got into your first job, because the corpus needs to be such that you are able to spend with same expenditure as you were able to when in job, live upto the same expenses, for this there are various plans available in forms of NPS(new pension scheme), pension plans like Retiresurance from idbi fortis, ICICI pru lifetime pension maxima,icici pru lifestage pension advantage,LIC new jeevan dhara-1, and good annuity plans. The calculation of the retirement corpus is done taking into consideration your current monthly household expenses, inflation @8%, also that the increment in your salary or income every year to be 10% atleast.
Pls consult a well read and experienced financial planner
Ajit panicker
Chief financial planner
CELEB FINANCIAL PLANNERS Global
http://www.cfpglobal.com/
Saturday, August 7, 2010
FINANCIAL PLANNING with villagers
CELEB FINANCIAL PLANNERS Global: On a recent visit to a village adjoining NOIDA, i found people there are better off than people in urban cities, in many ways and at the same time they are not upto a level where they can match the amenities and facilities which urbaners can access easily.
This is in context to the management of their own personal finance, there has been a practice that whenver a big renowned builder comes to develop a project he buys the land from the authorities which is sold to them by the villagers, out of the settlement or compensation amount which the villagers receive, the amount being huge, there comes a rush of scavengers like insurance agents, property agents, mutusl fund agents and many bankers as well.
Now as the villagers have received a huge mount which they do not know where to put, the competition withing insurers, AMC's start, and the one who manages to get the amount invested, in plans which usually do not give them which they could have easily received if it would have been planned by a dutiful Financial doctor( financial planner) , who understands where to get it invested with least risk and reasonably good amount of return.
An awareness need to be created about the importance of financial planning , investment planning, in each and every familiy of our societies.
AJIT PANICKER
Chief Financial Planner
Celeb Financial Planners Global
http://www.cfpglobal.com/
This is in context to the management of their own personal finance, there has been a practice that whenver a big renowned builder comes to develop a project he buys the land from the authorities which is sold to them by the villagers, out of the settlement or compensation amount which the villagers receive, the amount being huge, there comes a rush of scavengers like insurance agents, property agents, mutusl fund agents and many bankers as well.
Now as the villagers have received a huge mount which they do not know where to put, the competition withing insurers, AMC's start, and the one who manages to get the amount invested, in plans which usually do not give them which they could have easily received if it would have been planned by a dutiful Financial doctor( financial planner) , who understands where to get it invested with least risk and reasonably good amount of return.
An awareness need to be created about the importance of financial planning , investment planning, in each and every familiy of our societies.
AJIT PANICKER
Chief Financial Planner
Celeb Financial Planners Global
http://www.cfpglobal.com/
Friday, August 6, 2010
TOUR TO LUCKNOW
CELEB FINANCIAL PLANNERS Global: My tour to LUCKNOW made me realize that the families or individuals who are affected of the financial turmoil are not societal strata dependent, all classes of people are equally effected of the dreadful problems of debt, credit card balances, bad track record in CIBIL, unable to manage and save, consumption much more than income leading to more credit being used on cards, loans being used to pay of cards.Investment being done with only tax planning as an objective without taking into consideration which plan, what return, what term, how beneficIal, long term and short term benefit..i mean no analysis before buying any investment, its only pure tax planning without thinking, the kind of money which one saves from tax planning loses much more than that in a bad invesment or a highly charged ULIP for that matter.
Mutual Funds OR ULIP's are all long term benefit plans , they should not be sought after 3 or 5 years, investment in stocks should also have a long term horizon, any stocks matured or sold off before 7 years may not give you the kind of return which you can actually realize.
Pls consult the best FINANCIAL PLANNER( financial doctor)
By Ajit panicker, Chief Financial Planner
http://www.cfpglobal.com/
Mutual Funds OR ULIP's are all long term benefit plans , they should not be sought after 3 or 5 years, investment in stocks should also have a long term horizon, any stocks matured or sold off before 7 years may not give you the kind of return which you can actually realize.
Pls consult the best FINANCIAL PLANNER( financial doctor)
By Ajit panicker, Chief Financial Planner
http://www.cfpglobal.com/
DEBT PLANNING as essential as Breathing air
CELEB FINANCIAL PLANNERS Global: Debt planning is as important and essential as breathing air.there is a very common trend of using credit through credit cards and loans availed from banks, but as a layman, an individual usually tries to revolve credit by paying minimum amount due on it and keeping the actual principal debt as it is and end up paying around 42% interest on the total credit outstanding in a year.
The practice which i have usually seen in a lot of young professionals and gradutes who get into new jobs, get into the trap of taking easy credit by getting around 5-6 credit cards and then exhausting the complete credit limit and end up not even paying the minimum amount due after some time.
when the outstanding become unmamangeable and cannnot be paid from regular earnings they take personal loans from banks or private financers and end paying 17-19% interest which as in emi form becomes a liablity for the number of years the loan is taken.
There is where the individual become a debt owner.
please avoid this situation, and we take care of this through debt planning.
Consult a good experienced and well read financial planner.
www.cfpglobal.com
BY AJIT PANICKER
The practice which i have usually seen in a lot of young professionals and gradutes who get into new jobs, get into the trap of taking easy credit by getting around 5-6 credit cards and then exhausting the complete credit limit and end up not even paying the minimum amount due after some time.
when the outstanding become unmamangeable and cannnot be paid from regular earnings they take personal loans from banks or private financers and end paying 17-19% interest which as in emi form becomes a liablity for the number of years the loan is taken.
There is where the individual become a debt owner.
please avoid this situation, and we take care of this through debt planning.
Consult a good experienced and well read financial planner.
www.cfpglobal.com
BY AJIT PANICKER
FINANCIAL PLANNING to a better future
CELEB FINANCIAL PLANNERS Global: Usually people and their family members tend to spend according to their needs, but their is no understanding what is the actual need and where the scissors can be taken and the unnecessary expenses can be cut down on regular basis, here is where we take care and create a contingency fund out of that on a regular basis, by continuosuly monitoring your expenses.
Financial planning is all about taking an individual clients from where he is at present( his current net worth) to where he wants to be( projected net worth), and this is easily possible through a well read and experienced financial planner who takes care of each and every detail when designing your financial plan.
The financial plan should usually include the following sub plannings- consumption and savings planning, debt planning, insurance planning, investment planning, retirement planning, tax planning and estate plannning. People belong from different strata of society and working in much diverse group of industries, and thus many would not understand the difference of investing even in insurance with insurance needs or fill up the appetite of completing the tax saving formalities at the near end of financial year.
please consult the best FINANCIAL PLANNER( a doctor
Financial planning is all about taking an individual clients from where he is at present( his current net worth) to where he wants to be( projected net worth), and this is easily possible through a well read and experienced financial planner who takes care of each and every detail when designing your financial plan.
The financial plan should usually include the following sub plannings- consumption and savings planning, debt planning, insurance planning, investment planning, retirement planning, tax planning and estate plannning. People belong from different strata of society and working in much diverse group of industries, and thus many would not understand the difference of investing even in insurance with insurance needs or fill up the appetite of completing the tax saving formalities at the near end of financial year.
please consult the best FINANCIAL PLANNER( a doctor
BRIEF on the history of CELEB FINANCIAL PLANNERS Global
CELEB FINANCIAL PLANNERS Global: Established in 2008, as a Financial Planning Company with a vision to mentor the individuals and families on how to take their personal Net Worth from their current status to where they desire. The company works in alignment with the individuals family advisors, a panel appointed by CFP Global and with the consultants from CFP Global. They work in tune to decide the problem areas which have been identified by CFP Global, which are then taken care of with the recommendations we make.
The Chief Financial Planner, AJIT PANICKER, has about 10 years of experience in the corporate world with experiences varying from marketing, sales, finance, wealth management, Financial planning and promotions and industries as INDIAN NAVY, TOURISM, AUTOMOBILES, BANKING, INSURANCE and REAL ESTATES.
http://www.cfpglobal.com
The vision of the company is to create a world of families who are debt free or borne least debt, by devising different consumption and savings planning, creating a contingency fund(emergency fund), devise their investment strategy after analysing their risk appetite, understanding their exact insurance needs on life, health & items.Devising methods by using the products which prune your taxes, plan for a life in retirement, the corpus determination required in retirement life and plan for your estates and wills.
The Chief Financial Planner, AJIT PANICKER, has about 10 years of experience in the corporate world with experiences varying from marketing, sales, finance, wealth management, Financial planning and promotions and industries as INDIAN NAVY, TOURISM, AUTOMOBILES, BANKING, INSURANCE and REAL ESTATES.
http://www.cfpglobal.com
The vision of the company is to create a world of families who are debt free or borne least debt, by devising different consumption and savings planning, creating a contingency fund(emergency fund), devise their investment strategy after analysing their risk appetite, understanding their exact insurance needs on life, health & items.Devising methods by using the products which prune your taxes, plan for a life in retirement, the corpus determination required in retirement life and plan for your estates and wills.
Thursday, August 5, 2010
DIRECT TAX CODE 2011-12
What is Direct Tax code ?
The Finance Ministry has released a new draft direct tax code, which is a document containing changes in Exemptions , Tax slab . This will be a big change to four-decades old Income Tax Act . As per the proposal , the new tax slab would be
• 0% : Less than 1.6 lacs
• 10% : 1.6 – 10 Lacs
• 20% : 10 – 25 Lacs
• 30% : 25+ Lacs
This sounds really amazing , almost 98% of Indians will then pay 10% or less tax because majority of people taxable income is below 10 Lacs (thats very obvious) . We will see a comparison at the end
Dont worry
6. Perks now will be included as a part of the income for purpose of tax calculation, so tax burden may be sightly more.
All the perks you were getting from your employer like interest free loan , free lunch etc will get added to your income and taxed .
7. Lowering Corporate tax to 25% from 30%
This will cheer up companies as their tax burden would reduce . I am not sure about its impact on common person .
Comparison of New Vs Old Tax Code
Lets see an Example
Name : Rajesh Singh
Salary : 8 lacs per year
Investments : Investment of 30k in Mutual funds , 30k in EPF , 20k in PPF and 20k in Insurance Policy .
Home Loan : Taken a Home loan and pays 80k as Principle and 1.4 lacs as Interest .
Tax as per Current System
Amount Exempted = 1.4 lacs as home loan interest + 1 lac in 80C = 2.4 Lacs
Taxable Income = 5.6 lacs
Tax = 14k (10% from 1.6 to 3 lacs) + 40k (20% from 3 – 5 lacs) + 18k (30% on 5 – 5.6 lacs) = Rs 72,000
Tax as per New Tax Code
Amount Exempted = 1 lac from (mutual funds , PPF , EPF , Insurance) + 80k as Home loan principle = 1.8 lacs
Taxable Income = 6.2 lacs
Tax = Rs 44,000 (10% on 1.6 lacs – 6.2 lacs)
Note : Your Tax Liability will be totally different and can vary a lot depending on the your condition , Dont take this one personally , This example is just for demonstration Purpose .
Is New Tax Code Good or Bad
This is an important and good question , I will classify this tax code as a good one , the biggest thing to note in this is that the tax slab is just 10% for income from 1.6 lacs to 10 lacs There are many changes in the new tax code which may look bad and hurting , but at the end you will gain from it , because the tax charged will be just 10% , So your taxable salary will go up because of some changes but your tax liability will actually reduce . It will not reduce too much though , but surely it will be a reason to cheer .
Your biggest doubt will be that over long term if my Maturity amount from Mutual funds , Insurance policies and PPF will become taxable , then yes that true , but now you will save more to invest . So even if we assume 20% tax charged at the end , we need to invest 25% more than what we usually do to gain , which will happen I believe .. Anyways , this is now a debatable topic and can be argued upon .
New Direct Tax Code in 2011-2012, India
Government of India has proposed a new Direct Tax code or Direct Taxes Code to replace the old Indian Income Tax Act of 1961. This Direct Tax code is an attempt to simply the tax-life of an individual. The way it works is that the income tax slabs are increased, however several deductions (e.g. deduction on housing loan) and tax-breaks are taken away. A detailed post will be written about Direct Tax Code. Below you will find the proposed income tax slabs under the Direct Tax code will be debated in the Parliament and if approved, will be implemented in 2011-2012.
Income Tax rates or Tax Slabs under Direct Tax Code : Table
Direct Tax Code slabs, 2011-2012, Men
Income: upto 1.6 lacs no income tax
Income : 1.6 lacs to 10 lacs
10 %
Income : 10 lacs to 25 lacs
20 %
Income : above 25 lacs
30 %
Direct Tax Code slabs 2011-2012, Women
Income : upto 1.9 lacs NO TAX
Income : 1.9 lacs to 10 lacs
10 %
Income : 10 lacs to 25 lacs
20 %
Income : above 25 lacs
30 %
Direct Tax Code slabs 2011-2012, Senior Citizen
Income : upto 2.4 lacs NO TAX
Income : 2.4 lacs to 10 lacs
10 %
Income : 10 lacs to 25 lacs
20 %
Income : above 25 lacs
30 %
.
The Finance Ministry has released a new draft direct tax code, which is a document containing changes in Exemptions , Tax slab . This will be a big change to four-decades old Income Tax Act . As per the proposal , the new tax slab would be
• 0% : Less than 1.6 lacs
• 10% : 1.6 – 10 Lacs
• 20% : 10 – 25 Lacs
• 30% : 25+ Lacs
This sounds really amazing , almost 98% of Indians will then pay 10% or less tax because majority of people taxable income is below 10 Lacs (thats very obvious) . We will see a comparison at the end
Dont worry
6. Perks now will be included as a part of the income for purpose of tax calculation, so tax burden may be sightly more.
All the perks you were getting from your employer like interest free loan , free lunch etc will get added to your income and taxed .
7. Lowering Corporate tax to 25% from 30%
This will cheer up companies as their tax burden would reduce . I am not sure about its impact on common person .
Comparison of New Vs Old Tax Code
Lets see an Example
Name : Rajesh Singh
Salary : 8 lacs per year
Investments : Investment of 30k in Mutual funds , 30k in EPF , 20k in PPF and 20k in Insurance Policy .
Home Loan : Taken a Home loan and pays 80k as Principle and 1.4 lacs as Interest .
Tax as per Current System
Amount Exempted = 1.4 lacs as home loan interest + 1 lac in 80C = 2.4 Lacs
Taxable Income = 5.6 lacs
Tax = 14k (10% from 1.6 to 3 lacs) + 40k (20% from 3 – 5 lacs) + 18k (30% on 5 – 5.6 lacs) = Rs 72,000
Tax as per New Tax Code
Amount Exempted = 1 lac from (mutual funds , PPF , EPF , Insurance) + 80k as Home loan principle = 1.8 lacs
Taxable Income = 6.2 lacs
Tax = Rs 44,000 (10% on 1.6 lacs – 6.2 lacs)
Note : Your Tax Liability will be totally different and can vary a lot depending on the your condition , Dont take this one personally , This example is just for demonstration Purpose .
Is New Tax Code Good or Bad
This is an important and good question , I will classify this tax code as a good one , the biggest thing to note in this is that the tax slab is just 10% for income from 1.6 lacs to 10 lacs There are many changes in the new tax code which may look bad and hurting , but at the end you will gain from it , because the tax charged will be just 10% , So your taxable salary will go up because of some changes but your tax liability will actually reduce . It will not reduce too much though , but surely it will be a reason to cheer .
Your biggest doubt will be that over long term if my Maturity amount from Mutual funds , Insurance policies and PPF will become taxable , then yes that true , but now you will save more to invest . So even if we assume 20% tax charged at the end , we need to invest 25% more than what we usually do to gain , which will happen I believe .. Anyways , this is now a debatable topic and can be argued upon .
New Direct Tax Code in 2011-2012, India
Government of India has proposed a new Direct Tax code or Direct Taxes Code to replace the old Indian Income Tax Act of 1961. This Direct Tax code is an attempt to simply the tax-life of an individual. The way it works is that the income tax slabs are increased, however several deductions (e.g. deduction on housing loan) and tax-breaks are taken away. A detailed post will be written about Direct Tax Code. Below you will find the proposed income tax slabs under the Direct Tax code will be debated in the Parliament and if approved, will be implemented in 2011-2012.
Income Tax rates or Tax Slabs under Direct Tax Code : Table
Direct Tax Code slabs, 2011-2012, Men
Income: upto 1.6 lacs no income tax
Income : 1.6 lacs to 10 lacs
10 %
Income : 10 lacs to 25 lacs
20 %
Income : above 25 lacs
30 %
Direct Tax Code slabs 2011-2012, Women
Income : upto 1.9 lacs NO TAX
Income : 1.9 lacs to 10 lacs
10 %
Income : 10 lacs to 25 lacs
20 %
Income : above 25 lacs
30 %
Direct Tax Code slabs 2011-2012, Senior Citizen
Income : upto 2.4 lacs NO TAX
Income : 2.4 lacs to 10 lacs
10 %
Income : 10 lacs to 25 lacs
20 %
Income : above 25 lacs
30 %
.
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