LIC to launch Pension Plus scheme with guaranteed return

Life Insurance Corporation (LIC) on Wednesday said it will launch a unit-linked pension scheme with a minimum guaranteed return of 4.5 per cent, called Pension Plus.

"The new scheme, which comes with host of benefits, would be launched tomorrow," LIC Senior Divisional Manager (Delhi Zone) T S Ramakrishnan said.

This is a unique pension plan where a minimum rate of interest of 4.5 per cent is guaranteed, he said, adding that after maturity, one-third of the corpus can be withdrawn as a lumpsum amount.

The remaining two-thirds would be paid in either monthly or half-yearly installments after maturity, which would be decided by the policy holders, he said.
The Pension Plus policy is in line with the Insurance Regulatory and Development Authority's latest ULIP guidelines, which became effective today, he said.
The Pension Plus plan would be available in two options -- debt fund and mixed fund. Under the debt fund, not less than 60 per cent of the corpus would be invested government securities, while the remaining 40 per cent would go into money market instruments, he said.

In the case of the mixed fund plan, he said the investment in government securities would not be less than 45 per cent, while 40 per cent would go into money market instruments and 15-35 per cent into equities.

This plan can be subscribed by any one between 18-75 years of age and the minimum maturity period is 10 years.

DTC may make tax payers richer by up to Rs 41,040 annually

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.

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.

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.

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.

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.

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