S.J.Thakkar & Co.

EPS

2009-11-28T21:07:00.002+05:30

Earnings per share (EPS) is the net profit or loss accruing to equity-holders per outstanding share. It is a popular measure of the performance of a company and a factor in the valuation of its shares. Companies disclose their EPS in their financial statements.

Both the components that enter into the calculation of EPS -- earnings and the number of outstanding shares -- require careful definition.

'Earnings' for this purpose is the amount over which equity-holders have a claim. Therefore, it is calculated by deducting preference dividends and taxes attributable to them from the net profit and loss (including extraordinary items) for the reporting period.

As for the number of shares, it may happen that the number of shares outstanding changes through buy-backs or issues during the period for which earnings is reported.

In that case, EPS is calculated by taking a weighted average of the shares outstanding, with the weight for each share being the proportion of the reporting period for which it has been outstanding.

Bonus issues, stock-splits and reverse stock-splits (consolidation of shares) change the number of outstanding shares without changing the resources available to the firm. Therefore, companies adjust the number of equity shares outstanding for those periods for bonus issues, stock-splits and reverse stock-splits while calculating the EPS.

Let us take an example. Suppose that for a firm, the net profit attributable to equity share holders for 2005 was Rs 10,00,000 and the number of outstanding shares 50,000. The EPS for 2005 would then be Rs 20 in the financial statements of 2005.

Suppose that in 2006, the net profit attributable to equity share holders was Rs. 15,00,000 and the number of shares outstanding at the beginning of the period was 50,000. On June 1, 2006, bonus shares were issued in the ratio of 1:1. After the issue of bonus shares, the number of outstanding shares increased to (50,000×2), or 1,00,000.

In the financial statement for 2006, the EPS for 2005 would be readjusted to Rs 10 (Rs 10,00,000/1,00,000) to ensure comparability, even though it was reported at Rs 20 in financial statements for the year 2005.

Usually rights issues have a bonus element too, because shares are issued at a price which is lower than the market price (fair value) prevailing at the time of the issue of shares. Therefore, while computing EPS, the number of shares outstanding before the rights issue also needs to be adjusted for the bonus element in the rights issue.

The measure of earnings per share that we have been discussing so far is known as the 'Basic EPS.' While it adjusts for a change in the number of outstanding shares during the reporting period, it does not take into account the possible dilution of equity arising from instruments like convertible bonds or stock options which can be converted into equity shares.

Dilution is a reduction in EPS or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions. 'Diluted EPS' is a variant of the EPS which tries to adjust for this dilution too. For the purpose of computing 'Diluted EPS,' an enterprise assumes that all dilutive potential equity shares have been converted into equity shares at the beginning of the period, or if issued later, the date of the issue of potential equity shares.

However, the conversion of potential equity instruments into equity shares need not always lead to a dilution of equity. Anti-dilution is said to happen for conversions which lead to an increase in EPS or a reduction in loss per share.

For these conversions, no adjustment to basic EPS for dilution is required.

EPS is not a good measure of performance because it does not consider the opportunity cost of capital and can be manipulated by short-term actions.

Let us take an example. Assume that a company has 20,000 outstanding shares and earnings available to shareholders is Rs 200,000. The EPS is (Rs 2,00,000/ 20,000), or Rs 10. Assume that the company borrows Rs 10,00,000 at an interest rate of 8 per cent to buy back 10,000 shares. Assuming an income tax rate of 40 per cent, the earnings available to shareholders after the shares are bought back will be [Rs 2,00,000 - (1.00 - 0.40) x Rs. 80,000] or 1.52,000. Accordingly, EPS will be reported at [Rs 1,52,000/10,000] or Rs 15.20.

What this calculation misses is the increase in the cost of equity that has taken place because of the company's decision to substitute equity by debt. Since equity-holders are the residual claimants, almost all variability in the firm's earnings have to be absorbed by them.

Increasing the proportion of debt in the capital structure of a firm (in technical terms increasing the leverage or the gearing ratio) reduces the equity base, which faces this variability of earnings, thereby increasing the riskiness and hence the cost of equity even while increasing its expected returns.

Indeed, financial economics tells us that (in the first approximation) these two effects cancel out exactly and the return on invested capital (ROIC) and the cost of capital do not change with a change in the capital structure. Accordingly, economic profit (often called EVA) too does not change with the change in the capital structure. Yet, the example above shows that the EPS can increase in such circumstances.

Therefore, it is not correct to conclude that the increase in EPS always reflects better performance by the company.

For example, if a company finances a new project totally by debt, EPS will increase if the project returns are higher than the after-tax cost of debt, even if the project earns a return lower than the cost of capital (WACC) of the company. Although the EPS increases, such a project destroys value.

Another important shortcoming of EPS is that it does not relate EPS with the invested capital. For example, two companies may have same EPS, even if one company has lower invested capital as compared to the other.

Despite these shortcomings, it remains the case that EPS increases with increase in ROIC and growth if other things remain the same. Therefore, it will be incorrect to say that EPS is a totally useless measure. However, while interpreting increase in EPS we should keep in mind that EPS can be manipulated and that increase in EPS may be coupled with increase in the risk of equity investment.

Source : rediff.com

PE Ratio

2009-11-28T20:53:00.002+05:30

Have you ever experienced the following scenario: you buy 1 kg of apples at Rs 100 per kg, only to find out they were available at Rs 80 per kg just a few feet away? Aren't you disappointed at having to pay more for the same quality of apples?

The same also applies to stocks.

If you buy a share of company 'A' for Rs 100 and later on find out that the share of company 'B', with better earning prospects, is available for Rs 60, it is bound to disappoint you.

So how do you find quality bargains? How can you decide if the current stock prices make sense? Does the price justify the earning prospects of the company?

Answer to these questions is: Price-Earning (PE) ratio.

Introduction to PE ratio: PE ratio is one of the most widely used tools for stock selection. It is calculated by dividing the current market price of the stock by its earning per share (EPS). It shows the sum of money you are ready to pay for each rupee worth of the earnings of the company.

PE = Market price / EPS

Assume there are two companies 'A' and 'B', operating in the same sector. If PE of 'A' is 30 and PE of 'B' is 22, then 'B' is considered to be a better buy, as the market price has not gone up to reveal the earnings prospects of the company. But 'A' is considered to show higher growth prospects as compared to 'B'.

How does PE help?

Understanding PE gives the investors an idea if the stock has sufficient growth potential. Stocks with low PE can be considered good bargains as their growth potential is still unknown to the market.

the PE is high, it warns of an over-priced stock. It means the stock's price is much higher than its actual growth potential. So these stocks are more liable to crash drastically. This was evident in the recent market crash when the stocks of all Reliance [ Get Quote ] companies fell sharply.

This will allow savvy investors to sell their holdings before the stock price crashes.

Drawbacks of PE ratio

Interpretation of PE ratio is heavily dependent on comparison of the company with its peers. Also PE that is considered very high in certain sectors can be considered very low in other sectors.

For instance, companies in IT and telecom sectors have higher PE ratio than the companies in manufacturing or textile sectors.

Also PE ratio is not totally neutral. Any major announcement of a major order or acquisition by the company will certainly push up its PE. On the other hand, low PE may not indicate a good buy but could signify more serious issues facing the company. So it is very important to perform a thorough research into the background of the company, before investing.

Besides EPS itself is assumed, as it forecasts future growth based on past performance. However, there is no guarantee that the company can continue to maintain its performance each year. Also the sector in which the company is operating may experience problems as was recently seen for the IT sector.

So PE ratio cannot be considered to be a totally reliable indicator of cheap, good stocks.

Yet, PE ratio remains one of the most important ratios when it comes to stock selection.

Source : rediff.com

Most Common Financial Mistakes

2009-02-11T15:26:00.002+05:30

It is indeed a material world. When it comes to spending, the U.S. is a culture of consumption. The result: rising levels of consumer debt and declining household savings rates. But in 2008, this culture was hit hard by economic reality.

According to the Federal Reserve, US household debt grew steadily from the time the Fed started tracking it in 1952. It declined for the first time in the third quarter of 2008. As a result of the credit crisis and ensuing economic recession, savings rates also rebounded. For those who had been living beyond their means for years, it suddenly got a lot harder to make ends meet. And, although the government tends to encourage spending during economic downturn and statistics may lead us to think that overspending is normal, it is often a risky choice.

Here we'll take a look at seven of the most common financial mistakes that often lead people to major economic hardship. Even if you're already facing financial difficulties, steering clear of these mistakes could be the key to survival.

Mistake No. 1: Excessive/frivolous spendingGreat fortunes are often lost one dollar at time.

It may not seem like a big deal when you pick up that double-mocha cappuccino, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up.

Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra mortgage payment or a number of extra car payments. If you're enduring financial hardship, avoiding this mistake really matters - after all, if you're only a few dollars away from foreclosure or bankruptcy, every dollar will count more than ever.

Mistake No. 2: Never-ending payments

Ask yourself if you really need items that keep you paying for every month, year after year. Things like cable television, subscription radio and video games, cell phones and pagers can force you to pay unceasingly but leave you owning nothing.

When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning your from financial hardship.

Mistake No. 3: Living on borrowed money

Using credit cards to buy essentials has become somewhat normal. But even if an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries and a host of other items that are gone long before the bill is paid in full, don't be one of them.

Credit card interest rates make the price of the charged items a great deal more expensive. Depending on credit also makes it more likely that you'll spend more than you earn.

Mistake No. 4: Buying a new car

Millions of new cars are sold each year, although few buyers can afford to pay for them in cash. However, the inability to pay cash for a new car means an inability to afford the car. After all, being able to afford the payment is not the same as being able to afford the car.

Furthermore, by borrowing money to buy a car, the consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years, and lose money on every trade. Sometimes a person has no choice but to take out a loan to buy a car, but how much does any consumer really need a large SUV? Such vehicles are expensive to buy, insure and fuel. Unless you tow a boat or trailer, or need an SUV to earn a living, is an eight-cylinder engine worth the extra cost of taking out a large loan?

If you need to buy a car and/or borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain. Cars are expensive. You might need one, but if you're buying more car than you need, you're burning through money that could have been saved or used to pay off debt.

Mistake No. 5: Buying too much house

When it comes to buying a house, bigger is also not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant, long-term dent in your monthly budget?

Mistake No. 6: Treating your home equity like a piggy bank

Your home is your castle. Refinancing and taking cash out on it means giving away ownership to someone else. It also costs you thousands of dollars in interest and fees. Smart homeowners want to build equity, not make payments in perpetuity. In addition, you'll end up paying way more for your home than it's worth, which virtually ensures that you won't come out on top when you decide to sell.

Living Paycheck to PaycheckIn 2007, the US household savings rate fell below one per cent, but other countries had considerably higher rates of personal savings. For example, the Netherlands, Italy, Norway, Germany and France personal savings rates average 10 per cent or more according, to the OECD Factbook 2005. Clearly it is possible to enjoy a high standard of living without financing it with debt. Countries in Asia boast savings rates of as much as 30 per cent!

The cumulative result of overspending puts people into a precarious position - one in which they need every dime they earn and one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits. If this happens, you'll have very few options. Everyone has a choice in how they live, so it's just a matter of making savings a priority.

Making a payment vs affording a purchaseTo steer yourself away from the dangers of overspending, start by monitoring the little expenses that add up quickly, then move on to monitoring the big expenses. Think carefully before adding new debts to your list of payments, and keep in mind that being able to make a payment isn't the same as being able to afford the purchase. Finally, make saving some of what you earn a monthly priority.

Source : rediff.com

Tax-free delight: Equity linked savings schemes

2009-01-28T21:05:00.003+05:30

Tax-free delight: Equity linked savings schemes

During the last quarter of each financial year, it is not uncommon to find the salaried class scouring the horizon for making investments in tax savings instruments in a bid to bring down their tax liability. Normally, the tax-savings schemes or instruments that come first to taxpayers' mind are the public provident fund, pension plans, national savings certificate and national savings scheme. These instruments are gilt-edged when it comes to protection of investors' capital but their returns leave much to be desired. However, if you desire superior returns as compared to traditional savings schemes/ instruments, then you could consider investing a portion of the Rs 100,000 tax savings limit under Section 80C of the Income Tax Act in equity linked savings schemes (ELSS) floated by various mutual funds. Equity linked savings schemes are generally open ended schemes but have a lock in period of three years. These schemes serve the dual purpose of equity investing as well as tax planning for the investor. However, it must be noted that investors cannot, under any circumstances, get their money back before three years are over from the date of investment.

ADVANTAGES OF ELSS

The main advantage of ELSS is its short lock-in period. Whereas the lock-in period of ELSS is only 3 years, maturity period of NSC is 6 years and PPF is 15 years. In life insurance policies only trivial amounts can be withdrawn in certain schemes after 3 years. Since ELSS is an equity linked scheme, earning potential is much higher compared to the other tax saving instruments. Equity investments have on an average returned over 15% annualized over long holding periods. Another big advantage is that the investor can opt for dividend option and get some gains during the lock-in period even when he can not exit or redeem the same. Some ELSS schemes also offer personal accident death cover insurance. Lastly, proceeds from ELSS investments are tax-free, which is not the case with many of the other options available under Section 80C.

DISADVANTAGES OF ELSS

The main drawback for these schemes is that the risk component is much higher compared to the traditional tax saving products. Also, premature withdrawal from these schemes is not allowed whereas it is allowed in other instruments in some specific conditions. Moreover, unlike life insurance products, these schemes generally do not provide any risk cover.

EASE OF INVESTING IN ELSS

Mutual funds offer easy and convenient ways of investing and tracking your investments. A simple form needs to be filled up and you need to attach your KYC (Know Your Client) number and cheque of the requisite amount to subscribe to any ELSS scheme. Tracking your investments is easy as NAVs of these funds are regularly quoted in news papers, internet sites and business channels. Also, your advisor can always help you monitor your investments. Similarly, withdrawal from these schemes, after the mandatory lock-in period, is also fairly simple and easy. In contrast, service standards on the small savings schemes are very deplorable.

One country, one bank account’ may turn a reality

2009-01-07T21:16:00.001+05:30

One country, one bank account’ may turn a reality

If you are banking with several banks, keeping track of all the accounts can prove to be cumbersome. Life would be easy if a single account number gives you access to all banks. Well, the Indian Banks’ Association, at the behest of the Government, is examining the feasibility of a ‘One Country, One Bank Account’ proposal whereby a single bank account is all that an individual would need to transact business at any bank in the country. If the ‘One Country, One Bank Account’ proposal, currently on the drawing board stage, becomes a reality, it could revolutionise the way banking transactions are carried out in India. From ‘Any Branch Banking’ services being currently offered by individual banks, the Indian banking system would be graduating to ‘Any Bank Branch Banking’. With ATM-cum-debit cards now being enabled for conducting transactions across the ATM networks of banks in the country, the ‘Any Bank Branch Banking’ could as well see the light of day in a few years. “The Government has asked us to examine the feasibility of the ‘one country, one account’ concept. It is a challenging concept whereby an individual with a unique account number can go to any bank for transacting business. Technology holds the key to its implementation,” said Mr Sanjay Sharma, member, IBA’s Information Technology Committee, and Managing Director & CEO, IDBI Intech.Mr Sharma said IndiaPay, the retail payments hub being set up under the aegis of the National Payments Corporation of India (NPCI), would help link up all banks, ATMs, Point of Sale (POS) terminals, mobile service providers, etc., as an aggregator for enabling seamless payment and settlement. Once IndiaPay becomes operational, all ATM and POS transactions would be settled in India. Currently, these transactions are routed through international payment gateways of MasterCard and Visa. According to Mr K. Unnikrishnan, Deputy Chief Executive, IBA, the NPCI, which has an authorised capital of Rs 300 crore and paid-up capital of Rs 100 crore, has engaged the services of a global HR search firm to zero in on a CEO and key operations personnel. – http://www.thehindubusinessline.com/

Documents required for Gujarat VAT Tin No.

2008-04-16T16:02:00.004+05:30

Documents required for VAT Tin No.

1. Turnover
Turnover (Sales / Purchase) required above Rs.5 Lacs
if turnover is less then Rs.5 Lacs then required challan deposit of Rs.25000/-

2. Proof of Business / Business Address
Photocopy of Elect. Bill, Landline Telephone Bill,Muni. Tax Bill
If business place is rented - Photocopy of Rent Receipt,Rent Agreement
If business place is owned - Photocopy of Agreement/Possession Letter/Allotment Letter
If Business is Partnership firm - required Copy of Partnership Deed, Partnership Firm's PAN Card , Firm's registration
If Business is "Pvt. Ltd. / Ltd." Company - required Copy of Articles of Association,Memorandum of Association, Copy of Company's PAN Card, Copy of Certificate of Incoeporation.

3. Proof of Residential Address
Photo Copy of Elect. Bill / Landline Telephone Bill,Muni. Tax Bill
If residential place is rented - Rent Receipt / Rent Agreement
If residential place is owned - Agreement/Possession Letter/Allotment Letter
If residential place is owned by parents/cousins/relatives then required Declaration/Sanmati Patra

4. Shops & Establishment (Gumasta) Certificate; if available

5. Passport Photo 2 Copies

6. Photocopy of PAN No.

7. Photocopy of Election Card, Driving Licence

8. Photocopy of 1st Bank Slip of business account

9. Photocopy of 1st Purchase Bill

10. Photocopy of 1st Sales Bill

11. Declaration of Previous activity till date

12. All Purchase & Sales bills files, Books of A/c's required

Income Tax Rates : A/c. Yr. : 2008-09

2008-03-23T18:51:00.005+05:30

PERSONAL TAX RATES

For individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI):

For the A/c. Year 2008-09, Assessment Year 2009-10

Taxable income slab (Rs.) - Rate (%)

Up to 1,50,000 - Nil
Up to 1,80,000 (for women) - Nil
Up to 2,25,000 (for resident individual of 65 years or above) - Nil
1,50,000 – 3,00,000 - 10%
3,00,001 – 5,00,000 - 20%
5,000,001 upwards - 30%*

*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 10,00,000.

Note : -

Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any.
A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 10,00,000 is limited to an amount by which the income is more than this mentioned amount.

Budget : 2008-09 Summary

2008-03-01T15:14:00.006+05:30

New Delhi, Feb 29 (IANS) A Rs.60,000 crore (Rs 600 billion) debt relief package benefiting 40 million farmers, increase in spending on social sector schemes and relief to income-tax payers are some of the highlights of India's fiscal budget for 2008-09.

Presenting the budget in the Lok Sabha Finance Minister P. Chidambaram announced a new insurance scheme for workers in the unorganised sector, setting up of institutes of higher learning and 6000 high-quality model schools, and provision of Rs. 16,000 crore to cover all rural districts under National Rural Employment Guarantee Scheme (NREGS).

Under the debt waiver and relief package, small and marginal farmers (with holdings up to 2 hectare) there will be a complete waiver of all loans overdue on December 31, 2007 and which remained unpaid until February 29, 2008. For other farmers, there will be a one-time settlement (OTS) scheme. Under the OTS, a rebate of 25 per cent will be given against payment of the balance 75 per cent. Loans re-scheduled in 2004 and 2006 through special packages and those re-scheduled in the normal course will also be eligible for a waiver or an OTS. The debt relief scheme will be implemented by June 30, 2008 and the covered farmers will be entitled to fresh farm loans from banks in accordance with normal rules. The total value of overdue loans being waived is estimated at Rs. 50,000 crore and the OTS relief at Rs.10,000 crore.

The scheme is likely to benefit about 30 million small and marginal farmers and 10 million other farmers.
Expressing the hope that the target of agricultural credit for 2007-08 would be exceeded, the Finance Minister has set the target of Rs. 280,000 crore farm credit in 2008-09. Short-term crop loans will continue to be disbursed at interest rate of 7 per cent per year.

More investment is flowing into the irrigation sector. Under the Accelerated Irrigation Benefit Programme, 24 major and medium irrigation projects and 753 minor projects will be completed. The outlay for this programme is being raised from Rs 11,000 crore last year to Rs. 20,000 in 2008-09. The Rain-fed Area Development Programme will be implemented, with an allocation of Rs. 348 crore. The Government will establish the Irrigation and Water Resources Finance Corporation with an initial capital of Rs. 100 crore. This Corporation will mobilize resources for major and medium irrigation projects.

Initiatives for rejuvenating the agricultural sector include setting up of 500 soil testing laboratories,

introduction of crop insurance scheme for plantation crops and support to cooperative sector reforms.
The budget provides Rs. 32,667 crore for food subsidy under the Public Distribution System (PDS). As a new initiative for efficient delivery of food grains under the PDS, smart cards are being introduced in Haryana and Chandigarh, on pilot basis.

Keeping in mind the higher cost of construction of houses by the poor, the subsidy per unit for new houses sanctioned under Indira Awas Yojana after April 01, 2008 is being enhanced from Rs. 25,000 to Rs.35,000 in plain areas and from Rs.27,500 to Rs.38.500 in hilly/difficult areas. The subsidy for upgradation of houses goes up from Rs. 12,500 per unit to Rs.15,000. Loans up to Rs.20,000 per unit under the Indira Awas Yojana will be available at the interest rate of 4 per cent.

Calling the education and health sectors 'the twin pillars on which rests the edifice of social sector reforms', the Finance Minister announced 20 per cent increase in budget allocation for education and 15 per cent for the health sector.

In the area of school education, a model school programme with the aim of establishing 6,000 high quality model schools has been announced. Mid-day meal scheme is to be extended to upper primary classes in Government and Government-aided schools in all blocks of the country. Nehru Yuva Kendras will be opened in all the 123 districts which presently do not have an NYK. In higher education, three IITs are to be set up in Andhra Pradesh, Bihar and Rajasthan; two IISERs at Bhopal and Thiruvananthapuram; two Schools of Planning and Architecture at Bhopal and Vijayawada; and one Central University in each of the hitherto uncovered States. To encourage children to take up science and R&D, scholarships will be given to students under a new scheme, Innovation in Science Pursuit for Inspired Research (INSPIRE).

Highlighting the need for launching a world class skill development programme in mission mode, the budget seeks to establish a non-profit corporation. The Government will put Rs. 1,000 crore as initial equity in the corporation. Continuing the scheme of upgradation of ITIs, the budget provides Rs.750 crore for upgrading 300 more ITIs in 2008-09.

In the Health sector two major interventions are planned. Under the Rashtriya Swasthya Bima Yojana every worker in the unorganized sector falling under the BPL category and his family will get health cover of Rs. 30,000. For the elderly a National Programme for the Elderly is to be started in 2008-09.

The budget provides for Rs. 1,000 crore for the Aam Admi Bima Yojana that provides insurance cover to poor households. This will cover one crore poor households in addition to the one crore likely to be covered by September 30 this year. Funds have also been enhanced for the Indira Gandhi National Old Age Pension Scheme. This Scheme has been expanded from November 19 last year to include all persons over 65 years falling under the BPL category.

Allocations for the Flagship Programmes have been enhanced. Provision has been made to expand the National Rural Employment Guarantee Scheme to cover all 596 rural districts. For providing potable water to schools in water deficient habitations, provision for installing stand-alone systems is being made under the Rajiv Gandhi Drinking Water Mission.

Schemes benefiting SCs and STs exclusively have been provided Rs. 3,966 crore and for schemes where at least 20 per cent of the benefits are earmarked for SCs and STs, the budget provides Rs. 18,983 crore.
The schemes announced for the welfare of the minorities include a multi sectoral development plan to be drawn for each of the minority concentration district and a scheme for modernizing Madrassa education. The allocation to the Ministry of Minority Affairs has been doubled to Rs. 1,000 crore.

The budget has a number of initiatives for women and children. The allocation to the Ministry of Women and Child Development has been enhanced by 24 per cent to Rs. 7,200 crore. For the first time, a statement on child related schemes has been introduced in the budget. The total expenditure on schemes for child welfare would be of the order of Rs. 33,434 crore. Rs.11,460 crore has been provided for 100 per cent women specific schemes and Rs. 16,202 crore for schemes where at least 30 per cent is earmarked for women-specific programmes. LIC is being asked to extend the Janashree Bima Yojana to cover all women Self Help Groups that are credit-linked to the banks.

The North-Eastern region continues to receive special attention in this year's budget also. The total budget allocation for this region has been raised by over Rs. 2,000 crore to Rs. 16,447 crore. The government proposes to identify the urgent need of border areas in the north-east and address them through a special mechanism, and for this a Rs. 500 crore fund is being established.

The Finance Minister has raised the income tax exemption limit from Rs. 1,10,000 to Rs. 1,50,000, thus giving every assessee a relief at minimum of Rs. 4,000. The tax rate will be 10 per cent for the income slab between Rs. 1,50,001 and Rs. 3,00,000 and 20 per cent between Rs. 3,00,001 and Rs. 5,00,000. For income of Rs. 5,00,001 and above the income tax rate will be 30 per cent. The exemption limit for women assessees has been increased to Rs. 1,80,000 and in case of senior citizens to Rs. 2,25,000. The Finance Minister has not proposed any change in corporate income tax and in the rate of surcharge. A person paying medical insurance premium for his parents will be allowed an additional deduction of Rs. 15,000 under Section 80D. Justifying the changes in the slabs for personal income tax Shri Chidambaram said that moderation will beget revenues and fairness will beget compliance.

The Finance Minister has brought four more services under the service tax net. They include asset management service provided under ULIP, services provided by stock/commodity exchanges and clearing houses, right to use goods in cases where VAT is not payable, and customized software. He also clarified that money changers, persons running games of chance and tour operators using contract carriage vehicles are liable to service tax. He, however, increased the threshold limit of exemption for small service providers from Rs. 8,00,000 per year to Rs. 10,00,000. He said 65,000 small service providers will go out of the tax net.

On the indirect taxes front, the Finance Minister has made no change in the peak rates of customs duty. The customs duty on project imports has been reduced from 7.5 per cent to 5 per cent. He has proposed to impose a 4 per cent special countervailing duty on a few specified projects in the power sector. Duty on steel melting scrap and aluminum scrap has been reduced from 5 per cent to nil. Customs duty on certain life saving drugs and on the bulk drugs used in the manufacture of such drugs has been reduced from 10 per cent to 5 per cent and also to totally exempt them from excise duty or countervailing duty. Specific parts of set top boxes and specified raw materials for use in IT and electronic hardware industry have been fully exempted from customs duty. Specific machinery for manufacturer of sports goods, vitamin pre-mixes, mineral mixtures and phosphoric acid used for manufacture of cattle and poultry fields have been given duty concession.

In order to support domestic fertilizer production, customs duty on crude and unrefined sulphur has been reduced from 5 to 2 per cent. Export duty on chrome ore has been increased from Rs. 2000 to Rs. 3000 per metric tonne to conserve chrome ore. The Finance Minister has proposed to reduce the general CENVAT on all goods from 16 per cent to 14 per cent. Excise duty on all goods produced in the pharmaceutical sector has been reduced from 16 per cent 8 per cent. Excise duty on buses and their chassis, small cars, two and three wheelers has been reduced from 16 per cent to 12 per cent. Water purification devices, flush doors, specified packaging material and breakfast cereals will attract excise duty at 8 per cent. Anti AIDS drug, Atazanavir has been totally exempted from excise duty. To encourage cold chain facilities, the Finance Minister has proposed to exempt excise duty on refrigeration equipment above two tonne refrigeration utilizing power of 50KW and above.

Bulk cement will now attract excise duty of Rs. 400 per metric tonne or 14 per cent ad valorem, whichever is higher. Cement clinkers will be liable to excise duty of Rs. 450 per metric tonne. Excise duty of packaged software has been increased from 8 to 12 per cent. An excise duty of one per cent on polyester filament yarn, called NCCD, has been removed and imposed on cellular mobile phones.

Emphasizing that there has been an unmistakable boom in investment, the Finance Minister said the Government will provide Rs. 16,436 crore as equity support and Rs. 3,003 crore has loans to Central Public Sector Enterprises. The corpus of the Rural Infrastructure Development Fund is proposed to be raised to Rs. 15,000 crore during the coming year. Shri Chidambaram said that there has been some moderation in the index of production of the six core infrastructure industries as well as in the overall index of industrial production from April to December, 2007. He said the decline has been somewhat sharp in the case of consumer goods.

The Finance Minister has provided Rs. 5,500 crore for the Rajiv Gandhi Grameen Vidyutikaran Yojana, Rs. 800 crore for the Accelerated Power Development and Reforms Project and increased the outlay on National Highway Development Programme from Rs. 10,867 crore to Rs. 12,966 crore. The outlay on Technology Upgradation Fund run by the Ministry of Textiles has been increased from Rs. 911 crore in the current year to Rs. 1090 crore. Rs. 340 crore has been allocated for the cluster approach to development of the handloom sector. In order to scale up both infrastructure and production, the Finance Minister proposes to take up six centres for development as mega clusters. They include Varanasi and Sibsagar for handlooms, Bhiwandi and Erode for powerlooms and Narsaspur and Moradabad for handicrafts. An initial provision of Rs. 100 crore has been made for the mega clusters.

Recognizing that exports have come under some pressure due to appreciation of the Rupee, the Finance Minister said the Government has given relief to exporters in three tranches of over Rs. 8000 crore and Rs. 8351 crore in the form of interest cost of market stabilization bonds. He said the Government is sensitive the needs of the exports sector and will continue to respond sympathetically as the situation demands.
On the capital market front, he announced some measures to expand the market for corporate bonds. He said, the requirement of PAN will be extended to all transactions in the financial market subject to suitable threshold exemption limit.

The Finance Minister has provided Rs. 624 crore for the commonwealth games, Rs. 75 crore to ICCR to promote India's music literature, dance, art and films, Rs. 50 crore to the National Tiger Conservation Authority to raise and deploy a special protection force.

The allocation for defence has been raised by 10 per cent from Rs. 96,000 crore to Rs. 105,600 crore. The total plan expenditure will be Rs. 243, 386 crore and the non-plan expenditure is estimated at Rs. 507,498 crore. The fiscal deficit for 2008-09 has been estimated at Rs. 133,287 crore which is 2.5 per cent of GDP. He said, significant liabilities of the Government on account of oil, food and fertiliser bonds are currently below the line. He said, after the obligations on account of the Sixth Central Pay Commission become clear he would request the Thirteenth Finance Commission to revisit the roadmap for fiscal adjustment.

Income Tax Rates : A/c. Yr. : 2007-08

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TDS Chart A/c. Year : 2007-08

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Budget : 2007-08 Summary

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Reduction of duty on petrol and diesel, expanding the safety net for rural poor, additional one per cent cess to fund secondary and higher education and expansion of the service tax net are some of the highlights of the Union Budget 2007-08 presented by the Finance Minister Shri P Chidambaram in Lok Sabha.

On excise duty the Finance Minister has brought down the ad valorem component from 8% to 6% on petrol and diesel. The peak rate of customs duty for non-agricultural products has been slashed from 12.5% to 10%. While cigarettes and bidis will cost more, duty on pan masala not containing tobacco has been reduced from 66% to 45%. Duties on most chemicals and plastics have been reduced from 12.5% to 7.5% and customs duty on polyester fibers and yarn has also been reduced from 10% to 7.5%. The Gem and jewellery industry gets relief with duty on cut and polished diamonds reduced from 5% to 3%. Dredgers have been fully exempted from import duty. Duty on drip irrigation systems, agricultural sprinklers and food processing machinery have been reduced by 2.5%. Additional countervailing duty of 4% has been completely lifted from crude and refined edible oils.

On the direct tax front, there is no change in the tax rate. However, the threshold limit for income tax payers has been increased by Rs. 10,000, giving every tax payer a relief of Rs. 1000. The new threshold limit for women will be Rs. 1,45,000 and for senior citizens Rs. 1,95,000. Companies with a taxable income of Rs. 1 crore or less, will not have to pay surcharge on income tax. Companies providing cross country natural gas distribution network, including gas pipeline and storage facilities will be entitled to tax concession. Shri Chidambaram said tax-free bonds will be issued through State Pooled Finance Entities to facilitate creation of urban infrastructure.

Dividend distribution tax has been hiked from 12.5% to 15%. Money market mutual funds and liquid mutual funds will attract 25% Dividend Distribution Tax. The scope of Fringe Benefit Tax has been expanded to include employees stock option plan. Shri Chidambaram also proposed a levy of 1% additional cess on all taxes to fund secondary and higher education and expansion of capacity by 54% for reservation for socially and educationally backward classes.

While the Service Tax rate has been left untouched, new services have been brought into the taxable fold. They include services outsourced for mining of minerals, oil or gas, asset management and design services, development and supply of content for use in telecom and advertising purposes and renting of immovable property for commercial purpose. The Finance Minister also raised the exemption limit for small service providers from Rs. 4 lakh to Rs. 8 lakh. Two lakh assesses will go out of tax net causing a revenue loss of Rs 800 crore. All services provided by technology business incubators and clinical trial of new drugs have been exempted from service tax net.

The 8 flagship programmes of the UPA Government will continue to get high priority. The Finance Minister has allocated Rs. 24,603 crore for Bharat Nirman programme, recording a rise of 31.6% over the last year. While the allocation on education has been increased by 34.2% to Rs.32,352 crore, the allocation for health and family welfare has been increased by 21.9% to Rs. 15,291 crore. Sarva Shiksha Abhiyan gets Rs.10,671 crore and the Mid-Day Meal Scheme will be extended to upper primary classes in 3,427 educationally backward blocks. The Finance Minister also proposed Rs. 750 crore for Means-cum-Merit Scholarships to reduce drop outs after class VIII.

National Rural Employment Guarantee Scheme will be extended to 330 districts from the current level of 200 districts. The Finance Minister has allocated Rs. 12,000 crore for this scheme besides allocating Rs. 2,800 crore for Sampoorna Gramin Rozgar Yojna to augment rural employment. The allocation for Swarnajayanti Gram Swarozgar Yojna has been hiked by 50%, from Rs. 1200 crore to Rs. 1800 crore to promote self-employment among rural poor.

Shri Chidambaram said to increase the economic viability of the agricultural sector, 50 lakh new farmers will be brought into the banking system next year with a target of Rs. 2,25,000 crore as farm credit. He said the Government will act on the Radhakrishnan Committee which is examining all aspects of agricultural indebtedness. The Finance Minister also promised capital grant or concessional financing to double the production of certified seeds for pulses. He also proposed a financial mechanism for coffee, rubber, spices, cashew and coconut in line with a Special Purpose Tea Fund which has already been launched. The allocation under accelerated irrigation benefit programme has been increased from Rs. 7,121 crores to Rs. 11,000 crore. Out of this, the grant component to the State Governments will be Rs. 3,580 crore. Keeping in view the growing demand for rural infrastructure development fund, the Finance Minister proposed to increase the size of this fund to Rs. 12,000 crore.

The Finance Minister proposed to bring the unorganised landless households under a safety net by providing insurance. The scheme to be called ‘Aam Admi Bima Yojna’ will be launched by the LIC and will provide death and disability insurance. The Central Government will bear 50% of the premium of Rs.200 per year per person.

The National Housing Bank will introduce ‘reverse mortgage’ for senior citizens under which the house owner can avail of a monthly stream of income while remaining owner and occupying the house. Shri Chidambaram said regulations will be put in place to allow the creation of mortgage guarantee companies.

On the capital market the Finance Minister said Indian companies will be permitted to issue exchangeable bonds to unlock a part of their holdings in group companies. PAN will be the sole identification number for all participants in the securities market. Mutual funds will be permitted to launch dedicated infrastructure funds to promote flow of funds into the infrastructure sector.

The Finance Minister said work in the Golden Quadrilateral is nearly complete and there is considerable progress in North-South, East-West corridor project. He also allocated Rs. 10,667 crore for the National Highway development programme for the coming year. The accelerated power development and reform project which has reduced technical and commercial losses in 213 towns is being restructured to cover all district headquarters and towns with a population of over 50000. Shri Chidambaram has allocated Rs. 800 crore for this project during the coming year and another Rs. 3983 crore under Rajiv Gandhi Grameen Vidyutikaran Yojana.

The Finance Minister proposed to give a five-year tax holiday to two, three and four-star hotels in the national capital territory of Delhi, ahead of the 2010 Commonwealth Games. Convention centres with a sitting capacity of not less than 3,000 will also get tax holiday if they are completed and begin operation between April 2007 and March 2010. The Minister has also provided Rs. 150 crore to the Ministry of Youth Affairs and Sports and Rs. 350 crores to the Delhi Government for the Games.

Shri Chidamabaram said the direct tax proposals will yield Rs. 3000 crore more while the indirect tax proposals are revenue neutral. He also allocated Rs. 96,000 crore for defence. The gross budgetary support for 2007-08 has been increased to Rs. 2,05,100 crore, of which the Central Plan will be Rs. 1,54,939 crore. The non-plan expenditure marks a rise of 6.5% to Rs. 435,421 crore. The total revenue receipts of the Central Government is projected to be Rs. 486,422 crore. The revenue deficit has been pegged at 1.5 percent of the GDP at Rs. 71,478crore while the fiscal deficit has been fixed at 3.3 percent of the GDP. Reiterating UPA Government’s commitment to economic reforms, fiscal prudence and monetary stability, Shri Chidambaram said revenues are buoyant for the third year in succession. Additional revenues have been generated and have been used to promote inclusive growth, equity and social justice that are at the core of the National Common Minimum Programme. He expressed the confidence that the current average inflation on 5.2% to 5.4% can be moderated.

Check out the changes

Amongst the various provisions of the Budget 2007-08, the following are some of the more significant ones that would directly affect the common man:

Basic Exemption Increase: Flattering to deceive

Yes, the basic exemption has been raised by Rs 10,000 for all categories of taxpayers. However at the same time, the education cess has also been increased. Both these cancel each other and the taxpayer comes back to square one. The cut off, as it were, is Rs 510,000, Rs 520,600 and Rs 893,000 for non-senior males, ladies and senior citizens, respectively.

To put it differently, those earning lower than the above-mentioned income levels would be marginally better off and those earning higher would end up actually paying more tax. Note that the highest tax rate has now climbed to 33.99%.

Stock Options: Expensive on both employer and employee

Stock options, now under Fringe Benefit Tax, will be taxed at 33.99%. The finance minister has gone on record stating that the authorities have yet to give details on how to determine the value of stock options and how to tax the same, yet, a plain reading of the law suggests that the difference between the Fair Maket Value and the Exercise Price will be taxed at 33.99% on the date of exercise.

Simultaneously, when the employee sells his stock option shares, capital gains would be applicable in the normal course.

Dividends become more expensive

Dividend Distribution Tax (DDT) on corporate dividends has been hiked to 15% from 12.5%. After surcharge and cess, the effective tax rate climbs to 16.995%

A couple of issues arise. Taxing corporate dividends does amount to double taxation. Dividends are declared by the company from its post-tax income. Now if the investor is taxed again (DDT is akin to taxing the investor at source), the same stream of income is being subjected to an effective tax rate of 50.98% (33.99% + 16.99%).

Secondly, foreign investors (NRIs, FIIs, etc) have to pay tax in their host country too on such dividends received. As DDT is not a tax envisaged under the Double Taxation Avoidance Agreements (DTAAs), such investors would end up bearing triple tax on the one income.

Liquid Funds: Also become more expensive

DDT for all categories of investors in Money Market Mutual Funds (MMMFs) and liquid funds has been doubled to 25% as against the earlier 12.5%. Again, the effective tax rate is actually 28.325%.

This has apparently been done to cut the arbitrage opportunity between income tax rates and distribution tax. However, here it may be mentioned that even now, arbitrage does exist as the effective tax rate works out to actually just 20%. Let me explain.

I will take a base DDT of 25% (not included surcharge and cess for simplicity) and assume a dividend to be distributed of Rs 100. So the mutual fund concerned will actually pay Rs 80 to the investor and pay Rs 20 as distribution tax. Rs 20 is 25% of Rs 80 (which was the dividend distributed). However, as far as the investor is concerned, he has borne a tax of Rs 20 on a gross income of Rs 100 which works out to just 20%.
Look at it the other way. Had the investor actually received Rs 100 in hand, he would have been asked to pay Rs 25 (25% of Rs 100) as tax. Just on account of the mutual fund paying the tax on the investor's behalf, the effective rate works out lower.

In any case, these amendments will take effect from April 1, 2007.

TDS limit for interest hiked

Amongst good news for the small investor, Bank and Post Office interest was subject to TDS over Rs 5,000. This limit has been doubled to Rs 10,000.

Extra deduction for medical insurance

Deduction in respect of medical insurance premium under Section 80D has been increased to Rs 15,000 from Rs 10,000 for non-senior taxpayers. For senior citizens, the limit has been enhanced from Rs 15,000 to Rs 20,000. Also, premium payments made by electronic mode, credit card, etc. will be allowed.

Education gets cheaper

This is indeed a salutary move. Deduction of interest payable on loan taken for higher education under Section 80E was available only to the individual taking the loan. This was a problem since the student taking the loan hardly had any taxable income and if the parent takes the loan for his or her child, the deduction was not available.

However, now, the deduction has been made applicable even in case the loan is taken for one's spouse or children.

Note that this deduction is available only for loans taken form a financial or charitable institution. Loans from employer or from other private sources aren't eligible for the tax deduction.

54EC Bonds: Elusive at best

The limit of Rs 50 lakh on capital gains bonds stays. However, it is not the limit that one is worried about -- the worry is the fact that these issues are capped. So when you sell your property, forget the limit, the bonds may just not be available --- so what was needed was to make the bonds available on tap, throughout the year --- which has not been done.

RBI Bonds: Now subject to TDS

Interest on the immensely popular RBI 8% Savings Bonds was taxable but free from TDS. Effective 1.7.2007, any interest over Rs 10,000 from such bonds would be subject to a TDS of 10%. Similarly, professional fees were subject to a TDS of 5% which has now been increased to 10%.

Service Tax: Marginal Increase

The service tax rate has actually increased from 12.36% from 12.24% on account of the additional cess. It is the declared intent of the government to increase the service tax rate eventually to 16%, however, the inflation sword has precluded an increase this time.

The basic exemption has increased from Rs 400,000 to Rs 800,000, however, this essentially benefits the small service provider but not the common man who is the receiver of the service.

Making commercial rentals subject to service tax would only make office space still more expensive.

IT companies put on the MAT

MAT, or Minimum Alternate Tax, is 10% of 'book profits.' Which means this is the least amount a company has to pay as tax. The Income Tax Act lays down the way to compute such 'book profits.' Till last year, the book profit could be adjusted for incomes and expenses related to Section 10A and 10B.

However, Budget 2007-08 intends to take Section10A and 10B out of the purview of MAT benefit thereby increasing the computed book profit to that extent.

The impact, including surcharge and cess, would be 11.33%. Therefore, those companies (especially the SMEs in the IT sector) whose effective tax rate was less than 11.33% would be directly affected.

Section 80-IA controversy

There was some confusion in the markets related to the Budget treatment of Section 80-IA. The Section 80-IA provides for a ten-year tax benefit to a company (enterprise or undertaking as it is called in the tax law) engaged in infrastructure development, Industrial Parks, SEZs, etc.

The government has clarified that Section 80-IA was a tax break intended for the original enterprise which was engaged in infrastructure development and not for companies who were merely executing the civil construction work or any other works contract on its behalf.

Thus, in a case where a company itself makes the investment and executes the development work it will be eligible for the 80-IA deduction. However, a company or a developer who merely enters into a works contract will not be eligible for the tax benefit under section 80-IA.

An immediate fall out of this measure has been a free fall in the share prices of constructors and developers who essentially were works contractors and were never intended to be benefited by this deduction.
The other news that has taken industry by surprise was that this amendment is retrospective in nature and is being made effective from 1st April, 2000

Other announcements

There are other miscellaneous announcements like the issue of tax-free bonds, dedicated infrastructure funds to be launched by mutual funds, etc. However, the details haven't yet been announced. Watch this space for further details.

Get a PAN

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Get a PAN

Steps to get a Permanent Account Number (PAN)

1. Get a copy of form 49A (download here)

2. Affix one recent colored photograph on the form

3. Attach photocopies of proof of identity and proof of address.

Any one of the following will serve as proof of identity:

Copy of school leaving certificate or matriculation certificate or degree of a recognized educational institution or depository account or credit card or bank account or water bill or ration card or property tax assessment order or passport or voter identity card or driving license or certificate of identity signed by a MP or an MLA or a Municipal Councilor or a Gazetted Officer

Any one of the following will serve as proof of address:

Copy of electricity bill or telephone bill or depository account or credit card or bank account or ration card or employer certificate or passport or voter identity card or property tax assessment order or driving license or rent receipt or certificate of address signed by a MP/ MLA/Municipal Councilor / a Gazetted Officer

4. The code of the concerned Assessing Officer of Income Tax department will have to be mentioned in Form 49A. This code may be obtained from Income Tax Office where you submit your return of income. Applicants who have never filed return of income may find out Assessing Officer code with the help of IT PAN Service Center or TIN Facilitation Center or jurisdictional Income Tax Office.

Section 80C

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Old wine in a new bottle!

If that's your understanding of the new Section 80C then you need an update on your Tax Quotient. Section 80C has a lot more purpose and meaning from the long-term perspective of taxability of investments than the earlier Section 88 rebate.

Section 80C replaces the existing Section 88 with more or less the same investment mix available in Section 88 but with a major change in the method of providing a tax benefit.

The investments

Let's start with the investments that fall under Section 80C.

Provident Fund
Public Provident Fund
Life insurance premium
Pension plans
Equity Linked Saving Schemes of mutual funds
Infrastructure bonds
National Savings Certificate

Tuition Fees for 2 Childrens

Besides these investments, the payments towards the principal amount of your home loan are also eligible for an income deduction.

All the above must be made from the current year's earnings and not past earnings. So if you are paying tax for the financial year 2005-06,2006-07 then your investments must be made from earnings during this period.

How To Start Saving

The limit

The limit under this section is Rs 100,000.

This is irrespective of how much you are earn and under which tax bracket you fall.

Also, there are no sub-limits under this overall Rs 100,000 amount.

So if you choose, you can invest the entire amount in ELSS or infrastructure bonds. The choice is entire up to you as to how you want to reach this limit.

Or, if you are repaying a home loan and the principal repayment amounts to Rs 100,000, then you can claim the entire amount as a deduction.

Earlier, the principal repayment of home loan was restricted to only Rs 20,000, irrespective of how much you actually paid. Not so any longer.

Tax Benefits on home loans

The calculation
Let's take an example to better explain the tax working:
Salary income : Rs 3,20,000
Home loan interest payment : Rs 1,20,000
Home loan principal repayment : Rs 80,000
NSC investment : Rs 30,000

Salary (a) 320,000
Income from house property (b) 120,000
Gross total income (c) (c = a - b) 200,000
Home loan principal repayment 80,000
NSC investment 30,000
Section 80C investments 1,10,000
Limit for Section 80C deduction (d) 1,00,000
Taxable income (c - d) 100,000
Tax on taxable income Nil

* The tax man views the home loan interest payment as negative income from house property.

Invest in Elss Funds,earn big and save tax

Make it work for you

The taxman has given you total freedom in deciding where to invest your money. So you now have the flexibility to invest in investments that are most suited to your requirements.

Young investors should take a long-term view and seriously consider investing in ELSS. These are mutual fund schemes that invest in the stock market. So not only do they have the capacity of generating higher returns but they also provide you with a tax benefit.

You can also set aside a portion in pension funds and the PPF for retirement purposes.

And, if you are thinking of taking a home loan, go for it.

Just ensure that you totally exhaust the Rs 1,00,000 limit and save on your tax.

Claim Home Loan Benefits, HRA

The tax on withdrawal

When you look at the taxability of a certain investment, there are three aspects to consider:

1) Tax when you make the investment

2) Tax on the income you earn from such an investment

3) Tax on the maturity of the investment

For example, if you invest in a pension fund, the annuity (amount the insurance company pays you regularly as an income) may be taxable. But, your returns in a PPF are not.

This obviously creates a bias in the minds of the investors against the taxable investment option.

In order to remove this bias, the tax department has proposed to move towards EET (Exempt, Exempt, Taxed) basis of taxation through the three stages mentioned above.

According to this method of taxation, all investments would be taxable on receipt/ withdrawal/ maturity from such investment.

Hence, all investments are now in one basket - Section 80C - in order to facilitate this EET based taxation.
If the EET basis of taxation is made applicable, then the investment would become taxable at the time of receipt/withdrawal.

That means that your PPF too would be taxable. Most probably only amounts from this year onwards.

PPF Could be taxed on withdrawal

Not so soon....

However, the tax on withdrawal will only be levied if the parliament passes the Budget Bill.

Even if the parliament does so, the roadmap for EET-based taxation has not yet been decided and hence a committee would be set up to define the roadmap and only then would this basis of taxation would become applicable.

Probably we could look at a timeframe of at least a year.

Points to be check before 31/03/2007

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At early age if the person manage to have his own residence house. He would prefer to go for that first. It will not only give the benefit of tax, but vis-à-vis offers security in life. He would also think of the following option available to him. If it is not possible to purchase / acquire the residential house, followings are good way to have tax savings and future’s financial security.

He should prefer to go for the investment which gives the insurance to cover risk of life vis-à-vis tax savings. But be sure that the premium is fixed and to be paid annually. Some insurance company offers one time premium. Various options to be taken into account. Do not just sign the document what the insurance agent gives to you. Study the various scheme by various companies. Further, do not only think about the income tax, there are many factor other than that. Determine the social liability you will face in near and long term future. Like marriage of your younger brother or sister, Social responsibility to be tackle, Medical emergency of your parent, education of your child. Think all of these; also see the sources of income. Like pension of parent, spouse’s income, other income deriving from the rent / dividend ect. And than finally decide the investment in various schemes.

The income tax rates are changing every year. The basic exemption limit during the 1990 was around 28,000/-, increased to Rs. 35,000/- during the year 1994, Rs. 40,000/- during 1997, today it is Rs. 1,00,000/- and the percentages on excess of the basic exemption is reduced to 10%. And the span of next slab was increases. So, when ever you think of the investment, think that the rates are not final. You might automatically covered in below taxable limit or have very nominal tax to pay.

Person should think for investments in mutual funds, which ultimately gives more returns than just fixed deposits.

Go for pension fund scheme by LIC of other insurance company, in early stage of carrier. And retirement is vary far. By doing that the yearly payment will be lower than the later stage.

If you are near to retirement, go for the inc\vest a scheme which immediately saves the tax and returns on the investments are tax free, like PPF. Please note that the interest on NSC is now taxable, as the section 80L is abolished. So, investing in NSC will not serve the purpose of tax saving, next year the interest portion will be added to your total income.

Invest in such a security, which gives you the return which covers the inflation rate. No financial plans by the companies / Banks / Insurance companies are capable of gives you the return to tackle the future price hike. So, investment in property, where the rent is increases with the inflation. So, in your old age, you will have enough to enjoy. At least your bread and butter. You will reduce the burden on your child.

Also invest little bit in shares, where the prices is increases, dividend by the companies are also increases. The dividend is also tax free.

Last but not least, do not put all your eggs in one basket. The same be with inform of fixed deposit (security ) [30 to 40% of savings.], limited risk like mutual funds, where the return are more than rate of fixed deposits. [25 to 30% of savings.], Remaining [30 to 40% of savings.] invest in high risk area where the return are very high but loosing the savings are also high. The Investment are to be decide on the base that whether you own a house, who many children you have and what will be their liability, Other social factor, that any property you get in inheritance, other co-owner (Brother and sister) will co-operate in distribution of the property. Any dispute with brother / brother of father ect is to be consider to take a wise decision.

Scrutiny guidelines [non corporate] :
Your case may be selected for scrutiny if it falls within following category.

I. If the search or survey carried out at your business place.

II. If your claim under Chapter VI-A and / or refund claim is more than 5 lacs, in stations other than 60 cities on computer network.
(If you are stationed connected with computer, the computer selected your case for scrutiny automatically)

III. If the CIT(A) or ITAT confirmed the additions more than Rs. 5 lacs.

IV. If the case is pending with CIT(A) or ITAT, for the additions over Rs. 5 lacs.

V. All cases of bank, non-banking financial institutions having deposits more than 5 crores.

VI. If you claim income exemption u/s 11 claimed and the gross receipts (including donations credited to the corpus … . . . ), is more than Rs. 5 crores in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Banglore and Ahmedabad, and 1 crores in other cities.

VII. If the total value of the International Transaction exceeds Rs. 15 crores.

VIII. If you are s stock brokers ( or a sub brokers) and you disclosed brokerages received is at Rs. 50 lacs or more and the total income declared is less than 10% of such brokerages. And / or you claimed the bed debt which is more than Rs. 5 lacs.

IX. If you are professionals having gross receipts of Rs. 10 lacs or more in places other than 60 cities on computer network if total income declared is less than 5% of gross receipts.

X. If you are builders following Project Completion method.

XI. If you introduced fresh capital ( / or loan accepted) during the year exceeds Rs. 1 crores in Delhi, Mumbai, Chennai, Kolkata, Pune, Hyderabad, Banglore and Ahmedabad, and Rs. 10 lacs in other cities.

XII. If you claimed deductions under section 10A / and / or 10B Income Tax Act,1961, with export turnover exceeding Rs. 5 crores.

XIII. If you are contractors having gross contractual receipts more than Rs. 1 crores in places other than 60 cities on computer network and income declared is less than 5% of gross contractual receipts.

XIV. If you are claiming the deductions u/s 80IA(4) , 80IB, 80IAB, 80IC,80JJA,80JJAA,80LA,10(21),10(22B) ,10(23A) ,10(23B) ,10(23C) ,10() ,10(23D) ,10(23EA) ,10(23FB) ,10(23G) ,10(37) ,10A ,10AA or 10 BA Income Tax Act,1961 is claimed for the first time.

So, if you fall in above category the scrutiny notice will come soon to your door step.

What to do :-

Never ignore the notice server (of department), just sign it and have a coy of the same. (The department has wide power to serve you the notice.)

Avoiding may lead the department that you are non co-operative person. No minor favor (within law) may be given to you. Avoiding may seen as harassment from your side to department. And your case may be scrutinize taking view that you have something to hide, as you are non co-operative person.

Keep a copy of the notice with you and send the other copy to your authorized representative.

Write down the hearing date, and note it in your schedule. Attend the office on time , either personally or through Authorised Representative (AR).

If your AR is representing your case, do confirm that AR has attended the hearing.

As the first notice is statutory notice, the Assessing Officer does not require much in formations. However to show your willingness, A written submission mentioning AY, Your PAN, All related contact numbers, including mobile number, nature of you business, working hours may be submitted. This would give a good impression upon the Officer. He is assured that you are co-operating in assessment proceedings. The hearing of your case may be fixed considering your busy hours. So, you can attend your normal business and have a time to prepare query raised by him.

The Assessing Officer generally does not hurry in completing you case in this year (for scrutiny cases of the AY 2005-06). So, the time will be granted to you. Normally, the Assessing Officer enters your presence and submission given by you in order sheet. You may get the time for the next date of hearing.

Mean while …. Go through following tips.

Tips to the taxpayers.
What the business man is to do to legally avoid the avoidable tax when his case is in scrutiny (or not); [Within the preview and ambit of the Act]

The Income Tax Department has selected many cases for scrutiny u/s 143(2). The cases are selected by the computer, as well as criteria stated above.

To avoid end-time preparation following is the tip for smooth scrutiny completion.

First and most important do not offer any money / bribe to the Assessing Officer. Either personally or through your authorized representative.

If your authorised representative asks you for money to be given to assessing officer, do not believe it. Because, even the corrupt Assessing Officer never ask for the money on being first notice issued. If so, the issuance of notice is under question. And take necessary steps for the same.

Do not leave your case into hand of middle man; it may be any person or ITP / CA. Do not trust that they would clear your case, just because of he has good relations with the income tax people. These types of people would black mail you later on asking the bribe in name of Assessing Officer, even Assessing Officer is not aware of it.

Always take interest in the development of assessment.

Keep your account updated and complete in all form.

Check once more the all the vouchers, bills all documents and get it tilled with your account.

Keep copy of all your bank accounts. If it is not with you get it from your banker. Verify the bank statement with your cash book. Check the closing balance of cash and what is shown in the Balance sheet submitted with the return of income.

[While in day to day business, never deposit cash into your bank account. Ensure that all entry in your bank accounts are explained {There must be enough cash in your cash book on the day of depositing the cash}. Don’t accept cash or cheques from sources that cannot be explained.] Even do not give money to person who is not capable to explain his other sources. That other man’s scrutiny would trouble you.

Keep collecting the confirmation from each depositors, appearing in your balance sheet as well as deposits taken during the year.

Keep your stack book up to date and verifiable by the Assessing Officer. Prepare statistics of your closing stock as well as monthly data about the stock.

If you are a manufacturer keep all the data available about the manufacturing process. Valuation of raw materials, Work in process, finished goods.

Check your claims under various sections of the income tax act. Verify the various provisions of the ACT before claiming the deductions. Specially when it exceeds rs 1,00,000/-

Even if your income is exempt, even of you declare the true income and each source is valid, it should be satisfactorily explained to the Assessing Officer. Avoiding the procedural part of the income tax, you may face the penalty proceedings. This is very hard and heavy. E.g. there is a penalty for non compliance of hearing which is rs 10,000/- per default. So, avoid non-compliation.

Please remember the following, even the expenses are genuine and from the explained sources, it is not allowable as deductible from the taxable income.

i. If you fail to deduct the tax from the sources, and paid it to the central govt. Account, the entire expenses are not allowable.
ii. If you pays in cash for more than rs 20,000/-, 20% of the same will be added to the total taxable income.
iii. If you re-pay or accept loans or deposits (or both) in excess of rs 20,000/- during the year it will cost you equal amount of penalty. Please avoid the same.
iv. Looking to your life style, withdraw appropriate amount each month from the business to meet family needs. (The CBDT would issues the instruction that those who show the self withdrawals less than rs 50,000/-, his case will be scrutinised.)

Keep in mind that when you earn, run business you can not avoid the tax. Accept the fact, and try to keep your self, your account updated.

So, first of all hire good and reliable accountant. If possible if you have computer, install good accounting software. Learn it how to operate it, even you do not personally work on it, you may have good control over your own data.

Choose a good accountant, the same is not easy job,

Never give your accounts details to relative (accountant), he may abuse his knowledge about your financial status.

Decide the fees for the preparation of the account. Pay it in time.

Never handed over the bills / vouchers / ect to the accountant. If it is required, get it back when work is over. Always have your document with your custody only.

When the return is filed, ask the original acknowledgement slip from the person to whom you give the return of income for filing. And keep the same in safe custody.

A l l t h e B e s t.

Important Contact Information in Ahmedabad

2007-01-31T18:42:00.000+05:30

INCOME TAX
(Income Tax returns, appeals against income tax orders. Permanent account number. (PAN).civil, criminal)Chief Commissioner of Income TaxAayakar Bhavan, P.B. 211, Navarangpura, Ahmedabad, India -380009 CCIT PH 6580618 FAX 079-6589441 PBX 6582176

PROVIDENT FUND OFFICE
(Provident fund registration, Appeals & Procedure., civil, criminal)
PROVIDENT FUND OFFICE Bhavishyanidhi Bhawan, Near Income Tax Circle, Ashram Road,Ahmedabad-380 014, India (GJ) (Gram: Bhavishyanidhi Ahmedabad)

RBI REGIONAL OFFICE
(Reserve bank of India, code no. Investment in India. Permission for overseas investments.,civil )
Reserve Bank of IndiaNear Gandhi Bridge, Ahmedabad, Gujarat, IndiaTel: +91 7543057 7542057 Fax: 7541993, e-mail helpahmedabad@rbi.org.in

REGISTRAR OF COMPANIES
CGP COMPLEX, OPP. RUPAL PARK, B/L ANKUR BUS STAND, NARANPUR, AHMEDABAD-61. Gujarat, IndiaPhone : 079-7437597, 079-7438531 civil

Registrar of Firms
Government of Gujarat
Vechan Vera Bhavan, Ashram RoadAhmedabad-380 009 Gujarat , IndiaPhone : 079- 6581952

SALES TAX OFFICES (Commercial Tax - VAT, Gujarat)
Office Of The Commissioner of Sales Tax, Gujarat State , Ashram Road , Ahmedabad , IndiaPhones : 6582056, 6581929, Extn. 555 6583539- Extn. 225

COTTON TEXTILES EXPORT PROMOTION COUNCIL
JALADARSHAN HOUSING SOCIETY, OPP.NATRAJ CINEMA, ASHRAM ROAD, AHMEDABAD, India- 380009TEL : 91- 79- 6580323

STATE CONSUMER COMMISSIONS
The President,Gujarat State Consumer Disputes Redressal Commission,4, Vijay park Society, Opp. Municipal Market,Navrangpura, Ahmedabad - 380 009, Gujarat, India

CEGAT
(Customs, import & export matters. Import, Export code numbers. Procedure in imports/ exports. Appeals in import/export matters. Excise duty, registration for excise. Appeals in excise matters, civil, criminal.) Chief Commissioner of Customs GujaratCustom House, Near All India Radio, Navrangpura, Ahmedabad, India - 380009. Control Room : 7540258STD : 079 PBX : 7540122, 7543071, 7541173, 7543917, 7541590, 7540904, 7544150, 7541908 Email : csahm@excise.gov.in

Collectorate of Customs & Central Excise
Nr All India Radio, Income Tax Circle Ahmedabad-380 014Gujarat , IndiaPhone: 079- 7540122 Fax: 079- 7544463 Customs, Inland Container Depot Opp. Lalita Mahal Cinema, Kaligam, Sabarmati, Ahmedabad-382470

Customs, Air Cargo Complex Old Airport, Shahibaug, Ahmedabad-4 , India

Customs, Foreign Post Office Near Girdharnagar Police Chowki, Shahibaug, Ahmedabad-4 , India

Customs, S.V.P. International Airport Sardar Nagar, Ahmedabad , India

Customs Division Paldi Vidyalaya Chambers, Near Paldi Bus Stop, Paldi, Ahmedabad.

Central Excise Commissionerate of Ahmedabad-1
Central Excise Bhavan, Opp. Polytechnic, Ambawadi, IndiaAhmedabad - 380015Control Room : 6300183PBX Nos.6304837, 6306182, 6306452, 6306906, 6306912, 6307109, 6307296, 6307521Telex : 0121-6262 Fax : 6306152 STD : 079Gram : CENEXCISEE-mail : cexahmed@excise.nic.in

Central Excise and Customs Commissionerate of Ahmedabad-II
'Customs House', Opp. Gujarat High Court Navrangpura,Ashram Road, Ahmedabad, India -380009Control Room : 7540258 EPABX : 7543071, 7540904, 7541173, 7544150, 7541908, 7540122, 7543917, 7544150Telex : 0121 -6262 FAX : 7543762 STD : 079 Gram : CENEXCISEE

Central Excise & Customs, 2nd Floor, Jivabhai Mansion, B/h, Ashram Road Post Office, Ahmedabad

Quality registration Bureau of Indian Standards
3rd Floor, Pushpak Building, Khanpur Ahmedabad-380 001Gujarat , IndiaPhone: 079- 5601431 Fax: 079-5601440

Charity Commissioner
Chariti Commissioner Office, Mirzapur Road, Ahmedabad, IndiaPhone No. 5507514 (General)Phone No. 5507011 (General)

Commissionerate of Geology & Mining
Government of Gujarat Block No 13, 3rd Floor Dr Jivraj Mehta Bhavan Gandhinagar- 382 010Gujarat , IndiaPhone: 079- 3221544 Fax: 079- 3235372

Chief Inspector of Steam, Boiler & Smoke Nuisance
Government of Gujarat Block No. 9New Mental Hospital CompoundMeghaninagar Ahmedabad-380 016 , IndiaGujarat Phone: 079- 2685206 Fax: 079- 2685205

Handling of hazardous items, factory registration, Chief Inspector Factories
Government of Gujarat Block No. 9New Mental Hospital CompoundMeghaninagarAhmedabad-380 016GujaratPhone: 079- 2684254 Fax: 079- 2684249

Environment impact assessment Ministry of Environment & Forests
(Environment law, pollution control, complaint & appeals.) Government of India Paryavaran Bhavan, CGO Complex Lodhi Road, New Delhi-110 003 Phone: 011-4361896/4360721 e-mail: secy@menf.delhi.nic.in

Forest & Environment Department
Government of GujaratBlock No.14, SachivalayaGandhinagar-382 010Gujarat, IndiaPhone:079-3220757 Fax:079-3226296

Regional Passport Office
Neptune Tower, lst Floor, Ashram Road, Ahmedabad - 380 009
Tele : 079-6587263, 6588241 Tele : 079-6620937 (Residence) Fax : 079-6581622 Gram : PASSEM Telex: 0121-6379

CONSUMER DISPUTES REDRESSAL COMMISSIONS
(Covers Appeals, consumer recovery, drafting, and representation. Lawyer, advocate on record. Courts, medical negligence, hospitals, doctors, chartered accountants, claims, arbitration, arbitrator, civil, criminal.)

State consumer dispute redressal commissions
The President, Gujarat State Consumer Disputes Redressal Commision, 4, Vijay Park Society, Opp. Municipal Market, Navrangpura, Ahemdabad,, India -380 009.

District consumer dispute redressal commissions
(Covers consumer, products, services, sales, company corporate, seller, buyer.)President6, Rasmi Society, Mithakali, 6 Roads,Navrangpura, Ahmedabad , India-380009

Ahmedabad District
President, District Forum, O/o The Distt. & Session JudgeNayaya Sankul, Mirzapur Road, Ahmedabad, India

Gandhinagar
President District Forum, O/o The Distt. & Session JudgeNayaya Sankul, Mirzapur Road, Ahmedabad, India

Bharuch
President District Forum, Distt. & Session's Court, Court's Road, Bharuch-392001
JanagadhPresidentDistrict Forum, O/o The Distt. & Session JudgeMahatma Gandhi Road,

Janagadh
BanaskanthaPresidentDistrict Forum, O/o The Distt. & Session JudgeJoravar Palace, Palanpur, Banaskantha.

Rajkot
President District Forum, O/o The Distt. & Session Judge Rajkot

Panchmahal
President District Forum, O/o The Distt. & Session JudgeCivil Lines Road, Godhara, Panchmahal

DIRECTOR GENERAL OF FOREIGN TRADE
(Joint venture, Foreign companies. Corporate matters, foreign investments & approvals. New companies with foreign equity.)

Income Tax Rates A/c. Yr. : 2006-07

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For the year 2006-07

Taxable income slab (Rs.) Rate (%)
1,00,000 Nil
1,35,000 (for women) Nil
1,85,000 (for senior citizens) Nil
1,00,001 - 1,50,000 10%
1,50,001 - 2,50,000 20%
2,50,001 upwards 30%
10,00,000 upwards 30%*

* A surcharge of 10% on income tax is levied where taxable income exceeds Rs. 1 million which makes it effective 33% including surcharge

Note : -
Surcharge of 10% for those whose taxable income is Rs 10 lakhs or more.

A surcharge of 10% on income tax is levied where taxable income exceeds Rs. 1 million which makes it effective 33% including surcharge.

Tax exemption on interest in Non-Resident (external) Account and on interest payable by a scheduled bank to Non-Resident Indians (NRI's).

Tax exemption on the interest payable by a scheduled bank to a non-resident or a person who is not ordinarily resident on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the RBI.

Standard deductions, as well as Section 88 and 80L has been abolished.

Section 88 i.e. Tax rebate to assessees in respect of insurance premium, PF contribution, PPF, NSC, etc. deleted. A new Section 80C introduced which allows a deduction from income of up to Rs 1,00,000 in respect of insurance premium, PF contributions and other schemes which were hitherto under Section 88.
In respect of educational loans taken for pursuing higher studies, the deduction shall be allowable only in respect of interest payment.

To encourage pursuit of higher education, the interest outflow would be eligible for deduction for a period of 8 years without any ceiling. Repayment of the principal amount would no longer be eligible for deduction.
Rebate of Rs 5,000 has been wiped off for women and rebate of Rs 20,000 from tax has been wiped off for senior citizens.