It was an Indian business valued at $11 billion – and a lawsuit that involved Vodafone Group Plc.’s acquisition of 67% stake in Hutchison Essar from Hutchison Telecommunications International Ltd. that took place in Cayman Islands way back in 2007.

While the Income Tax department claimed taxes on the grounds of the transaction being a transfer of an Indian asset; Vodafone disputed the claim as a deal between two global companies, even if the assets involved in the deal were located in India.

Finally, the curtains are down – Vodafone wins $2.5 billion tax case, as adjudicated by the Supreme Court. The Government of India can no longer tax the capital gains arising from the transaction that took place in Cayman Islands between the two non-resident companies.

In the words of the Supreme Court of India’s Chief Justise S.H. Kapadia:

“The government has no jurisdiction over Vodafone’s purchase of mobile assets in India as the transaction took place in Cayman Islands between HTIL & Vodafone”

Interestingly, after losing the suit in High Court, this multi-billion dollar tax case has unfolded in Vodafone’s favor in the Supreme Court. Apart from being a big thumbs-up for the British telecom giant, the outcome is a moral victory for similar litigations being faced by foreign companies in India such as GE, Cadbury and Vedanta amongst others.

Though, this set back to the I-T department comes as a big knock on the exchequer’s kitty to the tune of Rs.11000 crore on a deal abroad; this landmark judgment will boost people’s confidence in Indian judiciary and promote Indian shores as attractive investment destination, given that tax regulations play a major role in cross border transactions and investments in a country.

It was one of the rare cases where the Indian I-T department went full throttle to lift the corporate veil, issuing a show-cause notice to Vodafone as to why income tax was not deducted at source at the time of purchase of the Indian JV partnership business and paid to the Government of India.

The apex court ruling has now directed the country’s I-T department to return Rs.2500 crore deposited by the telecom giant within two months, along with 4% interest on the said amount; for an offshore transaction that was ‘bonafide’, hence it was non-taxable.

Huge win for Vodafone – Wide repercussions for I-T dept, isn’t it?

Related posts:

1. Vodafone decides to disconnect mobiles inactive for 60 days!
2. Domain jacking at its best….airtel.com forwards to Vodafone !!!
3. Mukesh Wins RNRL RIL war – PSC reigns over MoU

Let me share with you a small personal tryst with investment in Equity-linked Savings Scheme (ELSS) for tax-saving purposes. Since I track stock markets closely, my preference is usually tilted towards direct equity investments rather than going through the mutual fund route.

However, in order to stifle my taxable income, I had to invest Rs. 30,000 in an ELSS scheme way back in Feb-2008. The Indian markets were in the midst of a severe bear phase then, with Sensex hovering around 16000 levels.

The time ticked by and it was Feb-2009 on the calendar. It was time to invest another Rs. 30,000 to save on taxes. The Sensex was quoting at paltry 8000 levels – on hindsight, it turned out to be the trough of the bear market. Needless to say, there was panic written all over the screen.

Fortunately, for me, this period turned out to be a golden opportunity to average my previous lump-sump investment which went in at higher levels of market. The average value of my total Rs. 60,000 investments now stood correlated with Sensex 12000 levels.

But, you might not be lucky enough to get such averaging opportunities just around the end of every financial year. Your lump-sump investments may not necessarily stand you in sweet spot if your investments are made arbitrarily during the year-end. They need to be planned well in advance through out the year.

LESSONS:

1. Plan your tax-saving instruments – don’t leave it for the last hour.
2. Even tax-saving investments can be routed through systematic plans.
3. Most of the tax-saving investments are for minimum of 3 years.
4. Determine which investment option to save taxes suits you the best.
5. Investments with mere intention of saving taxes might backfire on you.

It’s that time of the year when most of the individuals are found scrambling to invest in tax-saving instruments just before the financial year-end. Currently, Section 80C of the Income Tax Act allows deduction of upto Rs.1 lakh from the gross total income. Plus another Rs. 20,000 for investments in infrastructure bonds if this Rs.1 lakh limit is exhausted.

Let’s have a look at some of the tax-saving options available to individuals:

1) Public Provident Fund

Public Provident Fund, or PPF, is a long-term, statutory scheme of the Central GOI. Currently, the interest rate offered through government-backed small savings scheme is around 8%, which is compounded annually. On maturity, you pay absolutely no tax under Section 80C.

This long-term scheme is for 15 years; hence if your investment horizon is short-term in nature, PPF is not meant for you as it locks your liquidity for a relatively long period of time. In this scheme, you need to invest a minimum deposit of Rs.500 and upto maximum of Rs.70,000 in a financial.

2) Unit-linked Insurance Plans

Unit-linked Insurance Plans (ULIPs), which are eligible for Section 80C tax rebate, are investment products that provide dual benefits of life insurance and savings element as a one stop solution for an individual’s financial goal. However, if you don’t need insurance, going with ULIP is not the best investment bet on the horizon.

Recently, insurance regulator IRDA had initiated a few corrective measures by hiking the threshold limit for ULIPs from 3 years to 5 years of lock-in period and mandated a minimum guarantee for such plans. Now, the policyholders can also opt for pre-mature exit without any penalty.

3) Equity-linked Savings Scheme

Equity-linked Savings Scheme (ELSS) is mutual funds that help you save taxes under Section 80C as well as generate decent long-term returns from the equity markets. Such schemes are typically characterized by a three-year lock-in period.

However, the tax benefits of ELSS will be phased out with the introduction of the Direct Tax Code (DTC) starting from April 1, 2012. But, the revised code mandates that existing ELSS funds will be able to claim tax-exemptions. So, this might just be your last opportunity to put money is lucrative tax-saving mutual funds.

4) 5-Yr Bank Fixed Deposits

You might be thinking how come bank fixed deposits are included in tax-saving schemes? Since 2006, Bank Term Deposits which are of over 5 years tenure and upto Rs.1 lakh are allowed exemption under Section 80C of the Income Tax Act, 1961. Such deposits should necessarily be in the RBI mentioned list of Scheduled Banks.

Most of such tax-saving fixed deposit avenues are of fixed tenure and do not allow pre-mature withdrawal facility. Further, such term deposits can not be pledged to secure a loan. Most importantly, the biggest drawback of this scheme is that the interest for the amount deposited is taxable.

5) Employee’s Provident Fund

Salaried individuals are compulsorily required to contribute 12% of the sum of basic pay and dearness allowance to Employee’s Provident Fund (EPF). This sum is deducted by the employers from the monthly payroll of employees as a social security scheme akin to a forced-saving towards retirement planning.

EPF brings with it key benefits as a fixed-income instrument providing tax benefits under Section 80C at the time of investment. Even the returns from EPF are tax free on maturity. The employer also has to make a matching contribution to the EPF.

6) National Savings Certificate

The 8% returns from National Savings Certificate (NSC) are not only assured and tax exempt under Section 80C, but also government guaranteed. Unlike PPF, NSCs have no upper limit on the maximum amount that can be invested in a fiscal year.

This small saving scheme offers tax-free initial deposit for 6 years. However, interest in NSC is taxable. But, the interest for the first 5 years is eligible for a deduction as NSC is a cumulative scheme – where interest is reinvested and is qualified under fresh deduction in NSC.

7) Infrastructure Bonds

In Union Budget 2010, Finance Minister Pranab Mukherjee proposed the deduction for funds flowing in long-term infrastructure bonds in India upto Rs.20,000 under Section 80 CCF of the IT Act, 1961.

These bonds issued by RBI-notified entities carry long tenures of 5-10 years for facilitating investment in infrastructure projects within the country. The interest earned can vary from 7.5% to 8.5% depending upon the issuer and investment option chosen. For the investors at highest tax bracket, such investments can bring in savings of upto around Rs. 6000.

8) Insurance, 9) Health Premiums & 10) Tuition Fees

You can claim tax benefits for the health insurance premiums to the extent of Rs. 15000 under Section 80D. Moreover, you can also claim an equal amount of deduction for buying medical policies for your parents. Any amount paid towards life insurance premium for yourself or your family is eligible for tax break under Section 80C.

If you’re paying tuition fees for your children’s full-time education, you are eligible for tax deduction under Section 80C. Mind you, the said tax benefit is not for the donations paid to such institutions.

Are you still waiting for the last week of March to invest your taxable income?

Related posts:

1. Is Arbitrary Investment in Tax-Saving ELSS MF Scheme Just Before the Year End Justified?
2. How India Earns, Spends and Saves
3. ULIP holders get Sandwiched between SEBI and IRDA war

The much-awaited Direct Tax Code (DTC) Bill was approved couple of days back and few more clarifications have come out – some positive, some negative.

In fact, there is difference of opinion among various analysts. Some say that the new DTC Bill is nothing but old wine in a new bottle, while other says that the government might try to recoup revenue shortfall from DTC from the proposed GST regime.

Updated Direct Tax Code Highlights

1. The most annoying one was that of pushing the effective date of DTC by a year to April 1, 2012. Most of us had almost discounted the roll-out date at April 1, 2011.
2. The long-term capital gains exemption on listed equities stays along with STT. This will ensure that long-term capital investments are not discouraged. And, the short-term capital gains will be taxed at half your slab rate in whichever taxable income bracket you fall in.
3. There is one negative news for women though – women could cease to enjoy income-tax exemptions over and above men get. Only senior citizens will get extra relief with tax exemption upto income of Rs.2.5 lakhs.

facts about the present tax slabs and Changes proposed

Earning groups and their tax slabs :

How it will effect the people paying taxes ??

1. Rs. 0 to Rs. 1,60,000 : No difference (Neither they paid earlier, nor would they now)
2. Rs. 1,60,000 to Rs 2,00,000 : Earlier they were paying 10% and they dont pay now
3. Rs. 2,00,000 to Rs 5,00,000 : Saving of Rs.4000 (Rs.40,000 x 10%)
4. Rs. 5,00,000 to Rs. 8,00,000 : Saving of Rs.4000 (Rs.40,000 x 10%)
5. Rs. 8,00,000 to Rs.10,00,000 : Earlier they were paying 30% and will now pay only 20%
6. Rs. 10,00,000 and above: No difference (They were paying and continue paying 30%)

Data crunching – how many people paid tax at what rate

1. Total number of tax payees during last year: 3.25 crore people (in 3 slabs of 10, 20 and 30%)
2. 95.25% of the total tax payees fall under Rs.1 lakh to Rs.5 lakh slab; contributing 30% of total taxes collected.
3. 2.05% of the total tax payees fall under 20% slab; and their contribution is 10% of all taxes collected.
4. 2.2% of the total tax payees fall under 30% slab; and their contribution is 60% of the total tax collected.

Interesting Observations:

The above figures indicate that vast majority of our fellow countrymen fall in the income range of Rs. 1,60,000 to Rs. 5,00,000 per annum. Though the successive governments drum up the fact that we are a middle-class economy, the facts state that we are infact a lower middle-class economy as 96% of our tax payees are at the lowest level and contribute only 30% of taxes while the cream of the society of 4% contribute 70% of the taxes.

Government and many international agencies claim that the middle class population in India is 300 million strong and is more than the entire population of Germany.

Now consider this – 300 million people means at least 60 million families i.e. 60 million heads of families (consider one family pays only one tax). Still our tax payees are only 3.25 crores. Why the other 2.75 crore people are not paying taxes? Are they farmers (as farm income is tax free)? Are they businessmen (a chunk of whom earn in black)? Are they politicians (who don’t declare their incomes)? Who are they?

Benefits to government due to Direct Tax Code (DTC)

Government by increasing the tax paying limit to Rs. 2,00,000 will effectively bring down the tax payers by almost 10-15% (those falling in the nominal Rs.1,60,000 and Rs.2,00,000) and consequently reducing its paper work.

Loss to government due to Direct Tax Code (DTC)

On the other hand, by raising the tax slab from Rs. 8,00,000 to Rs.10,00,000 at the rate of 20%, from earlier 30%; it will loose a decent chunk of its tax income as the segment of Rs.8,00,000 and above contributes around 60% of all taxes collected, though the numbers are only 2.2% of tax payees – this, assuming that the majority chunk of tax contributors likes at the lower band of a tax slab.

From the above, you can see that due to these changes very few income groups benefitted. I have a strong feeling that this exercise is to reduce the paper work of the tax department rather than to transfer benefits to people.

Instead what government could have done (Our 2 cents)

For transferring the benefits to people it is equally important to consider two factors.

1. Increase taxable slabs (of course, until a certain point), and
2. Reduce tax rates.

Since last decade, we have seen only the taxable slabs going up from Rs. 90,000 to the present Rs.2,00,000. This sure is a welcome gesture from government.

However, the other component is conveniently overlooked – while increasing taxable income ranges liable for paying taxes, the government could have brought down the effective tax rates from 10%, 20% and 30% to 8%,15% and 25% and, so on, gradually upto 5%, 10% and 15% for the above income groups (in line with many developed nations).

This way instead of only two groups of income groups, everybody could have benefited from the exercise.

Related posts:

1. Direct Tax Code Bill approved – Positive for Individuals, Dampener for Corporates!
2. Revised Direct Tax Code – What you should know !
3. Direct Tax Code Bill: Highlights & Full Report

Finally, India is warming up to broadest tax reforms in the form of Direct Tax Code (DTC) and Goods and Services Tax (GST)  . The former is centered around expectations to minimize tax exemptions, but widen tax slab on personal finances; and the latter revolves around evolving an efficient and harmonized consumption tax system in the country.

While the proposed GST Bill still remains mired by the opposition from BJP on grounds related to fiscal autonomy of States in indirect taxation, the Union Cabinet on Thursday approved legislation for the crucial direct tax reform – The Direct Tax Code (DTC) Bill.

Personal Income Tax Slabs – Basic Exemption Limits Raised!

In a big relief for the individual taxpayers, the new DTC has proposed widening of personal income-tax slabs marginally. The Cabinet-approved Bill proposes widening of the tax slabs with lowest rate of:

• 10% for Rs. 2-5 lakh taxable income (current slab Rs.1.6-5 lakh)
• 20% for Rs.5-10 lakh (current slab Rs.5-8 lakh) and
• 30% for above Rs.10 lakh taxable income group of people (current slab above Rs.8 lakh).

If you’re a Senior citizen or women, there is good news for you – the threshold income has been fixed at a higher Rs.2.5 lakh as against Rs.2 lakh for standard categories.

                                                                         (Source: Sify)

Higher Corporate Tax

On the Corporate tax front, the DTC Bill cleared by Cabinet has sought to retain the present level of 30% (for domestic companies), but inclusive of 10% surcharge and a 3% education cess. However, the above figure fall trifle short of expectations of the corporate lobby which stood at 25%, as proposed by the DTC draft released earlier.

Minimum Alternate Tax @20% – A Dampener!

The Bill seeks to impose Minimum Alternate Tax (MAT) at 20% of the book profit as against 18% being levied currently on the Indian companies. The original DTC draft had proposed to calculate MAT on gross asset base which could have translated into effective higher tax rate based on huge asset base for the companies operating in capital-intensive sectors such as infrastructure and capital goods. But, owing to sharp criticism, the levy is to be maintained on book profits, as now.

Further, the axe is likely to fall on Indian IT companies with the advent of DTC regime which would call for the end of “Tax holidays” enjoyed by these companies. This step will bring these IT companies on par with other industries prevailing in India.

Savings – EEE Model on PF to Reign!

In the first DTC draft released in August 2009, the Centre had proposed to cease most of the exemptions, including savings instruments, by taxing them at withdrawal of the investments as per the Exempt-Exempt-Tax (EET) methodology of taxation. However, the Cabinet-cleared DTC Bill has proposed to continue with the EEE method of taxation.

On public demand, the finance ministry had agreed to abandon its previous proposal on tax retirement benefits under Provident Fund. This measure is likely to act as a booster for public savings and income, but may culminate into potential losses in terms of prospective government revenues from taxes that could have been earned during the maturity of investments up to Rs.3 lakh in a fiscal year as per the Exempt-Exempt-Exempt (EEE) model.

To sum it up, the DTC Bill is softer on the aam-aadmi with a decent up-tick in the basic exemption limits, while not so conducive on the corporate lobbies in terms tax reliefs from what is already there in the Income Tax Act currently.

Your thoughts on new DTC ?

Related posts:

1. Direct Tax Code Bill: Highlights & Full Report
2. Revised Direct Tax Code – What you should know !
3. Union Budget 2010: Unraveling Direct Tax Proposals

There are so many people that ask me this questions – Why should I file my Tax returns, if I have already paid my taxes. Infact, many wrongly believe that there is no need to file the tax returns at all. This is a completely wrong perception and if you are one of those who thinks that way, please read on…

Remember, it is our constitutional obligation to file tax returns when you are required to do so. So your job does not end at paying taxes, filing returns is equally important.

Who should File tax returns

If your income is above the basic tax exemption limit, you are liable to file your tax returns. So you should pay your returns if you

• have taxable income exceeding Rs.160,000 p.a.
• are a Women have taxable income exceeding Rs.190,000 p.a.
• are a Senior Citizens have taxable income exceeding Rs.240,000 p.a.

I know number of my friends who do not file a return – essentially they feel that with hundreds & thousands of them who are paying taxes, they are comparatively small fish. There are thousands who evade taxes in Lakhs of rupees, no one will notice a person who evades a few thousand rupees in taxes – THATS NOT TRUE !

Methodology to nab Tax evaders

The Tax department does not catch based on amount of taxes liable, but based on a system. In order to pick up cases of likely tax evasion, the tax department uses a computer-aided scrutiny system (CASS) that picks up cases by inputting various criteria. You may just be the unlucky one and you can come under scrutiny which is inviting trouble for yourself as you will be required to furnish all details that he asks for which could include, bank account statements, list of all assets owned by you and your family, details of all family members who reside with the you, and then the tax officer will do a match analysis of income and expenditure to figure out the amount of tax evasion.

Fine for Tax Evasion

Individual found to be concealing income will be charged a penalty and that amount can be anywhere up to 3 times the amount of tax evaded. So if your tax evasion amount is Rs. 50,000, if your account is under scrutiny, you may have to pay a penalty of anywhere between Rs. 50,000 and Rs. 150,000 on a case to case basis.

More than the fine, it is also an un-pleasant experience which can be emotionally and mentally draining.

Ok, so if you are ready to File your taxes for FY 2009 – 2010, You can download this Income Tax Return Forms:

• For Individuals and HUFs not having Income from Business or Profession: Word PDF
• For Individuals/HUFs being partners in firms and not carrying out business or profession under any proprietorship: Word PDF
• For individuals & HUFs having income from a proprietary business or profession: Word PDF
• For firms, AOPs and BOIs: Word PDF

Again, never try to evade taxes, it is sure to land you in trouble one time or the other !

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The much-awaited revised discussion paper on the Direct Tax Code (DTC) is set in the public domain by the Manmohan Singh government. The earlier discussion paper on the Direct Tax Code Bill was released in August 2009 to receive public feedback and inputs on the proposals. The revised paper is said to have addressed some of these issues after attracting sharp criticisms from several quarters on various grounds.

The new simplified tax code, which is likely to be introduced in Parliament in the forthcoming monsoon session, is expected to raise tax slabs and lift the ceiling for tax-free savings. The new DTC will replace the decades old Income Tax Act.

At least, for now, there is some sort of relief from the amended proposal as compared to the previous one that intended to tax the savings at the last stage of withdrawal of the investments as per the Exempt-Exempt-Tax (EET) methodology of taxation.

Capital Gains

Under the proposal on the capital gains, the government intends to do away with the distinction between the short-term and long-term capital gains in a bid to bring simplicity in the taxation of capital gains.

The discussion paper recommends that the capital gains of the tax payer will be added to their total income. Thus, the tax liability of the assessee, on account of income from the sale of capital assets, would be in line with their income slabs. The capital gains will be considered as income from ordinary sources.

Now, this move will definitely hinder the long term savings. Currently, investments in stock market assets and equity-oriented mutual funds which are held for more than 1 year are considered as long-term capital assets and are not taxable. Whereas income from short-term investments that are held for less than 12 months from the date of acquiring such assets are taxable at rate of 15%.

The phasing-out of distinction between short-term and long-term capital assets may not provide incentive to an investor to hold their equity assets for a longer duration, if their actual investments are yielding capital gains over a shorter period of time frame. They may be tempted to book gains more frequently as and when available and take home the profits that are accruing, irrespective of the time period.

House Property

The earlier version of DTC code had proposed that the gross rent from house property that has been rented out be computed at a presumptive rate of 6% with reference to the cost of construction or acquisition.

The second draft of DTC has done away with this presumptive rate of calculation for the gross rent. It recommends that the gross rent for taxation will be the actual rent received in case of houses that are let out.

Deduction on interest payment for the loan taken by individual borrowers for acquiring (or constructing) a house property would continue to enjoy the tax benefit subject to a ceiling of Rs.1.5 lakh (only for one house that is used for residing purpose).

Minimum Alternate Tax

A minimum alternate tax (MAT) is the one which is had to be paid by the companies that are enjoying various tax exemptions under different schemes. In the previous draft code, the Centre had proposed levying MAT on the asset base of the company – at the rate of 2% on the value of gross assets for all the non-banking companies.

However, due to practical difficulties in calculating the MAT for the loss-making companies as per the older version of the proposal, the revised draft code set out by the government says that the MAT should be calculated on the book profits. Thus, the new proposal would ensure that the loss-making companies do not get away from their legitimate taxation liabilities.

The modified directive on the MAT would come as a big relief to capital-intensive sectors such as infrastructure and capital goods among others. The older proposal of calculating MAT on asset base could have translated into effective higher tax rate based on huge asset base for the companies operating in such industries.

Savings

On public demand, the finance ministry has agreed to abandon its previous proposal on tax retirement benefits under Provident Fund. In the absence of a social security scheme, the new proposal provides for an Exempt-Exempt-Exempt (EEE) method of taxation for the government provident fund, PPF and recognized provident funds. Even pure life insurance products and annuity schemes are approved under tax exempted categories.

Thus, the government has proposed not to levy tax on the earnings from investments, made by the people, with intention of saving taxes in long-term saving instruments. However, withdrawals of savings above Rs.3 lakh will be taxed.

The modified draft also includes pensions administered by interim Pension Fund and Regulatory and Development Authority (PFRDA), including pensions of government employees who are recruited since January 2004, under the EEE treatment.

Though, this measure may act a booster for public savings and income, it may sum up into potential losses in terms of prospective government revenues from taxes that could have been earned during the maturity (or withdrawals) of such savings as per the EET methodology of taxation, proposed during the earlier version of the DTC.

Foreign Firms and Flows

The revised tax code has sought to clear the ambiguity regarding the treatment of income earned by foreign institutional investors (FII) from securities transactions will be classified as capital gains and not business income, a step which could increase their tax liability. This modified status of income being classified under the capital gains would also make the FIIs eligible to pay advance tax installments, just like any other corporate.

The new code has also succeeded to address the concerns of the foreign firms on the issue of treaty override. The code clarifies that those foreign firms having a part of business operations in India for a certain period could be treated as a resident company liable to tax over here.

What’s your view on this updated Direct Tax Code proposal?

Related posts:

1. Direct Tax Code Bill: Highlights & Full Report
2. Union Budget 2010: Unraveling Direct Tax Proposals
3. Tax implications for a Stock Marketer !

Starting from April 1, 2010, if your total income falls under any of the taxable slab, you are required to quote Permanent Account Number (PAN) in your financial transactions. Budget 2009-10 makes it mandatory to quote your PAN number in all correspondences with the tax authorities, a step taken to enhance transparency in the transaction and to ensure avoidance of tax evasion.

It is now mandatory for a taxpayer to quote his PAN number in the tax returns, bank deposits exceeding specified limits and mutual funds above a certain value among several other transactions which may demand PAN number quote of the party to the transaction.

Starting from FY 2010-11, Income Tax (IT) authorities could impose up to 20% of tax deducted at source (TDS) if the recipient of the income (including non-residents) fails to provide his PAN to the related deducting agency.

Currently, the regular rate of TDS under various different income heads ranges from 2% to 10%. If you do not furnish your PAN number – while filing the return or to the source of income deducting agency – you may now have to cough up to 20%.

The aim of the authorities, behind making PAN quote mandatory, is to ensure diligent disclosure and transparency of transaction on behalf of the tax payers, so that they can not render any unknown transaction as a secret which undergoes a tax-evasive step. The IT department has made it mandatory for employers to quote PAN of their employees while filing TDS returns.

Usually, an assessee pays tax in the assessment year on income earned in previous year which calls for a delay until the completion of the previous year. And, hence, TDS is deducted, at the source of the income itself, to recover such amount much earlier on certain notified nature and/or value of transactions such as Salary, Rental fee, Commission, Interest, etc.

The quote of PAN is also needed in all documents pertaining to transactions notified by the Central Board of Direct Taxes. The Finance Bill for 2009-10 says,

“The deductee (person from whose income tax is deducted), shall mandatorily furnish his PAN to the deductor failing which the deductor shall deduct tax at source at higher rates.”

If you do not have a PAN card as yet, its high time you do !

Related posts:

1. Is mobile number India’s answer of having a Social Security number?
2. TRAI fixes the fee for number portability
3. Tax implications for a Stock Marketer !

Financial year 2009-10 will get wrapped-up on March 31. But, before that various business class, self-employed and professional people including those working as employees in different firms; will have to ensure proper due-diligence about their income and expenditures from the point of view of tax treatment of their net taxable incomes.

Even stock market traders and investors start juggling their portfolios in order to minimize the tax impact on profits and losses accrued on their transactions. In fact, such traders or investors can also shuffle their current portfolio and holdings in order to benefit from unrealized losses in bringing down their taxable income.

Pay 15% Tax on Your STCG

As per current structure of tax treatment procedures, Short Term Capital Gains (STCG), which accrue on sale of transaction of securities which attract Securities Transaction Tax (S.T.T.) on equity investments made within one year of buying the shares, are taxable at the rate of 15% of the profits accrued. Any equity investment gains booked after 1 year can be termed as Long Term Capital Gains (LTCG), which are tax-free in nature.

Offsetting STCG from Capital Gains

As per the current law, the STCG during the year can be offset against Short Term Capital Loss (STCL). Thus, the burden of taxable income accruing on account of STCG can be brought down as against STCL, if any. However, the Long Term Capital Loss (LTCL), which accrues on sale of transaction which was bought more than a year ago, can not be offset against STCG. Only the liability from STCL can be offset as against income from STCG.

Carry Forward Excess STCL for 8 Successive Years

While LTCL can not be offset against STCG, the STCL for the year can be offset against STCG and LTCG both. In fact, if STCL falls short of being completely offset during the year, the STCL can as well be carried forward for eight successive assessment years to be offset against any nature of capital gains. However, this mechanism of carrying forward of STCL for eight successive years, is not applicable to liabilities on account of LTCL.

Investors should bear in mind that the tax treatment for transaction which involve levy of S.T.T. could differ in its approach, in comparison to the transactions which do not involve levy of S.T.T. Usually, most of the equity transaction involve levy of S.T.T., while non-equity market transactions such as bullion and real estate do not involve such levy.

Holding Any Unrealized Losses?

If, during the year, you are liable to tax on account of STCG and your portfolio constitutes of stocks which are hinting at unrealized mark-to-market losses from your investments made during FY 2009-10, you can book these unrealized losses just prior to March 31 and buy them back in the new FY 2010-11.

By this way, the unrealized losses, for purchases made during the year, gets transformed into STCL which could further be offset against STCG in your account, effectively reducing your tax liability.

Summary of Tax Implications:

1. STCG are liable to 15% tax.
2. STCG can be offset against STCL.
3. LTCL can not be offset against STCG.
4. STCL can be offset against STCG and LTCG both.
5. Excess STCL can be carried forward for 8 Successive Years
6. LTCG, with more than 1 year holding period, are not taxable.

Note: Above mentioned are my views on the impact on taxation on equity market transactions to the best of my knowledge. Readers are recommended to recheck the tax implications with their Tax Experts before acting on above published data and information.

Related posts:

1. Pause and be grateful for falling stock markets !
2. How (NOT) to make money from Stock Markets
3. Will the stock market go below 10,000? How low is low?

Making News as some say is an art. Air India seems to have earned a doctorate in making news albeit for all wrong reasons.

The recent news that made it big and needed intervention from the government was the pilots going on Strike to protest pay cuts.

The strike led to furor and caused the already ailing Air India to lose millions in cancelled flights. More than the monetary loss, Air India got its share of bad publicity. Need I say this that bad publicity in the Airline business is never good, specially in the Indian subcontinent with cut throat competition. As if the the strike was not enough, Air India staff has ensured that Air India stays in the news and this time for reasons that are all the more worrisome.

Another incident, where Air India pilot and the co-pilot onboard the flight from Sharjah to Delhi, got into a mid-air scuffle with a young air hostess and other cabin crew. The incident has fuelled enough rumors for the media to get active.

According to a Business Week report, the airhostess was assaulted by pilots and pushed out of the cockpit. What supposedly happened after that is really shocking!!

Presumably, the pilots followed the air hostess into the passenger cabin leaving the cockpit unarmed. Air India has however denied the claim and the actual details are yet to clarified.

Without delving on whether the pilots actually left the cockpit putting the lives of passengers at stake, IMO it is only true that rumours also have some element of truth behind them. If the pilots did leave the cockpit leaving the aircraft at the mercy of god knows who, the issue hardly remains a matter of Assault on a colleague, it becomes a grievous Security Issue.

Air India has come out and promised a "regular department inquiry" to get to the depth of the matter. But, will the airline be able to restore its lost reputation and customers faith in flying Air India. I have my doubts.

On top of all this, Air India has been bleeding badly and talks are on with the government to bail it out. Yes,the airline sector as a whole is suffering. Being a government backed airline, it is government’s responsibility to ensure that Air India survives.

But, does that give Air India the right to act like a spoiled brat like it is. Even if the employees are at fault, it is the management’s responsibility to ensure decorum and ethics.

Air India has been doing all it can to dig itself deeper into the grave. What with a strike, rat on board , a fire and now a assault/safety crisis. Even if we forget the losses of the airline, these kind of incidents are truly a matter of national shame for the Air India brand has been synonymous with "Carrier of India" before the private carriers made inroads.

For all the news that Air India that it has made, I just have one question in my mind

Should the government actually bail the airline out with the taxpayers money??  

The government cannot just give millions of rupees to bail out the airline and hope that the airline will get its act together. The way I see it, given the theatrics I am skeptical if the existing management has crossed the line which is beyond correction.

Why can’t the government work on a partnership / stake sale model which can help bring a seasoned management team on board Air India. Drastic measures are needed to get the airline out of the grave and money is definitely not going to do any good.

The Air India Brand is near destruction and strict measures are needed to restore the public’s faith in the airline. The sarkari babu type operations are not going to help re-build the image.

On a humorous note,

If the above rumours turn out to be true and the cockpit was left unmanned, Will the government officials (mandated to travel Air India) will be willing to put their lives on stake :) 

[This post has been written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]

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