Sovereign Gold Bond (SGB)?

What is Sovereign Gold Bond (SGB)?

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. 

Some facts about SGB

Issuer	Reserve Bank of India on behalf of Govt of India
Denomination	grams
Who can invest?	Any person, a resident of India (as per FEMA*)  If the person later becomes NRI, can hold till maturity
Can minor invest?	Yes, through guardian
Joint holding ?	Yes
PAN* required?	Yes, it is mandatory
Min investment	1 (one) gram
Max investment (per financial year)	4 (four) kilograms    4 kgs - Individuals (applies to First holder)    4 kgs - Hindu Undivided Family (HUF)  20 kgs - trusts and similar entities
Interest rate	2.5% p.a. (paid semil-annually)
From where to buy?	Banks : Nationalised, Scheduled Private & Foreign  Designated Post Offices,  Stock Holding Corporation of India Ltd. (SHCIL)  Stock exchanges - directly or through their agents
Any discount?	No discount. But if applied digitally, a concession of  Rs.50/gram can be availed.
How is the issue  price fixed?	Simple average of closing price of gold (999 purity)  published by the India Bullion & Jewelers Assn Ltd,  for the last 3 business days of the week preceding  the subscription period.
What is the tenor?	8 years from the date of isse   Early redemption available after 5 years
Transferable?	Can only be transferred to eligible investor   If held in Demat, can be traded in stock exchange
Tax benefits	Interest is taxable   Capital Gains for individual      - on redemption is tax exempted      - indexation benefits for transfer
Redemption price?	Simple average closing price of gold (999 purity)   of previous 3 business days from the date of repayment,  published by the India Bullion & Jewelers Assn Ltd.
Nomination	Nomination is available

* Abbreviations used

PAN : Permanent Account Number

FEMA : Foreign Exchange Management Act

Benefits

1. No need to hold in physical format
2. No cost of storage (Locker)
3. Gold price appreciation. Redemption linked to prevailing market Gold price
4. Interest @ 2.50% p.a.
5. Tax benefits - no capital gains on redemption
6. Backed by Government guarantee
7. Can buy in lots of 1 gram
8. if digitally bought, Rs.50/gm concession available
9. Can be traded, if in demat format.
10. Nomination facility available

See you in next post on whether to invest in SGB or Gold ETF or Gold itself.

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One person company (OPC)

The One Person Company (OPC) was introduced through the Companies Act, 2013. Like partnership firms having an option to be a Limited Liability Partnership, sole proprietorship can look at a OPC.

This will increase better compliance and put OPC in a better position in availing loans/funding. This will bring in the unorganized sector or sole proprietorship into an organized sector. There are many advantages of being an OPC. Let us see them.

Before going into the benefits of being an OPC, let us see what is an  OPC and how one can form it?

Who is eligible to incorporate	A natural person who is an     a. Indian citizen and     b. Indian resident
Who is a nominee?	The memorandum of OPC shall indicate the name of the person, with his prior written consent, to become a member of the OPC when the sole member dies or becomes incapacitated to contract. A nominee can be a nominee in only one OPC. A nominee can be a member in an OPC. Where a member in One Person Company becomes a member in another OPC by virtue of his being a nominee in that OPC, then such person shall meet the eligibility criteria of being a member in only one OPC within a period of 180 days, i.e., he/she shall withdraw his membership from either of the OPCs within one hundred and eighty days
How many such OPC can a person register	A person can register only one OPC
What will be the nature of this OPC	OPC will be treated as a Private Limited Company
What will be the suffix	OPC will be suffixed to differentiate from other types of companies
What are the requirements relating to Director, shareholder	Shareholder   : Min 1  Director         : Min 1 Share Capital : No minimum Share capital / maximum : Rs.50 lakh Director and Shareholder can be the same person
Liability	Limited liability (only to the extent of shareholding)
Status	Enjoys the status of Pvt Ltd Company.

Compliance matters

Board meeting	Atleast one board meeting in each half of the calendar year The gap between 2 meetings shall be more than 90 days
Annual or Extraordinary General meeting	Only resolution to be communicated to the meber and minutes to be updated.
Quorum	No quorum required

Mandatory conversion to Private Limited Company

In case the paid up share capital of an OPC exceeds Rs.50 lakh or its average annual turnover of immediately preceding three consecutive financial years exceeds Rs. 2 crore, then the OPC has to mandatorily convert itself into private or public company.

Advantages of an OPC

There are many advantages of being an One Person Company when compared to sole proprietorship. Am not comparing with Partnership, as here the individual wants to be on own and do not want to share the control of his business.

1. Full control of business - faster decision making.
2. Separate legal entity from the person
3. Liability is limited
4. Nominee facility available
5. Having compliance requirement lesser than Private Ltd Co.
6. Being with better compliance, higher chances of getting funding (loan or equity)
7. Being a separate legal entity, can be sold at good valuation, if required.
8. Director's remuneration is allowed as deduction while computing Income Tax
9. Suitable for startups and MSMEs
10. Better chances of being selected as vendor to provide service / good. 

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Cost inflation index for Financial Year 2020-21

For computing certain long term capital gains, the cost can be adjusted for the inflation and for that purpose, the Central Board of Direct Taxes notifies the cost inflation index every financial year.

On 12-Jun-2020, the cost inflation index for FY2020-21 was notified as 301.

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Director's salary - liable to GST? Clarified now.

Circular No: 140/10/2020 - GST dated 10-Jun-2020

Finally the government has cleared the air in terms of GST applicability on Directors Remuneration. The contention here is whether the Director is an employee or not. 

Wholetime/Executive Director

A whole time-director under section 2(94) of the Companies Act, 2013 is an inclusive definition, and thus he may be a person who is not an employee of the company.

Independent Director

Any such director should not have been an employee or proprietor or a partner of the said company, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed in the said company[ Section 149(6) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014..

(A) Directors who are employees of the company

Salary is not taxable under GST

It is clarified that the part of Director‟s remuneration which are declared as "Salaries‟ in the books of a company and subjected to TDS under Section 192 of the IT Act, are NOT TAXABLE, being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017.

Remuneration other than Salary is taxable under GST under reverse charge basis

It is further clarified that the part of employee Director‟s remuneration which is declared separately other than "Salaries‟ in the Company‟s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, TAXABLE. Further, in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis. 

(B) Directors who are not employees of the Company

In respect of such directors who are not the employees of the said company, the services provided by them to the Company, in lieu of remuneration as the consideration for the said services, are clearly outside the scope of Schedule III of the CGST Act and are therefore TAXABLE. 

Accordingly, remuneration paid to such independent directors, or those directors, by whatever name called, who are not employees of the said company, is taxable in hands of the company, on reverse charge basis

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Tax to be deducted at source when an immovable property is transferred

With the economy not showing up any sign of recovery, scams, polls around the corner, the Finance Minister decided to mop up the tax collection by introducing a Tax Deduction at Source (TDS) from transfer of immovable property.

Why this measure? In our country, the real estate business lacks transparency and most of the deals are done through cash. Thus lot of black money being created in the process.

What this new measure says?

• This takes effect from 1-Jun-2013.
• In a transaction of immovable property transfer valuing Rs.50 Lakhs (Rs.5 million) or more, the buyer has to withhold (deduct) 1% of the value and remit to the tax department.
• The transfer of agricultural lands is exempted from the above
• The rate of deduction can go to 20% if the PAN is not provided by the seller. If PAN is provided, the deduction will be at 1%.
• When to deduct?
• at the time of making any payment or crediting of any sum as consideration for transfer of immovable property.
• What are the compliance?
• One single page simple challan for the payment containing details (mainly PAN) of the transferee and transferor and the some details about the property.
• The transferee need to required to obtain any Tax Deduction and Collection no. (TAN).
• The transferor can get credit of the amount deducted based on the TDS Challan provided by the transferee.
• What are the contents of the one page challan?
• Permanent Account No. (PAN) of Transferor (Payee/Seller)
• Category of PAN of Transferee
• Category of PAN of Transferor
• Full Name of the Transferee
• Full Name of the Transferor
• Complete Address of the Transferee
• Complete Address of the Transferor
• Complete Address of the Property Transferred
• Details of amount paid/Credited
• Tax Deposit Details

With real estate companies are lobbying to roll back this provision, this will also increase the compliance and claiming of the amount so deducted. Let us wait and see.

Cheers

Gopal

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Budget 2012 - impact on individuals & salaried class

It was exactly a year before that I posted my last post on leadership (in Cricket). Today, a history was created in Cricket. Yes, Sachin finally scored his 100th CENTURY!

Congrats Sachin!

Sachin's long awaited 100th Century overshadowed the Union Budget. How was the budget? The simple dipstick is the Sensex. Market was positive till the budget was presented and went down to close 210 points lower!

It shows that market is not happy about the budget.

Let us see what is in store for the salaried class and individuals:

Tax rate                             Current                         Proposed                 

Basic exemption                      180,000                      200,000

10%                                180,001 - 500,000      200,001 - 500,000

20%                                500,001 - 800,000     500,001 - 1,000,000

30%                                800,001 & above      1,000,001 & above

No special concession for women. The basic exemption stands revised to Rs.200,000 (from the current Rs.190,000).

For the Senior Citizen (60-80 yrs) & Very Senior Citizen (80+ yrs) - No change in the basic exemption

Senior Citizen - Proposed tax rates

Upto Rs.250,000 - Nil

250,001 -   500,000  - 10%

500,001 - 1,000,000 - 20% (current : 500,001 - 800,000)

Above 1,000,000      - 30% (current : 800,001 & above)

Very Senior Citizen - Proposed tax rates

Upto Rs.500,000      - Nil

500,001 - 1,000,000 - 20% (current : 500,001 - 800,000)

Above 1,000,000      - 30% (current : 800,001 & above)
The Finance Minister could have done more, but UPA needing support from others forced them to do a moderate budget.

Few benefits for an individual:

• Proposal to allow a deduction of upto Rs.10,000 for interest from savings bank accounts (earlier section 80L deduction brought back)
• Proposal to allow deduction of upto Rs.5,000 for preventive health check up.
• Senior citizens not having income from business proposed to be exempted from payment of advance tax.

Need to go through the fine prints to understand the conditions for availing the benefits.

Expect the service cost goes up, as the Service Tax rate has been increased from 10% to 12%. This is in line with implementing the GST. Your charges to banks, credit card companies will go up by 2%.

In a nutshell, the finance minister has given some benefit which will partly take care of the inflation.

Cheers,
Gopal

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Budget impact on Software Industries

The much debated Software Technology Parks of India (STPI) tax benefit has ended. No more tax benefits for the STPI units.

What does it mean? Small companies in the IT & ITES sector will suffer to compete with others. No impact for bigger companies, as they are not hit much because of this tax benefit.

Small and medium companies price their products / services based on the tax benefits (thought it is not the correct way). In the competitive world, they have to do this.

People look only at the tax payment. Actually, it is nothing but deferring the tax to a future date, as there is a MAT on companies.

After STPI, companies started to look at SEZ (Special Economic Zone). But even SEZ is not spared from MAT (both the developers & Companies operating in SEZ are covered under MAT). This will dampen the profits.

What is there in the budget, which makes the IT sector to smile?

• the surcharge has been reduced from 7.5% to 5%. But MAT has been marginally increased by 0.5% (from 18% to 18.5%).
• reduction of foreign dividend tax rate to 15% for Indian companies
• Lot of IT spending by the Govt towards UID, e-stamping, computerisation for GST means more business for the IT Industries (if it is given to private IT companies).

This budget, i would say, is neutral to the IT / ITES sector. The sunset clause (STPI) was as expected.

I think we should come of the exemption / concession mode and this is in the right direction.

Cheers,

Gopal

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Union Budget - 2011 - Snapshot

Yet another budget from Mr.Mukerjee. The intention is to step up the pace for a double digit growth in the years to come.

Some salient features of this budget (as I could manage to hear from the net) concerning individual tax payer:

1. Firm on the 1-Apr-2012 deadline for the Direct Tax Code (DTC)· FDI policy to be liberalized further
2. Individual tax payers get a flat Rs.2,000 (as the basic exemption limit increased by Rs.20,000) - further benefit to Senior citizens
3. Senior citizen - Qualifying age limit lowered to 60 years (we can think of retiring soon) and the basic exemption limit increased by Rs.10,000.
4. Senior citizen, who is 80 years & above will have the basic exemption limit at Rs.5,00,000.
5. Additional deduction of Rs.20,000 for investment in long-term infrastructure bonds to continue for one more year.

Corporate (major items relating to tax rates):

• Surcharge on corporate lowered to 5%Cheers,
• MAT rate increased by 0.5% to 18.5%
• Lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary

The Fiscal deficit kept at 4.6% of GDP for 2011-12. To me, this budget is a good one, given the situation. We need to see how the government going to grow, contain the risk and not widening the deficit.

I will go through the text of the speech in details and post a detailed one covering direct, indirect taxes and economy.

Gopal

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CFO Series 2011 - Organised by Dun & Bradsheet, India

On 10th February, 2011, Dun & Bradsheet (DNB) invited me to give a speech on Managing Growth & Risk in the current economic scenario. The CFO series is a multicity conference across India (in the major metros) organiised by DNB in association with ANT trust. This is one of the easiest topic to speak in today's world, but very difficult to practice or implement.

The meeting started on time and Ms.Preeta (Head  - Learning Solutions) of DNB welcomed the gathering of CFO & Head of Finance. He introduced the speakers, as and when their turn came.

I was the first one to go and luckily I sent my presentation materials to the DNB team and they loaded the same, which made my job easy. Actually, I forgot to take the pen drive, which had the file.

I started the speech, as usual, with some pictures in my presentation material. I covered the following areas during my speech.

• Where are we (India) in terms of the economy (Inflation, Interest rates, Forex reserve). The CFOs have to play in this ground and steer their companies in the growth path.
• The current CFO's role, which is not confined to Finance and Accounts, but beyond that. A CFO should be a catalyst in an organisation. He should be a business person and get involved in key decisions.
• The key drivers for growth - Strategy, Market Leader, Differentiators, Financial prudence, focusing on core business, careful when you diversify.
• Challenges in managing the growth.
• What are the possible risks? My punch line was "The biggest risk is not knowing the risk" Scott Adams cartoon came in handy for this topic.

I summed up the topics discussed with the key take-aways.

Mr. K R Girish (Partner – Tax and Regulatory Services and National Head – Litigation Practice, KPMG) presented the Tax reforms in India and covered the salient features of Direct Tax Code (DTC) & GST. Some of the DTC proposals were really scary, especially the GAAR & CFC. We need to wait and watch what is going to happen from 1-Apr-2012.

Mr. Itzik Amiel Attorney-at-law & Director International Business Development, ANT Group said, “India led, is leading and will lead the world for a new positive era of growth using its creativity, innovation and simplicity also in the financial and tax matters”.  His presentation on the tax benefits on being in Holland was really an eye-opener for me.

Mr. Narasimha Prasad, Zonal Manager – Employee Benefits, Metlife India Insurance Company Ltd said, “It is getting difficult for the common man to cope up with the rising prices hence there is a need for cautious macroeconomic policies to ensure that early action is taken in crucial areas. He presented the Employee Benefits offered by MetLife and solutions through Employee Benefits

Mr. Balusu Markandeswara. Chief Financial Officer, CARE Hospitals, presented the financial model for the healthiness industry and the expectations from the investor.

Though there was a panel session for the questions, the finance leaders asked the questions after each presentation.

The event ended with a note of thanks to the participants and the presenters. The lunch session was useful and helped the participants to network.

I forgot to take my camera and so no photos. If I get some photos from the organizers, I will publish the same.

Cheers,

Gopal 

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Do not forget to mention your PAN in your financial transactions

Starting this new financial year (from 1-Apr-2010) ,please quote your Permanent Account Number (PAN) in all financial transactions, where tax need to be deducted at source (for example, Interest, rent, contract work, consultancy etc.,).

What if I do not mention my PAN? - The payer will deduct tax at a higher rate at 20% !

This will be a pain for the Senior Citizens, who do not pay tax (Meaning, they are well within the taxable limit). For most of them, bank interest is the source of income. They have to provide Form 15H to the bankers / companies. If they do not provide the PAN detail, they will receive the amount after deduction of tax @20%. Of course, they can claim refund, but cash flow is affected.

For those, who earn interest apart from other sources like Business Income or Salary income, they will not be much affected, as their advance tax payment will be reduced to that extent. But now that Form 26AS is the source for the IT dept, it is necessary that we get the credit to our PAN for the deductions made.

So, please do not be casual about this!

Cheers,

Gopal

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Gratuity ceiling increased

This was one of the things, we were expecting in the Budget. But now the cabinet has given their approval for amending the ceiling on Gratuity from Rs.3.5 Lac to Rs.10 Lac on Thursday (4th Mar 2010). However, we need to wait and see whether the tax exemption limit will also get increased.

Below is the extract from the Financial Expresss: 

The Cabinet on Thursday approved an amendment to the Gratuity Act to raise the ceiling from Rs 3.5 lakh to Rs 10 lakh. The Bill to amend the Act will now go to Parliament, a government official told FE.

Every salaried person, who has completed five years of government or private sector service, is eligible for half a month’s salary as gratuity for every completed year of service. 

But the gratuity pay of those with higher salaries is now limited at Rs 3.5 lakh. The proposed amendment raises this to Rs 10 lakh. 

Every employer with more than ten salaried workers is mandated to provide gratuity to the eligible employees. Many companies, however, do not keep the gratuity liability adequately funded. That is, they make provisions for future payment, but do not set aside funds towards the future payment. Listed companies are expected to disclose their gratuity liability. 

Source : The Financial Express.

Cheers,
Gopal

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Budget 2010 - Hightlights

Pranab has delivered the budget in the expected lines. What the poor finance minister can do in this situation. The prime concern is the fiscal deficit and inflation. He did a good job in the budget by not making too many changes.

Individuals are happy, as they have some excess funds at their disposal.

Let us look at the highlights of the Union Budget 2010:

Plan outlay

Total Receipts          -   7,27,341`
Total Expenditure     - 11,08,749
Fiscal Deficit            -   3,81,408

The Fiscal Deficit is 5.5% of the GDP (Last year it was 6.8%). It is a good sign. We need to wait and see the FY10 result and see whether the 5.5% is achievable.

The targets for the Fiscal Deficit (as a % of GDP) is pegged at 4.8% and 4.1% respectively for 2011-12 & 2012-13.

Taxation

The most awaited agend in all the ITES sector was extending the STPI tax exemption. Pranab has kept his words on rolling back the stimuli. He didn't extend the tax benefit. In a way it is good. But some of the small organisations thrive on this tax benefit and soon they will look for buyers. Time for the ITES market to consolidate.

He has given the assurance & commitment to the introduction of Direct Tax Code and GST from 1-Apr-2010. Let us see.

Business impact

Direct Tax

• STPI & EOUs taking tax benefit u/s 10A and 10B not extended and get over by 31-Mar-2011.
• MAT rate has been increased to 18% from 15%. More credit available for the STPI units in the years to come.
• Encouragement to inhouse R&D by way of higher weighted  deduction.
• No change to the Corporate tax. But the surcharge for the domestic companies reduced to 7.5% from 10%.
• Tax benefit for SEZ had some ambiguity with the formula for computing the deduction u/s 10AA. This is clarified and the revised formula is now applicable with retrospective effect from 1-Apr-2006.
• Tax audit limit increase to Rs.60 lacs (from Rs.40 lacs) for business and Rs.15 lacs for professionals.
• The turnover for presumptive taxation of small business increased to Rs.60 lacs

Indirect Tax

• The peak excise duty increased to 10% from 8%. This is in line with the roll back of the stimulus package.
• The CST rate is unchanged at 2%
• Service Tax rate remains at 10% (in line with the GST roll out)
• Service Tax refund provisions simplified for exporters.

Individuals

• Not much change and only favourable budget.
• Petrol & Diesel to be costlier by Re.1 per litre due to the increase in the excise duty
• The tax brackets widened to benefit the individual
• Upto Rs.160,000               - No Tax
• Rs.160,000 to Rs.500,000  - 10%
• Rs.500,000 to Rs.800,000  - 20% 
• Rs.800,000 & above          - 30%

• Increased deduction u/s 80CCF. Additional deduction of Rs.20,000 for investment in Infrastructure bonds. So, we get a total deduction on Rs.120,000.
• "Swavalamban" - a initiative for National Pension Scheme. Under this, Rs.1000 p.a. will be contributed by the Govt. to each NPS account opened in the year 2010-11.
• SARAL - II : Simplified form for individual salaried class.

There are other schemes that are announced by the PM, which are of national interest. Of which the following are of interest to a common man:

• Setting up of National Mission for Delivery of Justice & Legal Reforms. This aims to reduce the legal backlog in courts from 15 yrs to 3 yrs by the year 2012.
• National Skill Development Corporation approved 3 projects for Rs.45 crore to create 10 lac skilled manpower at the rate of 1 lac per year.
• Technology Advisory Group for Unique Projects to be set up to look into the technological & systemic issues for effective tax administration and financial governance.

Going back to the earlier budget, he proposed the following 2 things in the Tax proposals.

1. Direct Tax Code - Draft of DTC within 45 days, which he achieved.
2. Safe Harbour Rules (for transfer pricing declaration) for transactions between associated parties. No threshold nor rules were laid down so far.

Challenges

• Bringing back the economy and reduce the fiscal deficit
• Control inflation
• Roll back the stimulus package
• Huge MAT credit to be set off against future tax

Conclusion

• Overall, it is a balanced budget (given the circumstances). 
• There were not much changes, which shows stability. Most of the tax proposals are of clarification in nature or of change in rates of tax.
• The focus is mainly on growth along with fiscal consolidation
• Stock Market gave a thumbs up and zoomed

All said, it is a budget. We have to see the actual performance. Hope Pranab walk the talk.

We, the citizens are like Gajni. Yes, the budget is in our memory for just 15 days. After that we will forget this budget and wait for the next budget.

Cheers,

Gopal

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Countdown to the Union Budget - our wishlist

We are just a day from the Union Budget. More focus on Pranab's strategy to

• counter the fiscal deficit, 
• push the GDP growth, 
• control the inflation,
• roll out plan for GST
• Plan for the Direct Tax Code roll out

For individuals,

• Increase in basic tax exemption
• increase in medical reimbursement limit (from 15000 to atleast Rs.50,000), considering the cost of medication.
• Increase in the deduction limit u/s 80D for mediclaim insurance to Rs.50,000.
• With the skyrocketing education cost, there should be a separate deduction for this. This category should be removed from 80C.
• Increase in the exemption limit for transportation (from the current Rs.800 pm) in line with the pay commission recommendation.
• Increase in the gratuity exemption limite (from Rs.3,50,000 to Rs.10,00,000).
• Increase in the 80C deduction limit from Rs.1,00,000 to Rs.2,00,000
• Reducing the short term capital gains.
• Senior citizens - Increase in the basic exemption limit.

For Business:

• Phased removal of stimuli - rather than sudden removal
• GST roll out plan
• Extension of STPI tax benefit

 Let us see, how much Pranab can make the wish come true.

Cheers,
Gopal

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ULIP - Who needs to control - SEBI or IRDA ?

IRDA questions market regulator’s show cause to insurers on conceptual, legal, structural grounds. SEBI's contention is that the insurance companies are offering products mixing Insurance and Financial Products (in the nature of Mutual fund).

What if SEBI treats it as Mutual fund and starts governing these ULIP, apart from IRDA?

• The accounting will be different.
• The initial load will go off (GOOD NEWS), as commissions are not allowed.
• Exit load (surrender value) will also come down.
• More investor protection measures & transparency will come into play.
• Tax benefits will vary (Any way we are not sure what the tax benefits after the new tax code, be it either Insurance related or Mutual fund)

Cheers,

Gopal

Following is the full article for your reading. Source: Business Standard.

 

The Insurance Regulatory and Development Authority (Irda) has said the Securities and Exchange Board of India’s (SEBI) notice to insurance companies on unit-linked insurance plans (Ulips) sold by them was “misconceived on conceptual, legal and structural grounds”.

Irda’s letter to the market regulator comes after the latter’s showcause notice to insurance companies last month, asking why they had not taken Sebi’s approval to sell Ulips.

In a letter to Sebi Chairman C B Bhave last week, Irda’s Deputy Director (Life) Sudipta Bhattachaya pointed out that the regulatory set up in India, which had legal backing, was clearly demarcated.

In its letter, the insurance regulator said the road map for regulation of Ulips by Irda was “well laid down, and settled,” and there was “no merit” in the contention that insurers must obtain a certificate of registration from the Sebi for selling these products.

Following the Sebi showcause notice on January 15, life insurers had approached Irda. “While there is an element of market exposure, the insurance component is much higher. The rules are fairly clear and investor interest is clearly protected,” said the CEO of one of the largest life insurance companies. For some private players, Ulips account for close to 90 per cent of new business.

Application of mutual fund rules to Ulips would mean that companies will not be able to pass on the commission to customers, since entry loads have been banned for mutual funds. In addition, the investment and accounting rules are different for Ulips and mutual funds.

Sources close to the development said Irda’s letter has pointed out the legal provisions that limited Sebi’s jurisdiction to securities and securities related transaction.“What constitutes a security has been defined in the Securities Contract (Regulations) Act, 1956 and insurance contracts are not regulated under these securities laws,” it said.

Further, Irda said that structurally, Ulips are distinct from mutual funds and pointed out that the minimum capital requirement for an insurance company was Rs 100 crore and also maintain around 3 per cent as solvency capital. In contrast, an asset management company “is required to manage thousands of crores of assets with just Rs 10 crore”.

“Certain similarities in the features of various products issued in the financial world would not necessarily imply regulatory overlap,” Irda added.

Asked to comment, a senior Sebi official said: “Ulips are hybrid investment products with insurance cover and since it involves management of funds, Sebi has a role in protecting the interests of investors... Ulips are fit for regulation under Sebi’s mutual fund regulations.”

He, however, added that the Sebi was waiting for replies from insurance companies before deciding on how to regulate them.

In its letter to Sebi, sources said Irda also attached a copy of its mandate, which states that the regulator has to “protect the interest of the holders of insurance policies”.

Sandeep Parekh, a faculty member at the Indian Institute of Management, Ahmadabad and a former Sebi legal advisor said buyers of insurance policies were not sophisticated enough to understand the fine print or the risks associated with such plans.

“Ulips, which are mutual fund products with a fig leaf of insurance, ought to be regulated by Sebi. This is notwithstanding the fact that the insurance regulator already regulates it. There is nothing unusual with more than one regulator regulating a product,” he added and pointed to the joint regulation of currency futures by the Reserve Bank of India and Sebi.

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Budget - 2010, expectations

Friends,

It is budget time again. What to expect from the Finance Minister?

Tax proposals:

• Stimulus to continue
• More tax benefits
• Deductions
• Increase Basic exemption limit
• Increase the gratuity limit
• Increase the medical reimbursement limit (from Rs.15,000)
• Reduction in tax rates
• Short term capital gains
• Personal tax slabs to be widened
• Controlling the inflation by tax sops to industries

The above are just to kindle the interest and may I request you to get the list ready, so that we can see where we are against the budget!

Plan outlay

How he is going to fix the situation? I mean, the fiscal deficit. It is widening.

Also, we need to see how the previous budget vs. the actual situation is.

Look forward to your views.

Cheers,
Gopal

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Adjustment of Fringe Benefit Tax paid against Advance Income Tax for FY 2009-10

Good news to those who paid the Advance Fringe Benefit Tax (FBT) for the I Quarter of FY2009-10 and wondering how to get that back. The FBT was later on abolished in the Finance Act (2), 2009. 

In a circular, the IT dept has clarified that the Advance tax in respect of FB paid by the assessee can be adjusted against the Advance Tax for the FY 2009-10. If you do not have any tax liability, then you can claim refund of the FBT in their returns.

Below is the circular for your reference.

Cheers,

Gopal

CIRCULAR NO

2/2010, Dated: January 29, 2010

F. N0.385/05/2010-IT (B)

 

Sub: Adjustment of “Advance Tax in respect of Fringe Benefits” for Assessment Year 2010-11 against “Advance Tax” – matter regarding. 

The Finance Act, 2005 introduced a levy namely Fringe Benefit Tax (FBT) on the value of certain fringe benefits as contained in Chapter XII H (Sections 115 W to 115 WL) of Income Tax Act, 1961. By the Finance (No. 2) Act, 2009 a new Section 115 WM was inserted to abolish the FBT with effect from Assessment Year (A.Y.) 2010-11. Consequently, benefits given to employees are taxed as perquisites in the hands of employees in terms of amendments to Clause 2 of Section 17 of Income Tax Act, 1961. However, during the current Financial Year 2009-10 some assessees have paid “advance tax in respect of fringe benefits” for Assessment Year 2010-11. In such cases the Board has decided that any installment of “advance tax paid in respect of fringe benefits” for A.Y. 2010-11 shall be treated as Advance Tax paid by assessee concerned for A.Y. 2010-11. The assessee can adjust such sum against its advance tax obligation in respect of income for A.Y. 2010-11 or in case of loss etc claim such payment as refund as advance tax paid in A.Y. 2010-11.

2. This circular may be brought to the notice of all officers in the field for compliance.

Hindi version to follow

(Ansuman Pattnaik)
Director (Budget)

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Some Good News - Tax Exemption limit may be increased

With the growing cost and not a matching increase in the income, the Government is mulling over increasing basic exemption threshold for Income Tax liability.

I feel that a further exemption of about Rs.20,000-Rs.30,000 would be a good gesture for those, who did not get any increment during the last few years. This will ensure few bucks in the pocket of the individual and a hole in the government kitty.

Government is not keen on reducing the tax rates for the Corporates, citing that the exemptions they have would reduce the average tax rate.

Let us hope for the best in the coming buget.

Cheers,

Gopal

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Quote your PAN to save excess deduction of tax from your income

The CBDTCentral Board of Direct Taxes (CBDT) in its notification stated that those who do not provide their Permanent Account Number (PAN) to the deductor, the tax to be deducted (Tax deducted at source - TDS) from their income (salary, fee, etc.,) would be at 20%. There are various rates ( 1% to 10%) for the TDS depending on the nature of transaction. This new notification will be effective 1-Apr-2010.

What are the impacts of this notification:

1. Quote your PAN in all your communications, bills etc.,
2. The deductee to inform the deductor and also the deductor to inform the deductee.
3. Those without PAN will have to get their PAN, to save themselves from excess TDS
4. More people / business will get their PAN soon.
5. When you open a Fixed Deposit with bank and the interest paid/payable is more than Rs.10000 pa, tax will be deducted at 10%. If you fail to quote your PAN, tax would be deducted at 20%.
   

Let us look at a situation. A new business started in Jan 2010 and do not have a PAN. The business may start billing for the services and the customer will have to deduct the tax, as per the nature of transactions (say 5%). Since the new business failed to provide the PAN, the customer will deduct 20% from the bill. Now, the business cannot get back the excess 15% (20% - 5%) back from the customer. It has to file the return with the Income Tax department and adjust the excess TDS or claim refund (as the case may be).

It is a longer process to get the excess TDS adjusted or to get a refund. Why cut down your operating cash flow (net payment from customers)?.

Get your PAN and quote in all your transactions.

Cheers,

Gopal

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