Major Interest Rates in India and World

Date : 12th October, 2009 - Monday

India
Bank Rate - 6.00%
Repo Rate - 4.75% (Rates at which banks borrow from RBI)
Reverse Repo Rate - 3.25% (Rates at which RBI borrow from banks)
CRR - 5.00%
SLR - 24.00%
PLR - 11% to 12%
Savings Bank Rate - 3.5%
Deposit Rates - 6.5% to 7.75%
Call Rates - 2.15% to 3.35%
182 days Treasury Bills - 3.8%
BSE Sensex - 16642

Major Exchange Rates
INR vs USD - 46.53
INR vs Euro - 68.50
INR vs GBP - 73.73
INR vs SGD - 33.36
INR vs JPY - 0.517

World Interest Rates
JPY - 0.1%
USD - 0.25%
Euro - 1.0%
GBP - 0.5%
AUD - 3.25%
NZD - 2.5%

Outlook
With the global economy showing signs of revival (or that is what being predicted), time will not be far away to see firming up of interest rates again.

Changes in TDS rates - Budget 2009-10

In budget 2009 TDS rates are sought to be amended from 1.10.2009

Section 194C – Payment to Subcontractor
1% in case of Individual or HUF & 2% in case of others.

Section 194I – Rent
2% in case of machinery and 10% in case of land or building.

New Section – 206AA
A new section 206AA is being inserted to ensure PAN compliance.

It provides that any person who is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVIIB shall furnish his PAN to the person responsible for deducting such tax.

If there is a failure, then tax has to be deducted at the higher of the following rates:

(i) At the rate specified in the relevant provisions of this Act; or
(ii) At the rate or rates in force; or
(iii) At the rate of 20%.

So PAN is being made mandatory independently.

Now the question is on payment to foreign companies for whom TDS may be payable, if they do not have PAN should we deduct TDS at the highest rates? Most of them will not have PAN, so what will be the implications? Should they go in for PAN?

MAT - Minimum Alternate Tax - 115JB Income Tax Act, 1961

Section 115JB of Income Tax Act, 1961 sets out provision for calculation of Minimum Alternate tax.

If a company whose tax payable works out to less than 15% (amended in Finance Act, 2009 from 10%) of book profit then the company has to pay tax at 15% of book profit. For example if a company has Rs.100 crores as taxable income and its liability is to pay 33.99% tax (after adding surcharge) which works out to Rs.33.99 crores. However if for this company the book profit is Rs.600 crores and 15% of this Rs.600 crores is Rs.90 crores. Then the company is liable to pay Rs.101.97 crores (effective rate of MAT is 16.95% after adding surcharge and cess on 15%) as income tax and not Rs.33.99 crores.

For purpose of arriving at book profit section 115JB comes out with specific guidelines for addition, and ofcourse creates innumerable complications.

To add to these set of complications in this budget of 2009-10 a new amendment has been carried out in section 115JB retrospectively from 1.4.2001 (to negate a Supreme court judgement in CIT Vs HCL Comnet Systems and Services Ltd. (2008) 305 ITR409), under which “any amount set aside as a provision for diminution in the value of any asset would also be added back for calculation of book profit” – meaning thereby any provision for bad debts would require to be added back while calculating book profit.

Question which comes to every one’s mind is – why give all the exemptions, and then try to tax companies which avail of these exemptions? Is this efficient tax administration? On top of taxing allowing them to avail credit of this tax for next 10 years when they have actual taxable income more than 15% of book profit!!

Are these value additions!! I have serious doubts as this leads to innumerable interpretations and takes time away from the courts.

Reverse Mortgage

Reverse Mortgage
Reverse mortgage is a model created for securing income for senior citizens, utilizing asset in his possession. The operation of this scheme is quite simple. Senior citizen who is the owner of a house can mortgage his house with a bank and either avail a loan either as a lumpsum amount or deferred payment on a periodic basis (monthly / quarterly / yearly). This amount can be either utilized to pay off old debts or to manage running expenses.

This mortgage amount should be repaid if the senior citizen decides to sell his home. Otherwise on his death the bank will sell this property and recover the mortgage amount. There is an option left with the inheritors of this property, they can settle the mortgage and retain the house

This is an excellent tool for senior citizens to have liquidity as well as retain their asset. However till now this scheme has met with limited success in India, due to lack of awareness and Indian culture of passing on property and not debt to the next generation.

Appointment of Whole Time / Managing Director

Section 269 of the Companies Act provides for appointment of Whole Time Director.

Section 316 of the Companies act prohibits a person to be Managing or Whole Time Director in more than one company. If he desires to be a Managing Director in another Company then the company should pass a special resolution in the board meeting for such appointment and all directors present in the meeting should provide their consent. At times Central Government by order permint any person to be appointed as Managing Director in more than 2 companies if they are satisfied and it is necessary for the companies proper working to have a common managing director (ie) companies in the same group can have one managing director.

Should I File Return if taxable income below taxable limit

Section 139(1)(b) states that any person having a taxable income to file returns.

Section 139(1)(b) also states that even though a person does not have taxable income but is in possession of any of the following :

1) An immovable property
2) A car
3) A cellular Phone
4) Has travelled to a foreign country on his own expense
5) Has a credit card (not a "add-on" card)
6) is a member of a club whose entrace fees is more than Rs.25000

Should file a return.

So check your stauts and file the return as required by law.

Gift Tax in India - Section 56(2)(vii) of Income Tax Act, 1961

Gift Tax in India a brief run down

History
Gifts were taxed under The Gift tax Act, 1958 which was made in-operational from 1.10.1998. In the finance act 2004 a new section 56(2)(v) was introduced in the Income Tax Act, 1961, under which Gift if they are more than Rs.25,000 are taxable as “Income from Other Sources”. For the period 1.9.2004 to 1.4.2006 this was applicable. From 1.4.2006 Gift worth more than Rs.50,000 were taxed as “Income from Other Sources” under section 56(2)(vi) of The Income Tax Act, 1961.

Features of Gift Tax

• This provision applies only to individuals and HUF (Hindu Undivided Family) (ie) only these category of assesses need to pay Gift Tax.

• Gifts from Relatives are 100% exempt – meaning this provision applies only for gifts from non relatives. Relative means :
  o Spouse of the individual;
  o Brother or sister of the individual;
  o Brother or sister of the spouse of the individual;
  o Brother or sister of either of the parents of the individual;
  o Any lineal ascendant or descendant of the individual;
  o Any lineal ascendant or descendant of the spouse of the individual; and
  o Spouse of the person referred to in clauses (ii) to (vi).
  
• Gifts received at the time of marriage from a relative or non relative is exempted
  
• Gifts received under these special circumstances from non relatives are also exempt. The Special circumstances are as under
  
  o Gift received under a Will or by way of inheritance;
  o Gift in contemplation of death of the donor;
  o Gift from any local authority;
  o Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution referred to in Section 10(23C); and
  o Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 12AA.
  
• Gifts in kind are exempted upto 1.10.2009 (ie) only gift received in cash was taxed upto 1.10.2009 – from 1.10.2009 a new section has been introduced 56(2)(vii) in The Income Tax Act, 1961 under which the following gifts exceeding value of Rs.50,000 are also taxable
  
  (i) immovable property being land or building or both;
  (ii) shares and securities;
  (iii) jewellery;
  (iv) archaeological collections;
  (v) drawings;
  (vi) paintings;
  (vii) sculptures; or
  (viii) any work of art;
  

Now the challenge has commenced, how to value these gifts? So separate valuation rules need to be prescribed. So more work for lawyers and tax payers….