Budget 2011: Simple Tax structure right way to Goods and service Tax

India will miss the April 1, 2011, deadline to implement the goods and services tax (GST), with the BJP-ruled states playing spoilsport once again. However, an influential policy advisory body has lent some hope to speed up the reforms process to create a common market across the country. In its report released a week ahead of Budget 2011, the Prime Minister’s Economic Advisory Council (EAC) has asked the Centre to adopt GST within the existing parameters of the Constitution . This framework allows the Centre to tax goods up to the manufacturing stage and also tax services. All the Centre needs to do is prune exemptions, convert specific excise duties — in commodities such as cement — to ad-valorem rates and tax all services.
Companies and service providers with a turnover of up to Rs 50 lakh should be out of GST and those above the limit should pay a 10% tax. The EAC’s recommendations are not new. These were proposed by an expert panel chaired earlier by M Govinda Rao, a member of the EAC and director at National Institute for Public Finance and Policy. The reforms, though seen as a step forward, are incremental . Already, most goods and services attract 10% duty. Manufacturers and services providers are also given credit for the input taxes that they pay on goods and services. The threshold exemption though varies for goods and services. Even a uniform threshold exemption will be a nightmare to administer.
Fact is the transition to GST requires two crucial amendments to the Constitution. These include new powers for the Centre to tax goods up to the retail stage and for the states to tax services. So, even if the EAC’s recommendations are accepted, the Centre cannot tax goods up to the retail stage. Most states support these amendments as this will strengthen their autonomy and boost revenues. In a federal structure, the Centre must also ensure that it does not infringe on the taxation powers of states. They should have the flexibility to change GST rates, if they want to, although they should ideally not. The government has done well to address some concerns of the states. It has watered down an amendment on the GST Council, originally proposed to be chaired by the finance minister.
The GST Council, with a majority representation of states, will be a useful forum for the states and the Centre to work out fiscal sense. The Centre should, therefore, continue its dialogue with the BJP-ruled states to forge a consensus on implementing GST at least in 2012. So far, the Centre and the states have agreed to a dual GST, comprising of a central GST and a state GST. Decisions have to be taken on the rate structure and list of exemptions . But the first step is to make the relevant amendments to the Constitution. Budget 2011 will not have big-ticket announcements on GST or even a clear timetable for transition. However, preparatory work is a must. The IT system that can service GST should be up and running and the administration should be fully geared to handle the new tax system in 2012.

Infrastructure firms want dividend tax waiver in budget

India's infrastructure firms are hoping the federal budget would bring some sops including a waiver off dividend distribution tax,minimum alternate tax(MAT) and an extension of a tax holiday for the sector.
Most infrastructure firms have a maze of subsidiaries and holding companies, and dividend tax is applicable when income is distributed from the lowest level to the next higher level,a Mumbai-based analyst said.
Dividend distribution tax is levied at 17.5 percent.
"This is against the principles of equity, because any income can be taxed only once, not 20 times so this particular provision has to be relooked," GVK Power and Infrastructure Group Chief Financial Officer Issac George said.
Though one layer of dividend distribution tax was abolished, it is still applicable for other layers, said the analyst who declined to be named.
Private equity firms are keen on investing in projects or units which offer easier exit option coupled with the relatively higher returns. These projects are often executed through special purpose vehicles.
The segment enjoys tax holidays, but is hobbled by MAT, which the players feel is double taxation.
"On one hand you say that infrastructure projects are tax exempted... on the other hand you say pay MAT," GVK Power's George said.
"So, what is the big deal here?"
At present the industry pays 18 percent MAT and surcharge and cess, taking the total to 20 percent, Shailesh Kanani, sector analyst at Angel Broking,said.
Extended Holiday
Players also want an extension of a tax holiday that ends on March 2012, which exempted companies developing infrastructure assets like roads from taxes, a Mumbai-based analyst said.
"We need huge infrastructure development in the country and that is the call of the day," MBL Infrastructures Chief Executive Officer AK Lakhotia said.
The sector needs a boost, Lakhotia said, adding that it was still in the stage of infancy.
India,behind schedule on some of its infrastructure-building targets, intends to double spending in the sector during the five years starting in 2012 to $1 trillion.
The sector is also seeking cheaper loans for projects in an economy of soaring interest rates. Since March, India's central bank has hiked lending rates seven times.
However, not all are optimistic about the budget meeting their expectations.
"Cost of funds is a function of inflation," and cannot be addressed in the budget, according IRB Infrastructure Developers Chairman and Managing Director Virendra D Mhaiskar.
India's current infrastructure investments of 5-7 percent of Gross Domestic Product need to rise to 9-10 percent for the country's "growth trajectory" to go up, Angel's Kanani said.

Spending Mistakes that Could Cost You Your Financial Freedom

Can't seem to get ahead financially? Debts piling up? Maybe you're making some of these mistake unknowingly. These mistakes listed below will help you understand where you may be going wrong and how to get back on track quickly.

Mistake 1. Living Beyond Your Means

This is the real cause of your worry and stress. If you are spending more than you are earning, whose money are you spending? It's the credit card provider's or the bank's. The cost of this money is interest.

The way out - Make a Commitment to yourself only to spend within your income limits. Maybe you could increase your income (or cash in) by applying for more skilled positions, selling some of your unused articles or assets. Is the second car really a necessity? What about working out ways to make your hobby pay for itself?

Why not find ways to reduce your spending? How much would you save each year if you decided not to have the daily coffee shop coffee? Why not make your work lunch each day rather than buying it? Commit to only buying the necessities.

Mistake 2. Paying Off Less Than the Full Credit Card Balance Each Month

Get this debt under control and your life will be much easier. If you are like many others and only pay the minimum balance each month, the interest on the interest makes those purchases oh so expensive.

The way out - Find ways to put aside more money to apply to the credit cards. It will take time to reach this goal. However, if you don't make a start now you may never pay them off. This situation did not occur overnight and neither will the solution. But, by diligence and commitment you'll get there.

Mistake 3. Not Really Knowing Your Financial Situation

Before you can set meaningful goals and develop savings strategies you need to know your financial situation now. The best, proven and tested method by far, is by developing your own personal budget.This is not hard to do. Please don't give up now. Just follow these simple steps:

The way out -
a)Find your latest credit card statements. Write down all the unpaid balances.
b)Are there any other unpaid debts (not home or car) then include these balances as well.
c)List out your (or family) monthly income. Only the amounts "brought home". Include all types of income.
d) Work out your monthly spending. List out where all the money goes. Don't leave anything out.
e) Minus the monthly spending total from the monthly income total and review the answer.
This will give you an initial idea as to whether you are living within your means or on borrowed money.

Mistake 4. Continually Adding to Your Debt

If debt has got you into this situation it is critically important not to add to the state of affairs and thus make it worse.

The way out - cut up the credit cards, keeping only 1 for emergencies. Don't buy on impulse. Ask yourself twice or three times before you buy anything "Do I really need this?" before you hand over your hard-earned money. Don't buy at the height of the fashion or fad. Commit to never paying full retail for anything. Get it on sale or negotiate a lower price.

Mistake 5. Spending All Your Income

It may sound OK to spend any money you earn but there are risks attached to this strategy. How are you going to pay for emergency items? What about major car repairs. What about major electrical appliance replacement? Are you going to pay for these on credit? Bad idea! How are you going to save for a substantial deposit on the next car?

The way out - Once you've prepared your budget you will clearly see what you need to do to put some income aside for other needs such are emergencies and repairs.

Mistake 6. Spending Without Caring About Your Future

Unless you are planning for your future and financial security, you cannot be really happy. There are always worries lurking in your mind about how you would survive in a financial emergency if you have no savings. It can be very rewarding to see how quickly your savings multiply over time with only a small investment each payday.

The way out - Take stock of your life and realize that tomorrow won't look after itself. It needs your attention. Keep some funds aside to put away for your retirement, children's college costs, emergencies, holidays and major purchases.

Avoid these spending mistakes and you'll be well on your way to financial freedom. Guaranteed.

Positives and Negatives of Different Types of Investments

When deciding where to invest your money, you need to always take into account your investment goals and objectives. Different types of investments carry varying degrees of risks and potential return.

CD
A bank CD is a very safe investment.The CD is FDIC insured up to $100,000, so there truly is minimal risk. The only downside is that you cannot withdraw that money in the CD for a specific amount of time or else you'll receive a penalty.Bank CDs generally only pay up to 5% interest.
Bonds
A bond is essentially a loan you make to a company or a government. Bonds have varying degrees of risk, from essentially risk-free treasuries to junk bonds. The higher the risk of the bond, the higher the return will generally be.
Stocks
Stocks are investments in companies. Depending on the company, the risk of the investment can be high or low. Obviously,buying stock in Johnson and Johnson is a lot less risky than a new internet start up company.In general, the stock market returns on average about 10% a year, though the actual return of any given stock will vary significantly.
Mutual Funds
A mutual fund typically invests in over 100 stocks, so it's an instant way to diversify your portfolio. However, the mutual fund generally charges a fee, which is about 1% of your assets per year. Because of this fee, most mutual funds do not outperform the market; a monkey blindly picking 100 stocks but not charging you a fee could easily outperform most mutual funds.
Real Estate
Real estate is a popular investment.The most obvious real estate investment you'll make is when you purchase your home. Your home can go up or down in value when you sell it; it depends on the housing market in your area.

Employee Stock Options The Latest Info on Taxation

There have been a couple of recent developments concerning the taxation of employee stock options of which advisors should be aware. However, before discussing these, a quick review of the taxation of stock options is warranted.
The tax rules
Options give employees the opportunity to purchase shares of their employer for a predetermined price, known as the exercise price. The difference between the fair market value of the shares at the time the options are exercised and the exercise price must be included in the employee's income. New rules introduced in 2000 allow this income inclusion to be deferred until the year the shares are sold (subject to an annual $100,000 vesting limit). The employee is then generally entitled to claim a deduction equal to 50 per cent of the income inclusion, which means that the stock option benefit is taxed at the same rate as a capital gain.
Assume that Jack received 1,000 stock options to purchase shares of his employer at $10 each. The price on the day he exercises his options is $25. His employment benefit is $15,000 or ($25 - $10) X 1,000 shares. He may claim an offsetting deduction of $7,500, so that his net employment benefit is reduced to $7,500, which, subject to the $100,000 limit, will not be taxed until the year of sale.
The adjusted cost base (ACB) of Jack's shares is $25,000, calculated as $10,000 (exercise price of $10 X 1,000 options exercised) plus $15,000 (the option benefit determined above). When Jack ultimately disposes of the shares, a capital gain (or loss) may result. For example, if he sells the shares when the price increases to $30, his capital gain would be $5,000 ($30,000 - $25,000).
Underwater stock options
What if Jack had sold the shares when the price was only $20? Jack would now realize a capital loss of $5,000. This capital loss can't be used to offset the option benefit of $15,000 as the option benefit is considered to be "employment income" and not a capital gain. Capital losses can only be applied against other capital gains in the current year or, alternatively, can be carried back three years or forward indefinitely to offset capital gains of other years.
It is this mismatch of employment income and capital loss that has caused much angst among employees who may have exercised options (perhaps because they were expiring) but continued to hold the shares. These employees may have lost significant amounts of money on the sale of option shares, yet also find themselves with a substantial tax bill on the option benefit, which was never monetized.
The Canada Customs and Revenue Agency (CCRA) is aware of this issue and has stated that it is currently under review by the Department of Finance. One solution that has been suggested to rectify the problem is that shareholders who have a capital loss on shares acquired by virtue of exercising options be allowed to apply the capital loss against the option gain (i.e., the employment benefit). The problem with this solution from a tax policy point of view is that once an employee has exercised stock options, he or she steps out of the shoes of being merely an employee and becomes a shareholder. That individual has made a conscious decision to hold the shares instead of selling them immediately. Therefore, would it be appropriate to treat this person differently from someone else who purchases the same shares on the open market (as opposed to through an exercise of options) and may realize a capital loss on those shares at a later point in time? Surely, he or she should not be allowed to deduct this loss from his or her employment income. Because of this potential inequity, we are unlikely to see any changes to these rules in the near future.
Repricing of stock options
With the recent turbulence in the financial markets (particularly in the technology sector), repricing existing stock options has become a popular way to incent executives who have previously been granted options that are significantly underwater. There has always been a concern among tax practitioners that if the options were simply repriced (without actually being cancelled and new options issued in their place), such a repricing would disqualify the options from the 50 per cent option deduction upon ultimate sale. This is because in order for the options to qualify for this deduction, the fair market value of the shares on the day the options are granted cannot exceed the exercise price. On a repricing, this condition would, by construction, not be met.
Last year, the Department of Finance stated that they were prepared to allow a repricing of stock options (retroactive to 1999) without the need to reissue new stock options and still have them qualify for the option benefit deduction of 50 per cent. This is good news for your clients who may have received stock options in the past and who find that they are now being repriced given today's market environment.

Realty Market can only fall to strategic ploys

In a dynamic market, where real estate investments are soaring, can new entrants hold their own against established players? This is an issue being seriously debated by a host of players in the industry and the corridors of the ministries of finance and urban development. The biggest issue in real estate development is the fact that it is capital intensive and requires a large amount of money to sustain itself through the long gestation period of the project.
While established players could leverage their brand equity and unlock the value of their land banks to secure formal loans for new projects, new players had to fend for themselves. For over five years now, the real estate market has been growing at a healthy 30% per annum. Investments from banks, financiers, high networth individuals (HNIs) and small investors was at an all-time high.
When the going was good and investors were underwriting large numbers of units for future gains, finances were never a problem. Prelaunches were a means of securing money upfront for use during the construction period. "The logic was that during a pre-launch, an investor was taking greater risk as he was putting money upfront for a project before the mandatory sanctions were in place. He, therefore, invested a smaller per sq ft cost. When the sanctions were secured, the developer sold at a higher cost, thereby allowing the investor to sell in the secondary market at a value above what he had purchased and below the market cost," explains a real estate investment advisor.
While this practice was not necessarily legal, it fetched a lot of money for many small investors and a huge access to funds at the critical starting period of a project. During the boom cycle, developers could afford to be complacent and take money in pre-launches and delay the start of construction till enough funds were raised from investors - big and small.
Explains one of the big developers who did not want to be named: "Funds did not invest in land but came in when the sanctions were obtained and the project was about to start. But that was also the time when in a buoyant market, retail investors were pumping in money and there was enough money available with the developer to complete the project." This bridge period from the launch to money inflow was then met by the banks with short-term loans to developers, as the banks themselves had a problem of too much liquidity. As a result, banks were willing to fund all kinds of projects and even new entrants could raise loans on the basis of future developments.
But in a slowing market with higher interest rates, where the buyers are normally end users who want possession of their apartments for self-use at the earliest, developers cannot afford to be complacent and slow in completion of the project. So where do the new entrants raise finance? Experts deliberated this issue at the Credai NCR Conference on Investment Environment and Funding Mechanisms in Real Estate in New Delhi last week.
Explains Abhishek Kiran Gupta of Jones Lang Lasalle Meghraj: "There is no dearth of finance for real estate development even today." There are plenty of private equity funds bringing funds for property development. And good projects always find takers. That's the issue today. New entrants have to set their house in order, secure clear titles for land, make meticulous plans for the developments and explain to the funds and new financiers how the project will move through its lifecycle.

Ways to Save Income Tax

Some of the Sections of Income Tax Act, 1961 are detailed below which detail few exemptions and categories of exempt income that you can take advantage of:Section 80C:Investment in specified instruments and expenses
Section 80C gives every income tax payer up to a maximum of Rs. 1,00,000 tax free income in a year if they invest in or buy the following instruments. Please not that this is a combined total of Rs. 1,00,000 and not an individual figure for every instrument:
Premium for Life Insurance or ULIP
Provident Fund (PF) contribution
Public Provident Fund (PPF) - only up to Rs. 70,000 in a year
Repayment of home loan principal
Equity Linked Savings Schemes (ELSS) of Mutual Fund Companies
Infrastructure Bonds
National Savings Certificates (NSC)
Tax Saving Fixed Deposits with Banks
Tuition Fees of children

New tax code for NRI'S

India’s New Direct Tax Code (DTC) described as generous to residents unfortunately seeks to extract a mouthful from millions of non-resident Indians (NRIs). It is good news that the government is all set to replace the age-old Income Tax Act of 1961 and bring far reaching changes in the tax structure with an aim to tax those citizens in lower income brackets as little as possible, bring the growing number of rich people in the tax net and prevent tax evasion in the notoriously corrupt system.
With the possibility of archaic rules getting replaced with new ones from 2011-2012, emerging India seems to have welcomed the path-breaking initiative taken by the central government. However, scores of NRIs are disappointed and are sure to seek changes in the proposed laws that affect them negatively. For example, under the DTC, NRIs staying in India for more than 59 days in a year and 365 days or more over a period of four years prior to the financial year will be considered residents and are therefore liable to be taxed on their global income. Currently they can stay in India up to 181 days in a year and still have no tax liability on the income earned outside India.

Complete Tax Saving Tips

There are different ways to save your tax and save a lot of money. Even there are different plans to save your tax in India. New salary is revealed in India in 2010, people get a higher salary or higher current salary beyond their own expectation and the current salary is dependable upon the cutting of tax. All types of new income tax schemes will depend upon the India finance ministry for government employees as well as for private employees in India. India government gives different types of tax discounts and there are different type of popular tax saving options for the people of India such as funds, saving bonds and life insurance etc. There are number of banks in the list of most popular tax saving schemes in India. You can call any of the banks for the information about tax saving options. The tax saver will tell you about the plans and procedure about the tax saving according to your current salary or total CTC. It is better to pay the car loan EMI, home loan EMI and many more in advance because the bank will imply the new interest rate at higher level up to 0.50%. So don’t take your loan EMI very easily.
A powerful systematic investment plans will help people in India. Reserve bank of India has various tax saving tools. The bank will sign the bond for 3 and 5 years at the rate of interest is 7.5% per annum. There are two types of bonds under the reserve bank of India such as cumulative bond and non-cumulative bond. There are so many private sector banks in India for tax saving. The best way to get information about saving tax is get in touch with a tax consultant. He has the complete information about tax implied on your salary and how you can save it. It is suggested to give the exact information about the income you receive from all sources. Mutual funds, Child insurance policies and health insurance plans can give you numerous benefits and you will be able to save tax. An agent will come at your place and help you fill the documents which you need to submit at the time of filing for year’s tax. This is because of the fact that the process may be confusing and tedious.
Getting help from a tax consultant, you will be able to save a lot of time and efforts. It is possible to save tax if you take right steps at the beginning of year. Proper planning and implementation is required so that you can save significant amount of money. One of the best options to get the information about tax saving schemes is to get online and browse various sites giving details about tax saving schemes. You do not have to do anywhere to get information as you can get it at the comfort of your home. You can also contact a tax consultant who can give you the best suggestions.