Rail Budget 2012-13 "HighLights"

Our Analysis Railway budget with Safety as Priority!

 

 

Railway Minister Mr. Trivedi announced Railway Budget for FY12-13 today with a clear focus on Safety and Modernization. Passenger fare prices have been marginally increased across the board for the first time in a decade whereas freight rates were already increased with effect from 5th march. On account of the deteriorating financial health of Railways, we have seen decline in various key investment activities like doubling of line and gauge conversion of line. The increase in Freight rates and Passenger fares are well directed to improve the financial strength of Railways. Overall the railway budget is not encouraging for Railway related companies.

 

Key Budget Highlights:
 

1. Marginal increase in passenger fares across the board.
    a) Hike of 10 paise per km for third AC passengers.
    b) Sleeper class 5 paise per km.
    c) First AC hiked by 20 paise per km.
   d) Platform ticket hiked to Rs 5.
   e) 2 paise per km hike for 2nd class suburban passengers.
   f) 2AC passengers to pay 15 paise more per km.

2. The ministry aims to attract 10% of the Rs 20 lakh cr government expects to spend on infrastructure during 12th Plan.

3. 487 approved projects are at various levels of execution.

4. 17 gauge conversion projects will be completed in FY 12-13.

5. Rs 1102 cr for passenger amenities in FY 13 as compared to Rs 762 cr in previous year.

6. Long Term Goals
   a) Plan to upgrade 19,000 kms of tracks in 5 years.
   b) To spend Rs. 63,212 cr on track modernization in next 5 yrs
   c) To create 100 stations through PPP route in 5 years.
   d) Total cost of signaling for five years is Rs 39,110 cr.
   e) To bring down operating ratio from 95% to 84.9% in 

       FY13 and 74% at the end of 12th Plan.

Hindu Undivided Family - Tool for Tax Saving

The concept of HUF says that apart from individuals there is another separate entity called “Family” which can also have its own assets and liabilities and even regular source of income, which should be taxed separately. For example, if an ancestral residential property is rented out, then the rent arising would be considered as Family’s income and not as income of individual. In real life this rent is shown as income of one individual and he pays the tax on it, however a HUF can be formed and the rent can be shown as the whole family income (HUF) and it can be taxed separately.

As HUF is governed by the Hindu Law and not by the Income Tax Act, individuals belonging to other religions are not allowed to form HUF except Jain’s and Sikhs who can create HUF even though they are not governed by the Hindu Law. Two entities are extremely important for you to know in HUF are the coparceners and members.

Coparcener is someone who has the right to demand the share of the property of family; coparceners are generally the Karta (Main decision maker of family, usually the Father , but Manmohan Singh had brought an amendement which stated that Females can become Karta & there can be an all female HUF as well), then sons & daughters, grandsons and great grandsons in order of their first right. Wife of the Karta is not a coparcener or even spouse are not coparceners and hence can’t demand/ ask for any share in HUF, they are just merely members of HUF.

The first step is to form a corpus for the HUF. This can be any capital asset (property, gold, jewellery, securities, deposits) or cash. This is not as easy as it may sound. You can't transfer just any asset to your family 'hotchpot'. Any personal funds or property given by an individual to the HUF will lead to clubbing provisions under Section 64 (2) of the Income Tax Act. This means the income from these assets will be treated as that of the individual, thus defeating the very purpose for which the HUF was established.

A husband and wife can form an HUF but a wife can only be a member, not a co-parcener. Therefore, the HUF income will not be assessed separately. A member has equal rights but only a co-parcener can demand the partition of the HUF. "Only the birth of a child will give the unit the status of an HUF for tax purposes," says chartered accountant and legal expert Girish Ahuja.

The HUF can be formed with money received as gifts from relatives. But there's again a tax implication here. While there is no tax on gifts received by an individual from specified blood relatives, the HUF does not enjoy this exemption. "The HUF is not an individual, so it has no relatives. Any money it gets will be treated as a gift from a stranger. If the value of the assets received as gifts in a year exceeds 50,000, it will be deemed as income of the HUF and taxed accordingly,"

The best way to avoid the tax tangle is to form the HUF corpus with assets received as part of a will.

Procedure to create HUF

These are the steps to create capital of a HUF.

1)      First one should open a bank account with the name of Hindu undivided family like “AJAY HUF” with a stamp, ID Proof and the proof of the members of the family of HUF.

2)      Important :- While opening a Bank Account in the name of HUF – Banks always ask for

a rectangular stamp which states the name of the HUF and also the Karta who is signing

it. A round stamp is not accepted as per RBI Circular. The same applies at the time of

opening of bank account of Sole Proprieter as well.

3)      Next is to apply for PAN (Permanent Account Number) of the income tax.

Saving taxes through HUF

1) Saving tax by getting gifts - One way of saving tax is by transferring the money received from strangers or family are taken as gifts in name of HUF. So if Ajay starts his HUF called “Ajay HUF” and he is getting

some gifts from his father, friends or anyone else, he can ask them to give it to “Ajay HUF” and not Ajay itself. That way the gift will be treated as income/asset of HUF and taxed separately. One important point here, if some stranger is giving gift to HUF, there is a limit of Rs 50,000 on which no tax has to be paid, but actually it can go up to Rs 1.8 lacs as the taxable limit is that much, and if one also has to do investments of 1.2 lacs (total 80c limit), then one can afford to receive up to Rs 3 lacs of gifts in a financial year and there will be no tax liability at all.

2) Assign ancestral properties and wealth to HUF and invest it

If family is going to receive an ancestral property or any wealth, then it’s better to transfer it on HUF name so that whatever earnings happen in future in form of rental income or capital appreciation of assets becomes income of HUF itself and taxed in its own hands. That way the total tax liability of family can be minimized.

3) Use HUF income for expenses and Insurance for Family

As HUF enjoys separate tax benefit under sec 80C, one can use the income of HUF for buying Life & health insurance for family and the permissible deductions can be availed for tax purpose in hands of HUF, so if the total premiums for insurance requirement of family is Rs 50,000 per year, then It can go from HUF income and also the individual can exhaust his 1 lac limit separately via PPF, ELSS and other tax instruments. Also family day to day expenses can be used from HUF income.

But here too there are certain conditions to be met. If the property is inherited by the individual, transferring it to the HUF will again lead to clubbing. "A person can give property and other assets to his son's HUF but it should be clearly specified that the asset is for setting up the HUF,". 

One can also start the HUF with funds received on the dissolution (or full partition) of a larger HUF. If the karta wants to divide the HUF property between the co-parceners, he can transfer the fund to a newly formed HUF. If the ancestral property is sold, the proceeds received can also be transferred to the HUF.

Joining the HUF

There's no need to fill an application form or submit KYC documents for joining an HUF. All lineal descendants of the karta, their spouses and children automatically become members of his family. Wives join the HUF as members, while children join on birth as coparceners. "Even the unborn child of a member or co-parcener has an equal share in the HUF,"

Recent amendments in HUF  rules(HINDU SUCESSION ACT in 2005)

• The daughter could also be a Coparcener like the sons of the HUF. 
• Daughter also continues to be a Coparcener after her marriage of that family whether she also will be a member of HUF of her husband. 
• The degree of the Coparcener limited to four degree(Great Grandson)  and not all the members of the family are Coparcener.
• For creating the HUF one need to get married, there is no need to have child or children for creating the HUF. 
• The female could also be a KARTA as the amended  when the father unfortunately dies and she has no brother. In that condition the daughter or the mother can be the KARTA. 
• In HUF there could be all the females’ members also when the husband dies and she has no sons. 
• The HUF can’t be a partner of the firm as the HUF is not a person whereas the KARTA of HUF can be a partner of the firm.
• HUF can pay remuneration to the KARTA of family for the interest and expenditure to run the family business.

Illustration

Mr. Sachin Sharma, if he is married then he can create an HUF in the style of "Sachin Sharma HUF." Now suppose there are 4 adult members in the family consisting of his wife Asha Sharma, married son Ashish Sharma and daughter in law Shalini Sharma, and all are earning and being taxed as per highest tax slab. Suppose there are deposits and investments in the name of HUF and HUF also earns an income of 1.5 lacs. Then income of Sachin Sharma HUF will not be considered as an income of any member of the family, but the income of HUF which is seperate income in the eyes of law.

Whats more, HUF enjoys the tax benefits which only an individual enjoys, i.e.income upto 1 lac eighty thousand is tax-free and that entity will not be liable to pay any tax. However if this income would have been added in the income of any of the family member, then they had to pay tax on that income as per highest tax slab.

Now, what becomes more interesting that Son of Mr. Sachin Sharma, Ashish Sharma can also create another HUF Sachin Sharma HUF, for which he will be Karta and continue being Co-parcener/Member of the HUF created by his father "Sachin Sharma HUF". Now this Sachin Sharma HUF will again become seperate entity enjoying all the tax benefits an individuals gets.

In this particular example we have seen that although there are 4 members in the family but 6 different entities in the eyes of law enjoying the tax benefits which are applicable to individuals.

Now even if all the Members have exhausted the benefits by investing 1 lacs each under section 80C, they can invest additional  2 lac from the 2 HUF accounts even if the investment is in the name of HUF only or any of the members of HUF.

This illustration shows how powerful tax saving tool an HUF really is.

Who should actually use HUF as a tool for tax saving

HUF will be extremely efficient for those people who have a higher income and high saving

rate and some form of ancestral assets which can be marked as “Family Assets”. Evaluate if

HUF can really give you that kind of tax advantage or not for people who do not have high

salary or who do not have a big enough family. So make sure you can get the maximum out

of the HUF and understand the limitations of opening HUF before you go for it.

Tax Gains with Infra Bonds

Looking to save on taxes? If you missed the opportunity to investin the earlier tax-saving infrastructure bonds issued by companies such as IFCI and Power Finance Corporation, here is another chance to save tax up to Rs 6,180.

REC – Tax Free Bonds :::

> Issue is likely to open on 6th March 2012

> Likely Coupon for 10 years series 7.93% & for 15 years series 8.12%

> Tax benefits u/s 10 (15) (iv) (h) of the Income Tax Act, 1961

= = = Interest on these Bonds shall not form part of Total Income...

Tax-saving infrastructure bonds from L&T Infrastructure, SREI Infrastructure and IDFC have been closed for subscription. While L&T and IDFC are offered 8.7 per cent interest on their infrastructure bonds with 10-year maturity, SREI Infrastructure is offered two rates-8.9 per cent on bonds with a maturity period of 10 years and 9.15 per cent on 15-year bonds. Bonds are available with interest payments on an annual as well as a cumulative basis.


L&T bonds, which opened for sale on 10 January 2012, closed the sale on 11 February 2012. IDFC Infra Bonds opened for subscription on 11 January 2012 and closed on 25 February 2012. SREI Infrastructure bonds would be on sale till 31 January 2012.

Tax-saving infrastructure bonds are debt securities issued by infrastructure firms or infrastructure finance companies. Investments up to Rs 20,000 in these bonds are eligible for tax deduction under Section 80 CCF of the Income-tax (I-T) Act. This deduction is over the Rs 1 lakh deduction available under Section 80C of the I-T Act. These are long-term secured bonds with maturity periods of 10-15 years.

Indian residents who are not minors and Hindu undivided families can invest in these bonds. The minimum investment for L&T and SREI Infra bonds is Rs 1,000, while IDFC bonds require a minimum investment of Rs 10,000.

Call us to know more ...... 

Mark Zuckerberg and the case for a WEALTH TAX !!!!

The Economist has a cute chart today, showing the net worth of the world’s richest men (and one woman), divided by their age. Warren Buffett has, on average, built just over $600 million of net worth per year of his life, putting him just behind Bernard Arnault and well behind Bill Gates and Carlos Slim, who right now constitute the billion-dollar-a-year club. (I’ll save you the math: that’s $2.7 million per day.)

There’s a good chance that when Facebook IPOs, Mark Zuckerberg will join that tiny group: he’s 27 years old, so the market cap we’re looking for here is $95 billion. If Facebook is worth more than that, Zuckerberg will have increased his wealth by $1 billion a year, on average, from the day he was born onwards

Which helps to put Zuckerberg’s ten-figure tax bill in perspective. If you’ve been getting a billion dollars wealthier every year for 27 years, a one-off payment of $2 billion doesn’t seem particularly excessive, in tax terms — especially if all your other tax bills, before and since, are relatively minuscule.

What’s more, Zuckerberg’s $2 billion tax bill is only coming about because of a quirk in the way his Facebook equity has been structured: on top of his 414 million shares of Facebook, he also owns 120 million options. Zuckerberg’s shares are generating no tax bill at all; it’s only the fact that he’s exercising the options which is giving him $5 billion or so of taxable income, for this year only. (And even that income is offset by the fact that Facebook itself gets an equal and opposite corresponding deduction — and since Zuckerberg owns 28.4% of Facebook, what he’s losing personally he’s partially making up through his corporate shareholding.)

David Miller explains how founder-billionaires get off even more lightly than private-equity GPs when it comes to taxes:

If Mr. Zuckerberg never sells his shares, he can avoid all income tax and then, on his death, pass on his shares to his heirs. When they sell them, they will be taxed only on any appreciation in value since his death.
Consider the case of Steven P. Jobs. After rejoining Apple in 1997, Mr. Jobs never sold a single Apple share for the rest of his life, and therefore never paid a penny of tax on the over $2 billion of Apple stock he held at his death. Now his widow can sell those shares without paying any income tax on the appreciation before his death. She would have to pay taxes only on the increase in value from the time of his death to the time of the sale.

Miller has a rather complicated way of getting America’s ultra-rich to pay taxes: if you earn more than $2.2 million per year, or own $5.7 million or more in publicly traded securities, then you have to mark your wealth to market every year and pay income tax on the amount that it has gone up. Conversely, if your wealth declines, then you can get a massive rebate.

Personally, I think it would be much better idea if we simply implemented a small wealth tax, on top of income tax, for the very wealthy: last year I proposed that any wealth over $5 million should be taxed, annually, at a 1% rate. For someone with $5.7 million in wealth — that’s the top 0.1% — such a tax would increase their tax bill by just $7,000 a year. But for Mark Zuckerberg, it would bite. Right now, he stands to pay essentially no taxes in 2013. But if there was a 1% wealth tax and he was worth $27 billion at the end of 2013, that would generate a $270 million tax bill.

When politicians talk about taxing the rich, a common rejoinder is that income is not the same as wealth, and it’s wealth, not income, which really makes you rich. Fair enough. So let’s tax wealth. It’s fair, and it could provide some very useful revenue for anybody looking to balance the national budget.

Source : http://blogs.reuters.com/felix-salmon/2012/02/08/mark-zuckerberg-and-the-case-for-a-wealth-tax/

Expectations from the BUDGET 2012 or PRANAB BABU

Priorities for Budget

• Promote the acquisition of further skills by unemployed and underemployed people
• Create more flexible mechanisms to meet the training, education and income support needs of people in atypical employment, including, in particular, people in casual self-employment
• Explore the concept of minimum income retention which would allow indebted families have a guaranteed minimally acceptable standard of living
• Develop initiatives to help sole traders/micro enterprises deal with indebtedness, including a mentoring service for sole traders in difficulty and a support unit along the lines of the UK’s Business Debtline.
• Maintain current levels of funding for core community care services
• Provide further supports to meet the educational costs for low-income families and work to reduce costs
• Continue to address the issue of fuel poverty in both the short and longer term

Personal Taxation

·         Expected Rate of Tax for FY 12-13: For all Resident assesses below age of 60 years

o   Below 2,50,000                  – NIL

o   2,50,000 to 5,00,000        - 10%

o   500,000 to 10,00,000       - 20%

o   10,00,000 and above       - 30%

1. The Surcharge, Education Cess and Secondary higher education cess on individuals shall be abolished.
2. Deduction u/s 80C : The overall existing ceiling limit of investments deductable u/s 80C Rs.1,00,000/- shall be increased to Rs. 1,50,000/-
3.  Deduction u/s 80CCF : The Deduction for investment in long term infrastructure bond shall be increased from Rs. 20,000/- to Rs. 50,000/-.
4. Children educational Allowances: The exemption limit for Children Education allowance shall be raised from Rs. 100/- per month to Rs. 1000/- per month per child for maximum 2 children or actual expenses, whichever is less.
5. Transport Allowance : The exemption limit for transport allowance to meet expenditures of commuting from residence to the place of work may be raised from Rs. 800/- to Rs. 1,600/- per month.
6. Reimbursement of Medical Expenses: The exemption limit of medical expenses reimbursement under section 17(2)(viii) was raised from Rs. 10,000 to Rs. 15,000 by Finance ( No.2) Act, 1998. In view of the rising cost of medical facilities and medicines, it is expected to increase the exemption limit from Rs.15,000 to Rs.30,000/-.
7. Revision of Leave Encashment Exemption limit: The maximum exemption limit of Leave encashment for non-government employees shall be revised from Rs. 3,00,000/- to Rs. 10,00,000/-in view of the lack of social security support to the retiring non-government tax payers.
8. Deduction of interest expenditure under the Head Income from House Property: Considering the fact that the overall increase in property prices, the existing deduction limit for self occupied property shall be increased from Rs. 1,50,000/- to Rs. 4,00,000/-.

Corporate Taxation

• Rate of tax: The Surcharge for Indian companies shall be reduced from 5% to 2.5% or alternatively can be abolished completely. Similarly the education cess and secondary higher education cess shall be removed.
• Minimum Alternative Tax (MAT) u/s 115JB: The MAT rate shall be reduced from 18.5% to 15%.
• Dividend Distribution Tax: Finance Act 2008 amended the provisions of Section 115-O of the Income-tax Act, 1961 (the Act), to mitigate the cascading effect of DDT in a single tier structure dividend, only up-to one level. However, cascading effect of DDT still continues  to be felt in case of second level and the further step-down subsidiaries. 
• Deletion of clause (c) of the newly inserted subsection (1A) will extend the benefit to a muti-tier structure and hence multiple incidence of DDT on up-flow of dividend from subsidiary company to holding company can be prevented in all cases.

In this regard, we expect that the clause (c) of the newly inserted subsection (1A) may be deleted so that the cascading effect of DDT can also be avoided in a multi-tier structure. Further, investment companies which do not necessarily have subsidiaries and invest in various companies in the open market should also be eligible for such deduction on further distribution of dividend on which DDT has been paid.

• Deduction for expenditure on Corporate Social Responsibility (CSR) : with a view to encourage the corporate toward the CSR activities, we are expecting that the government will come up with the insertion of new section allowing a weighted deduction @ 150% of the expenditure incurred for CSR activities by the corporate as well as non-corporate assesses.

Sundries / General Expectations

• Depreciation: The rate of depreciation for the general plant and machinery shall be enhanced from 15% to 20% or 25%. In order to avoid further litigation on whether the printed, scanned etc. are to be considered as computer or plant and machinery, we are expecting some clarification on the same.
• A clarification is expected whether the eligible assessees are allowed to claim the remaining 10% additional deduction in the second year, if in the year of purchase it had claimed only 10% depreciation i.e. being half rate.
• Rate of Interest on Tax Refunds – Sec 244A : A uniform interest rate may be 6% or 12% p.a. shall be applied for both refunds and tax dues payable by the Government and assesses respectively.
• Section 14A / Rule 8D Disallowance : Rule 8D shall be amended to provide that the amount of notional disallowance shall not exceed the exempt income.
• TDS on Service tax :  Necessary provision shall be brought into the Act for non deduction of TDS on the service tax component  of the professional fees and other services.
• Penalties u/s 271: Suitable remedial measures are shall be brought into the Act providing relief to the genuine hardship faced by the assessees on account of imposition of penalty even where there is no concealment of income.
• Advance Ruling for Residents : It is expected that the union budget shall have some scheme which would allow even few class of resident assessees for the Advance Ruling.
• Transfer pricing provisions: we expect that in the union budget government will come up with the industry specific rates of allowable variation u/s 92CA

Wealth Tax

• The threshold limit for levy if wealth tax shall be increased from the existing limit of 30,00,000/- to 50,00,000/-
• In case of individual and Hindu undivided families cash in hand in excess of Rs. 50,000/- is considered as an asset under the wealth tax Act, 1957. The said limit of Rs. 50,000/- shall be enhanced to Rs. 1,00,000/-

Central Excise

• Education Cess (EC) and Secondary and Higher Education Cess (SHEC) : EC and SHEC be subsumed in the excise duty.
• Online E-filing of weekly information by major duty paying unit : in view of the fact that the assessees are submitting monthly return regularly, the online E-filing of weekly information leads to undue hardship to the assessees. Hence, the said provision shall be removed.

·         Exemption / CENVAT credit to all excisable goods used for research & development (R& D): CENVAT Credit shall be allowed to all excisable goods used for research & development (R& D) including the capital goods deployed for R&D activities.

Customs

·         CENVAT Credit Rules shall be suitably amended to extend the CENVAT credit on capital goods from 50% to 100%.

Service Tax

•  Rate of Service Tax: The existing general rate of service tax shall be reduced from 10% to 7.5%. Further, the education cess and secondary higher education cess shall be removed.
• Segregation of manpower recruitment services and supply of manpower Services: The taxable services of manpower recruitment and manpower supply shall be segregated in two separate categories as it is more appropriate to classify manpower recruitment in Rule 3(iii) and manpower supply in Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Similar approach shall also be adopted in case of Export of Services Rules, 2005.
• Works contract services : Rate of service tax under WCC Scheme be reduced from 4% to 3%.
• Practicing Chartered Accountants vis a vis legal professionals : In line with the legal services, individual Chartered Accountants shall also be exempted when providing professional services to individual service receivers.
• Carry forward of excess service tax actually paid in Form ST-3 : A worksheet for computing the excess service tax paid shall be incorporate which can be adjusted in the subsequent period in Form ST-3 itself.
• Tax Audit Report in service tax : In order to streamline the process with all VAT laws, it is suggested that the submission of audit report be made mandatory in service tax also along with audited annual accounts.

Central Sale Tax

·         Rate of Central Sales Tax  : Central Sales Tax rate of 2 per cent is effective from 1st June, 2008. The rate was expected to be reduced to 1 per cent w.e.f. 1st April, 2009 and to Nil on 1.4.2010 on implementation of Goods and Services Tax. However, the CST rate continues to be 2 per cent. Hence, It shall be reduce to 1 per cent at least.

       Hope PRANAB BABU delivers this time !!!!!