Direct-Tax Amendments by Finance Act – 2011 ~ Summary

Incometax

Sunil Bhave

-

January 14, 2012

Direct-Tax Amendments by Finance Act – 2011

(1) Rates of Taxes

Section 2 of Finance Act-2011 read with First Schedule of Finance Act-2011

Part-I	Part-II	Part-III
Part-III of Finance Act-2010 (Specify the tax rates at which Income of P.Y. 2010-11 i.e. A.Y. 2011-12 to be assessed)	TDS rates for P.Y. 2011-12 i.e. A.Y. 2012-13 (Except Salary) Note-1 Note-2	Rates of Advance taxes, TDS on salary & some certain cases for P.Y 2011-2012 i.e. 2012-13 (Will become Part-I of Finance Act-2012) Note-3

Note-1:- Under new section 194LB inserted by Finance Act-2011 w.e.f. 1^st June, 2011 the interest paid for by infrastructure debt company under clause 47 of Section 10 to a Non-resident or foreign company will be subject to deduct TDS @ 5% instead of 20% on other interest income of Non-resident u/s 115A

Note-2:- Surcharge @ 2% for TDS deducted on foreign company income if their income or aggregate of income paid or likely to be paid exceed INR 1 crore.

Education cess @ 2% and Higher education cess @ 1% would be levied on TDS deducted of Non-resident and foreign company including surcharge.

Note-3

§ General exemption Limit for individual/HUFs/BOIs/AOPs and artificial judicial persons has been increased from INR 160,000 to INR 180,000.

§ General exemption Limit for senior citizen and artificial judicial persons has been increased from INR 240,000 to INR 280,000 and the age of senior citizen has been reduced from 65 years to 60 years.

§ For the resident individual of the age of 80 years or more will be eligible for the basis exemption limit of INR 500,000

§ Surcharge on domestic company have been reduced to 5% from 7.5 %

§ Surcharge on foreign company have been reduced to 2% from 2.5 %

(Surcharge is applicable subject to marginal relief and also available on MAT u/s 115JB. No marginal relief is applicable to ECS and HECS)

(2) The monetary Limit of permissible receipt from trading activity for an institution with an object of “Advancement of any other object of general public utility” and engaged in charitable purpose u/s 2(15) have been increased from INR 10 lac to INR 25 lac to retain its “charitable status” w.e.f. AY 2012-13.

(3) Amendment in Section-10 of Income-tax Act (Income which do not form part of Total Income

§ New clause 45 to section-10 has been inserted to enable the exemption of specified allowance to Chairman or a retired chairman or any other member or retired member of Union Public Service Commission for the allowance and perquisites as notified by central government. (WEF retrospectively from AY 2008-09)

§ New clause 46 to section-10 has been inserted to enable the exemption of income arising to a notified body or authority or Board or Trust or Commission to the extent as notified by central government. (WEF 1^st June-2011)

(Filing of return to such body or authority would be liable u/s 139(4C) which has been amended via Finance Act-2011, within time period prescribed u/s 139(1), if its total income exceed above basis exemption limit without giving effect of Sec. 10(46).

§ New clause 47 to section-10 has been inserted to enable the exemption of income of notified infrastructure debt fund by central government. (WEF 1^st June-2011)

Under new section 194LB inserted by Finance Act-2011 WEF. 1^st June, 2011 the interest paid for by infrastructure debt company under clause 47 of Section 10 to a Non-resident or foreign company will be subject to deduct TDS @ 5% instead of 20% on other interest income of Non-resident u/s 115A

(Filing of return to such body or authority would be liable u/s 139(4C) which has been amended via Finance Act-2011, within time period prescribed u/s 139(1), if its total income exceed above basis exemption limit without giving effect of Sec. 10(47).

(4) Profits and Gains of Business and profession

§ Under section-35(2AA) the limit of weighted average deduction has been increased from 175% to 200% WEF AY 2012-13.

§ The scope of Section 35AD have been extended to the following to businesses as well

§ Developing and building a house project under a notified scheme of CG and SG

§ Production of fertilizer in India

(The new plant or new capacity should be started on or after 1^st April, 2011) effective from AY 2012-13

(In respect of existing provision to this section in the business of hotels and hospitals the word “New” have been removed from the definition of specified business.

Important point: – Loss of assesse claiming deduction u/s 35AD can be set-off against the profit of any other specified business u/s 73A irrespective of whether any other specified business is eligible for deduction u/s 35AD or not.

§ Employers contribution to the account of the employee under a pension scheme to in section 80CCD will be deductible as a business expenditure under newly inserted clause (iva) in section 36(1) subject to maximum of 10% salary of employee in PY (For this purpose salary will include DA, if the terms of employment provides so) WEF AY 2012-13

§ Consequently section 40A(9) has been amended to provide the effect to the above proviso.

§ Consequently section 80CCE has also been amended to provide the effect to the above proviso where the deduction of sum provided under this proviso to employee will be over and above the limit of INR 1 lac.

(5) Deduction from Gross Total Income

§ Extension in duration:-Deduction for investment in long-term infrastructure bond to continue for one more year u/s 80CCF up to INR 20,000. This deduction will be over and above the limit of INR 100,000 provided in section 80CCE. Effective for AY 2012-13

§ Extension in time period:- The time limit u/s 80-IA(4)(iv) have been extended by one year i.e. from 31^st march, 2011 to 31^st March, 2012 to enable the undertakings which have started the power business during the period from 1^st April, 2011 to 31^st March, 2012 to avail deduction under this section.

§ A new sunset clause has been added under the section 80-IB(9) under which no deduction will be allowed under this section for the commercial production of mineral oil for which the license under a contract have been awarded after 31^st March, 2011. Effective from AY 2012-12

(6) Transfer Pricing

§ Amendment in second proviso to section 92C(2) where if the limit of variation between arm’s length price and transfer price be 5% then TP will be considered ALP have been substituted with as such % notified by central government. From AY 2012-13

§ Section 92CA (2A) & (7):- The powers of Transfer Pricing Officer have been broaden to empower him

§ Determine the ALP of other international transaction, identified subsequently in course of proceedings before him.

§ Conduct a survey upon income-tax authority u/s 133A for the purpose of determining ALP.

(Effective from 1^st June, 2011)

§ New Section 94A:- Objective to discourage assesses from entering into transaction with persons located into countries and territories where no effective mechanism of communication exist with India

(i) Central Government have been empowered to notify any such country as NJA (Notified Jurisdictional Area)

(ii) Any transaction done with person located in NJA would be deemed to be an international transaction and all parties will be deemed to be associated enterprises and all the provision of the transfer pricing will be applicable to such transaction except the benefit of section 92C(2)

(iii) Refer section for the other provisions and TDS rate to this section

(Effective from 1^st June, 2011)

(7) Assessment of various Entities

§ Under Section 115JB the MAT has been increased from 18% to 18.5% i.e. when the tax payable is less than 18.5% of the book profits then the mi minimum tax payable will be 18.5% of book profit.

(This provision have been introduced to offset the reduction in the rate of surcharge) WEF AY 2012-13

§ New Section 115BBD:- Concessional rate of tax on dividend

Where any specified foreign company (the foreign company in which Indian company holds 26% or more in nominal value of the equity share capital of the company) declares dividend and such dividend (gross dividend that no expenses will be allowed in such respect) is received by Indian company then it shall be subject to concessional rate of 15% as against the existing rate of 30%.

The income of assesse in excess of the above mentioned dividend will be taxed as per the other relevant provisions.

WEF AY 2012-13

§ Sunset clause u/s 115-O and 115-JB and related amendments in section 10(34)

The SEZ developers were entitled for the exemption of MAT and DDT and units in SEZ were entitled for exemption from MAT. Section 10(34) clarifies that dividend referred to section 115-O shall not be included in the total income of the assesse, being a Developer or entrepreneur. A sunset clause have been introduce to remove for MAT exemption from AY 2012-13 and remove DDT exemption for dividend declared, distributed or paid on or after 1^st June, 2011.

Since DDT will be levied u/s 115-O in that case dividend declared, distributed or paid on or after 1^st June, 2011 by SEZ or dividend received by SEZ will be exempt in the hand of recipient u/s 10(34)

(It may be taken as point of view that dividend declared before 1^st June, 2011 and paid on or after 1^st June, 2011 would not attract DDT provision)

§ Section 115R:- Increase in rate of additional Income-tax on income distributed by a debt fund, mutual fund, money market fund or liquid fund to a person other than individual or HUF has been increased from 25% to 30% w.e.f. 1^st June, 2011. (Income from equity oriented fund is exempt from tax) (no change in rates for individual and HUF)

§ New Chapter XII-BA-Section 115JC-115JF (Alternate Minimum tax on LLPs)

LLP to be subject to AMT @ 18.5%

If regularIncome tax payable by a LLP for a PY is less than the AMT (18.5% of *adjusted Income) then the minimum tax payable will be 18.5% of adjusted income (115JC)

*Adjusted Income would mean: – Income before giving effect to Chapter XII-BA and increased by the deduction claimed as under

§ Any section under chapter VI-A under the head “C- Deduction in respect of certain incomes

§ Section 10AA

Such LLP will give a report on or before due date u/s 139(1) from chartered accountant certifying that adjusted total income and AMT have been computed according to provision of this chapter

All other provision of advance tax, interest etc. shall continue to apply (115JE)

The excess tax paid due to AMT will be carried forward and set-off up to a maximum period of 10 AYs succeeding the AY in which credit becomes allowable if in that year regular tax is more than AMT. No interest will be paid on such tax credit. If regular income tax is reduced or increased by any order passed the amount of tax credit will vary accordingly. (115JD)

Effective from AY 2012-13

(8) Income Tax Authorities:- (Powers for facilitating collection of information on request from tax authorities outside India)

Notified Income tax authorities (not below the rank of assistant commissioner of Income-tax) shall now have power u/s 131(1), 131(3)& 133 for making any inquiry or investigation or impound or retain books of accounts for the period as they may think fit or call for any information in respect of any person or class of person relating to an agreement of exchange of information u/s 90 & 90A.

By inserting the clause (viii) to Explanation 1 to section 153 & Explanation to section 153B the time limit of six month or actual receive of information, whichever is less have been removed in getting the information from the income-tax authorities outside India.

(Effective from 1^st June, 2011)

(9) Assessment Procedure

§ Extension of due date for filing of return for the corporate assesse for filing of transfer pricing report u/s 92E in the Form 3CEB and filing o return u/s 139(1) undertaking the international transaction have been extended from 30^th September, 2011 to 30^th November, 2011.

Consequently time limit u/s 43B & TDS deposit to avoid disallowance u/s 40(a)(ia) also extended to 30^th November, 2011. w.e.f. AY 2012-13

§ Clause (1C) have been inserted to section 139(1) empower central government to notify the class or classes of persons who will be exempted from the requirement of filing of return of income. Effective from 1^st June, 2011

§ The time limit for issue of notification by central government u/s 143(1B) have been extended from 31^st March, 2011 to 31^st March, 2012. W.e.f 1^st April, 2011

(10) Settlement Commission

§ The limit of application for full and true disclosure of incomes which the assesse have not disclosed before to settlement commission u/s 245C in case of section 153A, 153B and 153C the limit of INR 50 lac of additional income tax on income disclosed to present application before settlement commission would be applicable to specified person against who is subject matter to search.

By Finance Act-2011 it has been provided that where the applicant is related person/entities to the specified person and proceeding also have been initiated in his case as a result of search can apply before settlement commission if additional income tax on income disclosed exceed INR 10 lac.

Effective from June-2011

§ A new sub section (6B) has been inserted in section 245D to specifically provide the settlement commission may amend any order passes by it u/s 245D to rectify any mistake apparent from record within six month from the date of order.

Settlement commission should not make any rectification in order if the rectification in order has effect of modifying the liability of applicant without:

§ Giving a notice to application and commissioner

§ And opportunity of being heard (Effective from June, 2011)

Note:-A similar amendment have been made in Wealth-tax Act-1957 by inserting subsection (6B) in section 22

(11) Amendment in Miscellaneous Provisions

§ Omission of Section 282B of requirement to quote DIN by Finance Act-2011

§ A new section 285 have been inserted by Finance Act, 2011 w.e.f. 1^st June, 2011 to mandate non-resident to file a statement to AO, within 60 days from the end of financial year, providing the details in respect of activities carried out by the liaison office in India during the financial year.

§ The time limit specified in the proviso to Rule 3(1) of Part A of the Fourth Schedule for a recognized provident fund, where the recognition have been received on or before 31.03.2006, for satisfying conditions set out in clause (ea) of Rule 4 and any other condition as Board may notify has been extended from 31.12.2010 to 31.03.20

Summary of Important Circulars and Notification issued between 01.05.2010 to 30.06.2011

Circulars

(1) Circular No. 4/2010 dated 18.05.2010

Widening of an existing road for a highway project will be considered as a new infrastructure u/s 80-IA(4)(i) but simply relaying of existing road won’t be new infrastructure.

(2) Circular No. 6/2010 dated 20.09.2010

§ Clarified that regional rural bank are not eligible for deduction w/s 80P from the AY 200708 onwards.

§ Circular No. 319 dated 11-1-1982 have been withdrawn deeming any regional rural bank to be co-operative society wef AY 2007-08

(3) Circular No. 7/2010 dated 27.10.2010

§ Any notification issued by CG under sub-clause (iv) and (v) of section 10(23C) on or after 13-07-2006 will be valid until withdrawn and no requirement for the assesse to seek renewal after three years.

§ Any notification issued under sub-clause (vi) and (via) of section 10(23C) on or after 1-12-2006 will be one time approval and will be valid until it is withdrawn.

§ U/s 80G(5) approval expiring on or after 1^st Oct-2009 shall be deemed to be extended in unless specifically withdrawn and any approval u/s 80G(5) on or after 1-10-2009 will be one time approval and would be valid until it is withdrawn.

Notification

(1) Ceiling for gratuity exemption has been raised from INR 350,000 to 1,000,000 by CG vide notification 43/2010 dated 11^th June, 20110.

(2) Substitution of following Rules:-

Rule 30 – Section 192(1A) Time and mode of payment of TDS or tax

Rule 31 – Section 203 Certificates of TDS

Rule 31(A) – Section 200(3) Statement of deduction

Rule 31(AA) – Section 206C(3) Statement of Collection

Rule 37CA – Section 206C Time and mode of payment of TCS

Rule 37D – Section 206C(5) Certificate of TCS

(3) Notification No. 48 dated 9.7.10 and 77 dated 11.10.10

Subscription of Long-term infrastructure bonds by CG will be qualify for deduction of INR 20,000 u/s 80CCF for individual and HUF

(4) Notification No. 80 dated 19.10.10 as amended by notification 20 dated 21.04.11

CG has notified TATA AIG Retirement Annuity plan for deduction u/s 80C

(5) Notification No. 84 dated 22.11.10

Salaried person are entitled to act as tax return prepares

(6) Notification No. 85 dated 22.11.10

Exemption Limit for allowance granted to employees in transport system have been increased from INR 6,000 to INR 10,0000 wef 1^st September, 2008 or 70% of allowance subject to Maximum of 10,000.

(7) Notification No. 12 dated 25.02.11

United stock exchange of India have been notified as recognized stock exchange

(8) Notification No. 14 dated 09.03.11

Condition to fulfill for a stock-exchange to qualify as a recognized stock exchange for the purpose of section 43(5) – Modification of cash and derivative market transaction registered in the system permitted in cash of genuine error.

(9) Notification No. 24 dated 13.05.11

The exemption in interest rate on RPF have been increase to 9.5% and in excess of 9.5% it will be taxable as salary.

(10)Notification No. 32 dated 03.06.11

Interest on post office saving bank will be exempted from tax to the extent of

(i) INR 3,500 in case of individual

(ii) INR 7,000 in case of Joint account

(11)Notification No. 33 dated 03.06.11

Income received by any person on behalf of fund established for the purpose of providing cash benefit to its employees to meet the annual expenses of medical tests and medical checkup to qualify for benefit of exemption u/s 10(23AAA)

(12)Notification No. 35 dated 23.06.11

Cost inflation index for F.Y. 2011-12 has been specified as 785

Rule of additional duties of excise

Excise

Sunil Bhave

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January 14, 2012

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Rule of additional Excise Duty
RULE 01: SHORT TITLE.
These rules may be called the Additional Duties of Excise (Distribution) Rules, 1962.

RULE 02: PROVISIONAL DISTRIBUTION OF THE SHARE OF ADITIONAL DUTIES OF EXCISE.

The share of each State of the additional duties of excise in any financial year shall be paid to the State in that financial year in eleven monthly installments beginning with the month of May, the first ten installments being equal to one-twelfth of the State’s share as estimated in the budget for that year and the eleventh installment being equal to the difference between the State’s shares as estimated in the revised estimate for that year less the aggregate of the sums already paid.

RULE 03: FINAL ADJUSTMENT OF THE SHARE OF THE ADDITIONAL DUTIES OF EXCISE.

The State’s share of the additional duties of excise in each financial year shall be finally computed with reference to the net proceeds of such distributable duties as certified by the Comptroller and Auditor-General, and the difference between the amounts so computed and the aggregate of the amounts paid to the State under rule 2-shall be paid to or recovered from the State according as the amount so computed is larger or smaller than such aggregate.

SCHEDULE-01
[See Section 3(1)-] NOTES 1. In this Schedule, “heading”, “sub-heading” and “Chapter” mean respectively a heading, sub-heading and Chapter in the Schedule to the Central Excise Tariff Act, 1985-.

2. The rules for the interpretation of the Schedule to the Central Excise Tariff Act, 1985-, the Section and Chapter Notes and the General Explanatory Notes of the said Schedule shall, so far as may be, apply to the interpretation of this Schedule.

SCHEDULE-02
(See Section 4-) Distribution of additional duties During each of the financial years commencing on and after the 1st day of April, 1995, there shall be paid to each of the States specified in column (1) of the Table below such percentage of the net proceeds of additional duties levied and collected during that financial year in respect of the goods described in column (3) of the First Schedule-, after deducting there from a sum equal to 2.203 per cent of the said proceeds as being attributable to Union territories, as is set out against it in column (2) of the said Table:

Provided that if during that financial year there is levied and collected in any State a tax on the sale or purchase of the goods described in column (3) of the First Schedule-, or one or more of them by or under any law of that State, no sums shall be payable to that State under this paragraph in respect of that financial year, unless the Central Government by special order otherwise directs.

What is difference between VAT And CST?

Vat

Sunil Bhave

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January 13, 2012

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Difference Between VAT And CST

Under the CST Act, the tax is collected at one stage of purchase or sale of goods. Therefore, the burden of the full tax bond is borne by only one dealer, either the first or the last dealer. However, under the VAT system, the tax burden would be shared by all the dealers from first to last. Then, such tax would be passed upon the final consumers. Under the CST Act, the tax is levied at a single point. Under the VAT system, the retailers are not subject to tax except for the retail tax.Under the CST Act, general and specific exemptions are granted on certain goods while VAT does not permit such exemptions. Under the CST law, concessional rates are provided on certain taxes. The VAT regime will do away with such concessions as it would provide the full credit on the tax that has been paid earlier.Under VAT law, first, the dealer pays tax on the sale or purchase of goods. The subsequent dealer pays tax on the portion of the value added upon such goods. Thus, the tax burden is shared equally by the last dealer. To illustrate the whole procedure of VAT, we give you an example as follows:

At the first point of sale, the value of goods is Rs.100. The tax on this is 12.5%. Therefore, the net VAT would be 12.5%. At the second change of sale, the sale value is Rs.120 and the tax thereon is 15%. The tax that is to be paid at every point is 15%. The input tax is 15%. You will get a credit for first change in sale of 2.5%– i.e. 15% -12.5%. Therefore, 2.5% will be the net rate. At the third change of sale, the sale value is Rs.150 and the tax on this is 18.75%. At the last stage, the tax paid is 18.75%. The Input Tax is 18.75%. You get a credit for second change in sale?i.e. 18.75% -15% = 3.75%. Therefore, 3.75% would be the net VAT. This means that VAT is paid in the last point tax under the sale tax regime.

What is the Procedures for shutting down a private limited company in India?

CorporateLaw

Sunil Bhave

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January 13, 2012

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Procedures for shutting down a private limited company in India.

Up-to-date returns (viz., Annual Return and Balance sheet) has to be filed with Registrar of Companies (ROC)
A statement of account has to be prepared one month prior to the submission of application u/s 560 stating that no assets and liabilities except share capital and P&L debit balance.
An Affidavit needs to be executed (Rs. 20 Stamp Paper) and to be notarised (signed by for all director)
An Indemnity to be executed (Rs. 100 stamp paper) (signed by all director)
If there is any unsecured loan, then waiver letter should be submitted.

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Timeframe: About 2 months

Charges: About Rs. 25,000.

Regarding your other query…

If you join the other company and earn income, then at the end of the financial year, you will have to combine the income earned at both organisations and calculate the total tax liability and remit the tax (after adjusting the taxes paid through both the organisation).

WINDING UP OF THE COMPANY UNDER SECTION 560 OF THE COMPANIES ACT, 1956.

A Company can be wound up under section 560 of the Companies Act, 1956. For this, the Company should be defunct company i.e. a dormant company with NIL Assets and NIL Liabilities i.e. all the assets should be disposed off and all liabilities should be cleared.

For this purpose, the Company should prepare audited Accounts for the period ending not later than 30 days from filing the winding up application. Said accounts should show NIL Assets and NIL Liabilities.

Documents to be submitted to ROC:

1 An application signed by minimum 2 Directors in case of Pvt. Ltd. And 3 Directors in case of Public Ltd. (preferably by all the Directors of the Company) (Annexure A);

2 Indemnity Bond signed by minimum 2 Directors in case of Pvt. Ltd. And 3 Directors in case of Public Ltd. (preferably by all the Directors of the Company) and Notarised (Annexure B);

3 Affidavit signed by minimum 2 Directors in case of Pvt. Ltd. And 3 Directors in case of Public Ltd. (preferably by all the Directors of the Company) and Notarised (Annexure C);

4 Signed copy of latest audited Balance Sheet showing NIL assets and NIL liabilities; and

Certified copy of Board Resolution (Annexure D).

After the Registrar is satisfied that the Company is defunct and has no assets and liabilities, he will issue notice to the Company for striking off the name from the register giving some time to withdraw the application, if required.
After the expiry of the time limit, he will issue notice thereby striking off the name of the Company from the Register maintained by him and will send the same to publish in the Official Gazette. Once the said notice is published in the Official Gazette, the Company stands struck off from the Register.

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Focus on cash flow rather than earnings – Tally ERP 9

Finance
GAAP

Sunil Bhave

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January 12, 2012

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What is Cash Flow:-

Cash Flow is the true measure of a company’s profitability. It is determined by the net change in cash that enters or leaves a company in a given period.

Why Cash flow and not earnings?

Typically, institutional and individual investors value stocks based on earnings per share and the popular “PE” ratio. This is an inaccurate measure of a company’s true profitability as will be shown below. The main reason for this is the tremendous amount of leeway a company has in calculating its earnings.

The earnings figures that companies are required to report every quarter do not show a company’s true profitability. Unfortunately for the individual investor, today’s GAAP (Generally Accepted Accounting Principles) accounting methods allow a company to report an inflated version of their real profits. These methods often confuse individual investors and prevent them from gaining any real insight into the numbers. They are left to focus on single earnings per share number which can vary from company to company based on their interpretations of GAAP.

Below are some examples of how companies puff up their numbers:

Companies can set up reserves to cover the costs of non-recurring events such as restructuring. These reserves are often called cookie jars and are over-inflated by management because any cash left over after the restructuring can be counted as earnings although it has nothing to do with their operational business results.

Companies can take a special onetime write down if they mismanage their inventory. They can take an immediate “non-recurring” charge to earnings rather than allow the excess inventory to reduce their profitability over the coming quarters as it is sold below cost due to overcapacity in the market.

Companies are allowed to spread the cost of capital intensive equipment and buildings out over the expected lifetime of the item. The specific time amount is up to the company’s discretion so it is possible to make earnings look better in the short term by choosing a longer than necessary depreciation schedule.

Companies can inflate their earnings simply by claiming that they expect to make more money in their pension funds than previously expected. Their rational for doing so is if the fund grows at a higher growth rate, then less money needs to be invested in the short term to obtain the desired future level.

Companies, without real earnings will often try to pitch its pro-forma earnings which exclude nonrecurring charges that cost shareholders real money. Pro Forma results are used to show earnings that might have been achieved if a recent merger or acquisition had occurred at the beginning of a reporting period.

The cash flow statement is prepared in a similar way as balancing of our bank account check book and thus makes it much harder to manipulate than earnings.

If we examine the cash flow statement-

Cash Flow is broken down into the 3 areas-

Operating Activities-:represents all of the cash that was generated/lost from the company’s business operations.

Eg: sales of goods & services purchase of raw materials, payment of taxes, etc.

Investing Activities-:represents the net cash generated/lost from investments

Eg: purchase/sale of bonds, buildings, equipment, etc.

Financing Activities-: represents net cash generated/lost from financial activities Eg: proceeds from issuing stock, payment of dividends, payment of debts, etc.

Focus should be on Cash Flow from Operating Activities because it is the real wealth creation engine of a company. The cash it generates from its business operations is what will drive its future growth. By focusing on Cash Flows from Operating Activities we can screen out cash flows generated by selling property, issuing bonds, capital gains, or any other non-business related methods. Generating cash from non-business related activities is not necessarily bad, but is not a factor in valuing the future profit potential of the company.

Inter state sale during the movement of goods

CST
SalesTax

Sunil Bhave

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January 12, 2012

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CENTRAL SALES TAX – CST

Inter Stale sale can be by transfer of documents of title during movement of goods from one State to another u/s 3(b) of CST Act.

The movement of goods commences as soon as goods are handed over to transporter. The ‘movement’ is deemed to be continuing till delivery of goods is taken at other end.

Document of title to goods means a document which evidences that the person holding the document has the title of the goods i.e he is the owner of the goods which are represented by the said document.

In normal trade practices when the goods are handed over to the carrier by the seller for transportation to reach the buyer, the carrier issues a receipt to the seller. The seller then sends this receipt to the buyer and the buyer gets delivery of goods on submission of such receipt to the carrier when goods reach at the buyer’s destination. This receipt issued by carrier is document of title to goods.

Thus a document of title to goods may be a lorry receipt(in case of road transport), a Railway receipt(incase of transport by rail), Bill of Lading(in case of transport by sea or an airway bill(in case of transport by air).

E-I/E-II transactions are required to establish sale during movement. If done, all subsequent sales are exempt from sales tax/Vat.

Form E1
This form is issued by the dealer who makes the first inter-state sale during movement of goods from one State to another. This enables the purchaser to claim exemption from CST on the second inter-state sale during the movement of goods by transfer of documents of title.

Form E2
This form is issued by the second or the subsequent seller when the goods move from one state to another in a series of inter-state sales by transfer of documents of title. This form enables the purchaser to claim exemption form CST on subsequent sale of goods.

Case 1. Form E1,

A- Buyer (Hyderabad), B – seller (Bangalore). It is the first sale of any particular goods. Then B will issue form E1 to A.

Case 2. Form E2,

A- Buyer of original goods now seller, C- new buyer (Chennai). Here A is selling same goods again in interstate trade it is subsequent sale. Then A will issue form E2 to C.

Everything about TCS

Incometax

Sunil Bhave

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December 26, 2011

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The seller has to collect tax from the payer who has purchased the following items :
Alcoholic liquor for human consumption
Tendu leaves
Timber obtained under a forest lease
Timber obtained by any mode other than under a forest lease
Any other forest produce not being timber or tendu leaves Scrap, Parking lot, Toll plaza, Mining and quarrying
The TCS on the above mentioned items vary from 1% to 5%
Deposit of TCS amount- within seven days of the following month.
Issue of TCS certificate- within in one month of collection /debit(form 27D)

The rates of TCS for representative purpose (Financial Year 2010-11, 2011-2012):

Share Capital and debentures in Companies Bill, 2011

Corporate Law

Sunil Bhave

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December 25, 2011

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Share capital and debentures in Company Bill 2011

Now Equity share capital defined as:

Equity share capital, with reference to any company limited by shares, means

· all share capital which is not preference share capital and preference share

capital with reference to any company limited by shares, means that part of theissued share capital of the company which carries or would carry a preferential right with respect to— o payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and o repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company [clause 43].

If a company with intent to defraud, issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than five times the face value of the shares involved in the issue of the duplicate certificate but which may extend to ten times the face value of such shares or Rs.10 crore whichever is higher. Stringent penalties have also been imposed for defaulting officers of the company [Clause 46(5)]

Where any depository has transferred shares with an intention to defraud a person, it shall be punishable under clause 447 [Clause 46(6)]

Security Premium Account may also be applied for the purchase of its ownshares or other securities [Clause 52(2)(e)]

A company can not issue share at a discount. Any share issued by a company at a discounted price shall be void [Clause (53)]

A company limited by shares can not issue any preference shares which are irredeemable. However, a company limited by shares may, if so authorized by its articles, can issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue. This period of twenty years may, however, be excluded in case of such infrastructural projects as may be prescribed [Clause 55].

Every company shall deliver Debenture Certificate issued by the company within six months of allotment [Clause 56(4)(d)].

Right time to buy gold ~ Must know when to buy and sell gold

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Sunil Bhave

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December 25, 2011

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Time has been a steady increase in the prices of yellow metal. The exponential increase in the prices is clearly evident and does not need to be proved.

The increase in prices has been equal if not more than its investment counterpart ‘Property’.

Time has seen Gold from being an item of displayto being the most lucrativeInvestment option. Gold today is being considered as the safest bet by mutual fund and portfolio managers world over.

Be your own fund manager!!!

While most of the business class is busy with their existing businesses, the salaried class does not have time to devote in markets. The studies world over show that while the business class earns on an average 20-25% return on capital employed, the salaried family class saves around 10-15% of what they earn. This analysis has greatly benefited most of the Mutual Funds which provide a slightly better return than the prevailing bank fixed deposit rates.

Figures alone are enough to prove that the mutual fund returns have been continuously lesser than that of gold and silver. This is due to the mere fact that the mutual funds have to operate on a diversified risk setand not gold alone. Also, there are huge costs that the mutual funds bear in terms of salary and rent related costs which is eventually passed on to the investors and affect the ACTUAL RETURNS.

Furthermore, gold is the most liquid asset. It can be pledged to get cash loans.

The best opportunity however, which gold provides is that if purchased in bullion form, it can be lent as such against interest, thus providing a DUAL BENEFIT of a regular interest income besides providing opportunities of heavy capital gains.

Gold or Silver?(The Investment dilemma)

There have been divided loyalties between the investors of white and yellow metal. While for most part of the century both metals have been head to head in terms of price gains, the last few years have seen the white metal outshining its glittery senior. However the current steep fall of the Great White from 75 k to 50k level has again brought the metals head to head.

With the increasing purchasing power of the people and the ever growing ‘display friendly’ markets,the ornamental use of the White metal has substantially decreased. The major use of Silver has now been restricted to the industrial purposesand the current economic slowdown does not support any promising future for the Industrial metal.

Another reason why gold is considered as a better investment option is that worldover various banks keep gold and silver as reserves. Silver being more bulky of the two is soon likely to be left apart because of the ever increasing holding costs.

Is it a right time to buy gold?

The country’s all round the globe have been witnessing a situation where the poor are getting poorer and the rich richer. Such situation has been because of the ever decreasing value of money or in other words, the decreasing purchasing power of common man.Unlike the rich, the commoner has a limited scope of investment opportunities and therefore is highly affected by the rising inflation rates. The best way to avoid falling into the ‘poor getting poorer’ category is by investing in something which grows at a rate greater than the country’s inflation rate. Gold is often cited by many as the best inflation hedge i.e. gold prices will riseatleast to the extent of rate of inflation in the country.

“Every time is a right time to buy gold.”Even at Current gold prices experts consider it being priced too low. Gold hit a record high of $875 an ounce on Nymex in January 1980, about two months after the start of the Iran hostage crisis and less than a month after the Soviet Union invasion of Afghanistan. That’s equivalent to about $2,318.84 an ounce in today’s dollars.

Where to buy?

The only reason why the common investor does not invest in Gold is because of lack of trust in the minds of the investors. There is a dearth of jewelers who provide genuine trustworthy jewelry. Even if some big jewel houses do, they charge very high prices for it because of the large staff involved and heavy fixed costs associated with it.

The best way to overcome such situation is to buy from some trusted wholesale dealerswho provide Hallmark Jewellery or are approved from the BIS.

“Well, all that glitters is gold.”

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What is Sensex Calculation formula ?

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Sunil Bhave

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December 25, 2011

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How to calculate sensex ?

Formula :- Index divisor X Free Float Market Capitalization So, First we know about Index Devisor and Market Capitalization. Market Capitalization: – Many different types of investors hold the shares of a company! The Govt. may hold some of the shares. Some of the shares may be held by the “founders” or “directors” of the company. Some of the shares may be held by the FDI’s etc. Now, only the “open market” shares that are free for trading by anyone, are called the “free-float” shares. When we are calculating the Sensex, we are interested in these “free-float” shares!.

A particular company, may have certain shares in the open market and certain shares that are not available for trading in the open market.
According the BSE, any shares that DO NOT fall under the following criteria, can be considered to be open market shares:

· Holdings by founders/directors/ acquirers which has control element

· Holdings by persons/ bodies with “controlling interest”

· Government holding as promoter/acquirer

· Holdings through the FDI Route

· Strategic stakes by private corporate bodies/ individuals

· Equity held by associate/group companies (cross-holdings)

· Equity held by employee welfare trusts

· Locked-in shares and shares which would not be sold in the open market in normal course.

A company has to submit a complete report about “who has how many of the company’s shares” to the BSE. On the basis of this, the BSE will decide the “free-float factor” of the company. The “free-float factor” is a very valuable number! If you multiply the “free-float factor” with the “market cap” of that company, you will get the “free-float market cap” which is the value of the shares of the company in the open market! A simple way to understand the “free-float market cap” would be, the total cost of buying all the shares in the open market!

index divisor:-

Now, meaning of base year/ days, take any days or year sensex as base and market capitalization .it is unable to say what was the base year when BSE come into force.

Easy step to calculation

Step First: Find out the “free-float market cap” of all the 30 companies that make up the Sensex!
Step Second: Add all the “free-float market cap’s” of all the 30 companies!
Step third: Put it in given formula then you will get the Sense value!
Let be an example,

There are two companies ( among 30 companies) A Ltd & B Ltd

A Ltd: – issued share 5000, in which 2000 share are held by Promoters, and market price of share Rs. 125.

B Ltd.:- issued share 10000, in which 5000 share are

Held by Promoters, and market price of share Rs. 250.

Total Market capital Free Float Capitalization

A. Ltd. 5000X125 = 625000.00 3000X125 =375000.00

B. Ltd. 10000X 250=2500000.00 5000X250 =125000.00

Total 3125000.00 1625000.00

Let be base year 1982-83 Sensex was 5000 and market capitalization 1500000.00. then put it below formula and get new sensex.

New sensex=5416.67

You may calculate, present sensex taking lastdays value of sensex and capitalization as base.

Please Note: Every time one of the 30 companies has a “stock split” or a “bonus” etc. appropriate changes are made in the “market cap” calculations.
Now, there is only one question left to be answered, which 30 companies, why those 30 companies, why no other companies?
The 30 companies that make up the Sensex are selected and reviewed from time to time by an “index committee”. This “index committee” is made up of academicians, mutual fund managers, finance journalists, independent governing board members and other participants in the financial markets.

The main criteria for selecting the 30 stocks is as follows:

Market capitalization: The company should have a market capitalization in the Top 100 market capitalizations of the BSE. Also the market capitalization of each company should be more than 0.5% of the total market capitalization of the Index.

Trading frequency: The company to be included should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like share suspension etc.
Number of trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year.
Industry representation: The companies should be leaders in their industry group.
Listed history: The companies should have a listing history of at least one year on BSE.
Track record: In the opinion of the index committee, the company should have an acceptable track record. Having understood all this, you now know how the Sensex is calculated.