All you need to know about saving taxes using ELSS

The last month of the financial year sees investors rushing to save tax by investing in tax-saving instruments. You can save tax by investing upto Rs 1.5 lakh in equity-linked savings scheme (ELSS) under section 80C of the Income Tax Act.

What are tax saving or ELSS schemes? How much can one invest in them?

An equity-linked savings scheme (ELSS) is a mutual fund that gives the option to save tax. These funds invest in equities and investors can choose the dividend or growth options. You can invest any amount up to 1.5 lakh in an ELSS scheme to save tax.

ELSS schemes offer growth and give investors the opportunity to earn higher returns in the long run. However, as is the case with all mutual fund schemes, there is no guarantee of any fixed returns.

What is the process to invest in an ELSS scheme?

Once an investor is KYC compliant, he can invest in an ELSS scheme just like any other mutual fund scheme.

Investment can be done by writing a cheque and filling the relevant form, or can be also done on line.

Does ELSS have any advantage over other tax-saving options under section 80C?

ELSS has the smallest lock-in period of three years.

Compared to this, the Public Provident Fund (PPF) has a minimum lock-in of 15 years, and allows only conditional withdrawal before that. The EPF is usually locked in for the term of your employment. Other tax-saving products like Tax-saving Fixed Deposits, or the National Savings Certificate (NSC) are locked in for a period of five years and above. The National Pension Scheme (NPS) is locked in until you reach 60 years of age, and only allows conditional withdrawals. ELSS also has intermittent cash flows in the form of dividends which are tax free, if one opts for the dividend option. Also, in an ELSS you do not pay any tax on dividend or at the time of redemption.

What should an investor do with his ELSS funds, once the lock-in period is over?

Investors have the option to continue holding the mutual fund units after three years or redeem them. Financial planners say investors could continue holding them if the funds perform in line with their expectations in order to meet their financial goals.


Source : By Prashant Mahesh, THE ECONOMIC TIMES

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Government may increase lock-in period for PPF; to offer higher interest rate for 20-year tenure

The government is likely to increase the lock-in period for Public Provident Fund (PPF) by at least two years, reports ET Now.

According to ET Now sources in the Finance Ministry, those who invest in PPF will be able to withdraw after 8 years, as against the current 6-year lock-in period. The government is also likely to increase the tenure of PPF from 15 years to 20 years.

"While it will be up to the saver to opt for either a 15-year or a 20-year saving period, the government will look to lure people with a higher interest rate for the 20-year tenure, under Section 80C," reported ET Now. "This implies that if the saver is willing to invest in PPF for 20 years, the subsequent tax benefit will be higher," the channel said.

According to ET Now, the government is considering this move in order to ensure a stable source of infrastructure funding.

Meanwhile the RBI has said that unbreakable high value fixed deposits will soon earn higher rate of interest. Depositors who place their savings with a bank earn differential rates of interest based on the size of deposit, less than Rs 1 crore and above Rs 1 crore, and the longer the period, the more the interest is. Additionally, deposits up to Rs 1 crore can be withdrawn prematurely, resulting in asset-liability mismatch.

To correct this skew between the interest earned on loans and that paid to depositors, the RBI has allowed banks to offer deposit schemes up to Rs 1 crore, which cannot be broken prematurely, so-called non-callable deposits, but which can attract different rates of interest. This opens the prospect of retail depositors, who opt for such deposits, to earn a slightly better rate of interest than on a deposit which can be broken, or a callable deposit.

At present, all deposits accepted from individuals and a Hindu Undivided Family of up to Rs 1 crore can be withdrawn prematurely, leading to asset-liability mismatches in banks.

The RBI's latest decision is one of the major steps in the direction of interest rate rules linked to deposits, after the central bank allowed banks to offer floating rates on deposits a decade ago. The central bank will issue detailed guidelines soon. Premature withdrawals make banks' asset-liability management difficult.

Source : Economic Times

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RBI's Rajan for raising savings limit beyond Rs 1.5 lakh for tax benefits

Days ahead of the Budget, Reserve Bank Governor Raghuram Rajan today pitched for increasing the tax exemption limit on financial investments by individuals from Rs 1.5 lakh a year.

Acknowledging that there was a Rs 50,000 increase in the limit in the last budget to Rs 1.5 lakh a year, he said benefits of this instrument have been lost over time as the limit was anchored at Rs 1 lakh for a long time.

"Remember the government increased the limit for tax benefit in savings by Rs 50,000 in the last budget. The question is -- is there room for more primarily because the real tax benefit has fallen over time because the limit was at Rs 1 lakh for a long time. Maybe what we have to do is increase that," Rajan said on a call with analysts.

Investments of up to Rs 1.50 lakh in Public Provident Fund, Provident Fund, New Pension Scheme, insurance policies and equity-linked saving schemes is deducted from the taxable income under Sec 80 C. This helps in financial savings.

It can be noted that the national savings rate has dipped to the 30 per cent level from a high of over 36.9 per cent in FY 2008.

Finance Minister Arun Jaitley, who increased the limit to Rs 1.5 lakh in his July 2014 budget, will be presenting the first full fiscal budget of the new Government on February 28.

Rajan said also that the RBI would like to see quality fiscal consolidation with a shift to capital spending rather than on mistargeted subsidies.

"A movement of spending from mistargeted or poorly targeted subsidies towards more capital investment would be a good move," he said, clarifying that the RBI is not against subsidies and there are sections which need to be given the benefits.

He said such a shift in spending will also help in inflation management as the supply side constraints will be removed with capital spending by the government.

The RBI had yesterday linked the future course of its policy action to fiscal consolidation.

Source : Economic Times

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IRFC tax-free bond issue to open on Jan 6

Indian Railway Finance Corp will hit the market on January 6 to raise more than Rs 8,660 crore through tax-free bonds.

The issue of tax-free and secured non-convertible bonds, worth around Rs 8,663 crore, will close on January 20, IRFC said in the prospectus filed with market regulator SEBI.

“Public issue by Indian Railway Finance Corporation of tax-free, secured, redeemable, non-convertible bonds of face value of Rs 1,000 each in the nature of debentures having tax benefits...for an amount of Rs 1,50,000 lakh with an option to retain oversubscription up to Rs 7,16,300 lakh aggregating Rs 8,66,300 lakh in the fiscal 2014,” the company said.

The funds raised through this issue will be utilised by IRFC towards financing the acquisition of rolling stock which will be leased to the Ministry of Railways in line with present business activities.

IRFC is a dedicated financing arm of the Ministry of Railways. Its sole objective is to raise money from the market to part finance the plan outlay of Indian Railways.

SBI Capital Markets, A K Capital Services, Axis Capital, ICICI Securities and Kotak Mahindra Capital Company are the lead managers to the issue.

Karvy Computershare is the registrar to the issue.

The bonds are proposed to be listed on the National Stock Exchange and BSE.

Source: thehindubusinessline

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NHB tax-free bonds issue to open on Dec 30

National Housing Bank’s tax free bonds issue will open on December 30, R.V. Verma, Chairman & Managing Director, has said.

The issue size including greenshoe option will be Rs 2,100 crore, Verma told Business Line adding that the formal prospectus is likely to be filed with SEBI on Monday.

The coupon rates that will be offered for these tax-free bonds will be decided soon, Verma added.

NHB has already mobilised Rs 900 crore through private placement of tax free bonds this fiscal.

The proposed issue will be the first public issue of tax-free bonds by NHB this fiscal.

The Central Board of Direct Taxes had allowed NHB to mobilise Rs 3,000 crore through tax-free bonds during the current fiscal.

srivats.kr@thehindu.co.in

Source: thehindubusinessline

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NHB tax-free bond issue likely to hit market soon

National Housing Bank (NHB) plans to come out with a public issue of tax-free bonds for retail investors during the third week of this month, it’s Chairman and Managing Director, R. V. Verma, said.

Of the Rs 5,000 crore for which Government approval is already available, NHB is looking to mop up as much as Rs 2,500 crore from retail investors.

“We will definitely be in the market. We are making every possible effort to come to the market as soon as possible,” Verma said.

He was responding to a query on whether NHB had dropped plans for public issue of tax-free bonds this fiscal, given the difficult market conditions.

Already, NHB had raised Rs 500 crore through private placement of tax-free bonds. “We will step up private placement of tax-free bonds also,” he added.

srivats.kr@thehindu.co.in


Source: thehindubusinessline

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Why investors don’t bank on tax-saving deposits

In 2006, bank deposits held for five or more years were exempt from tax in the hope that this would draw retail investors to park more long-term money with banks. But seven years on, numbers belie the hope. These deposits have not proved a big hit.

The proportion of five-year plus deposits in the fund base of banks has not changed much in these years. Eleven per cent of total bank deposits was parked in five-year plus deposits in 2006. In 2011, the number was barely changed at 12.3 per cent.

Nor have depositors shown any special preference for these deposits — over the short-term ones — because of the tax-break they offer. Between 2006 and 2011, five-year plus deposits registered a 22.6 per cent annual growth, only slightly higher than the 21 per cent growth in the term deposit base of banks.

Why have tax saving deposits failed to take off? One of the key reasons seems to be the rather unattractive interest rates offered. Looking at the trend of interest rates across various deposits (by tenure), that for deposits with maturity of more than five years have often been similar or even lower than what is offered for lower tenures. In 2011-12 for instance, while five-year deposits offered 8.5 to 9.25 per cent, those for two-five years fetched 9-9.25 per cent. In fact, the rates particularly under the tax- saving schemes range between 8 and 8.5 per cent.

While initial deposits up to Rs 1 lakh are tax-free, interest payments are taxable. This take the shine off this investment relative to other tax-saving options. While tax saver deposits up to Rs 1 lakh are exempt under Section 80 C, interest earned is treated as “Income from other sources” for the purpose of taxation. Hence, banks are required to deduct TDS (tax deducted at source), currently at 10 per cent before crediting the account. Hence, the attractive ‘yields’ of 16-odd per cent that most banks claim to sell this product are usually pre-tax workings.

Financial advisers point out that comparable tax saving options in the fixed income category — National Savings Certificate (NSC) and Public Provident Fund (PPF) — offer higher rates that are also tax free. The five-year NSC offers 8.6 per cent. What makes it attractive is that the interest — compounded half yearly — is treated as reinvestment until the penultimate year. Similarly, PPF interest rate stands at 8.8 per cent and the interest income from PPF is tax free, making this option attractive.

Added to this is the lock-in period of five years. “The tax-saving FD, despite being a bank product, cannot be pledged as security for loan. The illiquid nature and long tenure make it less popular vis-à-vis against equity linked saving schemes (ELSS) and other similar tax-saving instruments” says Adhil Shetty, CEO, Bankbazaar.com.

As part of the pre-Budget discussions, bankers have put forth a request to reduce the lock-in period from five to three years to bring it at par with other tax-saving schemes like ELSS.

radhika.merwin@thehindu.co.in


Source: thehindubusinessline

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IIFCL’s Rs 10,000-cr tax-free bond issue to open on Monday

India Infrastructure Finance Company Ltd (IIFCL) will launch its Rs 10,000-crore tax-free bond issue on Monday, S.K. Goel, Chairman & Managing Director, said.

The company would first do a private placement of these bonds for Rs 2,500 crore with institutional investors.

After the institutional portion is completed, the retail one of Rs 7,500 crore will be done in tranches.

The entire issue will be completed before March-end this fiscal, Goel said on the sidelines of the India Infrastructure Investment Forum meet here.

The Centre had allowed IIFCL to issue tax-free bonds worth Rs 10,000 crore in 2012-13.

Earlier, Goel told the Forum that IIFCL expected to get SEBI’s nod soon for launching a $1-billion infrastructure debt fund (IDF) through the mutual fund route.

DEA Secretary Arvind Mayaram had on Thursday taken up the matter with SEBI Chairman U.K. Sinha to sort out regulatory issues of IDFs, Goel said.

IIFCL is looking to launch the IDF sometime in December this year. The company will partner with LIC, IDBI Bank, HSBC and also most likely Standard Chartered Bank for the proposed IDF, Goel said.

Srivats.kr@thehindu.co.in

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Individuals may get tax relief over Rs 1-lakh cap

Taxpayers may get some relief over and above the current ceiling of Rs 1 lakh against various saving instruments if the Finance Ministry accepts the suggestions currently before it.

The Government is also mulling introducing a ‘grandfathering’ provision in existing life-insurance policies that are eligible for a tax break.

The ‘grandfathering provision’ means that all tax benefits given under a contract in a life insurance policy bought today under existing tax provisions will continue even after that particular tax provision is withdrawn or amended.

These are among eight issues related to direct and indirect taxes that the Finance Ministry has agreed to consider.

“I have asked the Department of Revenue and the CBDT (Central Board of Direct Taxes)/CBEC (Central Board of Excise and Customs) to complete examination of the above suggestions by October 10, so that appropriate decisions may be announced shortly there after,” Finance Minister P. Chidambaram announced.

Separate limit

On the specific issue of enhancing the total tax deduction limit, Chidambaram said, “The Department of Revenue will examine whether, in addition to NPS (New Pension Scheme), some insurance products as approved by IRDA may be included in the separate limit over and above the limit of Rs 1 lakh under Section 80(C) of the Income-Tax Act for the purpose of income-tax deduction on the premium paid.”

He also announced that the CBDT will examine whether existing policies can be ‘grandfathered’ whenever changes are made to direct tax laws so that the changes apply only to policies prospectively.

On the indirect tax side, the Minister directed the CBEC to take a view on service tax provisions for the life insurance sector.

Shishir.Sinha@thehindu.co.in

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Stricter norms, lower returns likely for tax-free infrastructure bonds

Cash starved core projects may soon get a breath of new life with the finance ministry set to issue fresh guidelines for tax-free infrastructure bonds that were announced in the Budget. But government officials indicated that under the new guidelines, the bonds may offer lower interest rates and also lesser commission. Further, only state-run firms will be allowed to raise such money from the market.

The move comes after a meeting last week of finance ministry officials with representatives of public sector firms that plan to float such tax free bonds. “We have asked them to come to us with individual proposals for floating such paper. It should hopefully be done by next month so that they can start issuing bonds in the first half of the fiscal,” a finance ministry official said, adding that the Central Board of Direct Taxes (CBDT) will soon notify the tax-free status of these bonds.

Under the fresh guidelines, the returns on the bonds are likely to be in the range of 8 to 9 per cent, the official said. Till 2011-12, these bonds offered interest rates of up to 11-12 per cent as the returns on them could not be lower than 50 basis points of government securities of the same maturity.

Finance minister Pranab Mukherjee in the Budget for 2012-13 allowed firms to raise up to Rs 60,000 crore through tax free bonds for financing core sector projects. The facility was also provided to firms in 2010-11 and 2011-12 when they were permitted to raise Rs 20,000 crore and Rs 30,000 crore respectively, but at that time taxpayers investing in such bonds were given a deduction of Rs 20,000 per year.

But the finance ministry believes that the tax free nature of these bonds along with the high interest rates were largely attracting high net worth individuals and not individual tax payers who were supposed to be the main beneficiaries. The issue was first raised by the Planning Commission which noticed irregularities on the commission and brokerages being paid for such bond issues.

In 2012-13, seven public sector firms are expected to issue such paper. This includes Rs 10,000 crore bonds each by NHAI, IRFC, IIFCL, and power projects and Rs 5,000 crore bonds each by HUDCO, National Housing Bank, SIDBI and port developers.


Source: Financial Express

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Housing and Urban Development Corporation plans to raise Rs 10,000 crore through tax-free bonds

State-owned housing and urban infrastructure developer Housing and Urban Development Corporation (Hudco) today said it plans to raise about Rs 10,000 crore through tax-free bonds and other instruments this fiscal to fund business expansion.

"We are planning to raise about Rs 10,000 crore in 2012-13," Hudco Chairman and Managing Director V P Baligar said after announcing financial results of the company here.

Of the total resource mobilisation target for the current fiscal, he said, Rs 5,000 crore would come from tax-free bonds.

Besides, some amount would be raised from non-tax free bonds, he said, adding, the company is also talking to National Housing Bank for loans worth Rs 500 crore at a competitive interest rate for its social housing operations in rural areas.

The company will also mobilise about Rs 400 crore from its public deposit scheme, he added.

During 2011-12, the company mobilised a total of Rs 10,395.95 crore. Of this, it raised Rs 5,000 crore of tax-free bonds.

In addition, Hudco also mobilised an amount of Rs 667.40 crore via taxable bonds.

Talking about the financial performance of the Hudco during 2011-12, Baligar said, the company recorded a 14 per cent rise in net profit at Rs 629.18 crore, which is also the highest ever.

The net profit of the company was Rs 550.03 crore in the previous year.

The company registered a growth rate of 35 per cent in disbursement with releases of Rs 6,906 crore as compared to Rs 5,105 crore in 2010-11.

"We have sanctioned a total loan of Rs 20,511 crore, in 2011-12, which is the highest so far," he added.

During the year 2011-12, he said, Hudco sanctioned a total amount of Rs 14,204 crore for urban infrastructure projects. A substantial focus has been laid during the year on core infrastructure projects, which affect the quality of life of citizens, he added.

Of the total sanctions for infrastructure projects, about 56.10 per cent constituted for core infrastructure projects (Rs 7969 crore) covering water supply, sewerage, drainage, solid waste, roads/transport sector and social infrastructure projects, he added.

With regard to the asset quality, Baligar said, the gross non-performing asset (NPA) of the company stood at 6 per cent while the net NPA was 1.35 per cent at the end of March 2012.

Loans of about Rs 300 crore given to Maheshwar Hydel Power Corporation, Konaseema EPS Oakwell Power Ltd have turned NPA, he said.

The company will be making efforts to bring down its non-performing assets during the financial year by focussing more on recovery.



Source: EconomicTimes

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Income Tax department mulling prosecution of HSBC bank in black money cases

The Income Tax department is said to be mulling prosecution against the HSBC bank for allegedly being the conduit for Indians in stashing money abroad.

The department, which had received more than 700 names in a list of black money account holders in HSBC bank in Geneva reportedly provided by the French government, has approached the Central Board of Direct Taxes (CBDT) in this regard, sources said.

The I-T department is believed to have recommended that action may be initiated against the bank under the provisions of Income Tax Act relating to abetment of false income tax returns, concealment of income to thwart tax recovery, sources said.

The department, which is set to begin prosecution of cases against a certain number of account holders on this list, has sent a communication in this regard to the CBDT.

When contacted, HSBC officials refused to comment. The CBDT, the sources said, has now asked for an opinion from both the Law and External Affairs Ministry pertaining to the possible action against the bank.

Various investigation and enforcement units of the I-T across the country, where these names were sent for verification and realisation of unpaid taxes, have come together to state that the deposits in the HSBC Geneva accounts were allegedly made through the bank branches in India and this was hidden from the tax authorities.

The I-T department is of the view that the onus of declaring overseas accounts is not just on the account holder but also on the banks.

Source: EconomicTimes

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Rajiv Gandhi Equity Savings Scheme plan may allow trading in top 100 stocks

The proposed Rajiv Gandhi Equity Savings Scheme is expected to come with safeguards that will permit small investors to purchase shares only in the top 100 stocks traded on BSE and NSE.

An exception is, however, expected to be made for public sector companies with the government likely to relax the rule to allow trading in stocks that are part of the top 500 list. The move is aimed at increasing retail participation in not just the stock market but also in disinvestment exercise .

The scheme will allow 50% deduction for those who invest up to Rs 50,000 in stocks, provided their taxable income is below Rs 10 lakh. While the funds will not be allowed to be withdrawn for three years, even churning of portfolio is not permitted during the first one year. The scheme can be availed only once in a lifetime. "Details on it should be out in a month's time," finance secretary R S Gujral said on sidelines of a Ficci meet.

The government has drawn upon the experience in Europe which had tried the model and increased retail participation in the 1970s. A similar scheme, with much higher cut-off , was first tried in France which was then used by Belgium, West Germany and Sweden.

Source: EconomicTimes

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Tax-free infra bonds may lose sheen in 2012-13

The optimum utilisation of the enhanced Rs 60,000-crore limit for issuing tax-free infrastructure bonds by companies seems unlikely. This is despite the government trying hard to boost infra development in the country by doubling the issuance limit for such bonds, which received a euphoric response in 2011-12.

Firms that secured approvals to raise funds are unsure if these would be able to harness the entire available limit, owing to delays in decision making by the government and the increase in bank rate.

Companies like National Highways Authority of India (NHAI) and Indian Railways Finance Corporation (IRFC), which had been allowed to raise Rs 10,000 crore each through the issuance of tax-free bonds, have just begun the absorption process for the amount raised in 2011-12, and this may take a while. For financial year 2012-13, these have again been permitted to issue tax-free bonds up to Rs 10,000 crore each.

Speaking to Business Standard, J N Singh, member (finance), NHAI, said, “We have just finished raising funds for this financial year. It would take time for us to absorb the amount. There are no plans to come up with another tax-free bond issue anytime soon. We are not sure if we would be using the entire Rs 10, 000-crore limit, as we will have enough funds for some time.”

Project delays and slow allocation may also lead to postponing tax-free bond issuances. The Economic Survey 2011-12 says 235 of 583 infrastructure projects were delayed, while 175 were sanctioned without specifying a commissioning schedule.

Delay by the government in notifying the final go-ahead to tax-free bond issuances may also lead to underutilisation of the limit. S Radhakrishnan, general manager (external commercial borrowing), IRFC, said, “Though we would want to issue tax-free bonds to raise funds before exercising other options to raise money, the timing depends solely on how fast the finance ministry issues the notification on it. In FY12, the notification was issued very late, in September, and our issuance limit for tax-free bonds remained untapped, as we had used alternative means to raise funds.” The firm raised Rs 14,800 crore this financial year from various sources, including tax-free bonds, which helped raise about Rs 7,000 crore.

Though tax-free bonds are seen as low-cost tools to raise funds, arrangers of these issues disagree. Nirav Dalal, president and managing director (debt capital markets), YES Bank, said, “The doubling of the issuance limit for tax-free bonds is a boost for infrastructure funding, though a bit surprising. The bonds issued this financial year have given merely 1-1.25 per cent cost benefit to issuers. Inadvertently, the instrument has turned out to be more attractive for investors than for issuers.”

He said it was not a good idea to issue tax-free bonds in the beginning of FY13, as interest rates were still high. According to norms, companies cannot invest in corporate bonds that offer a coupon rate less than the bank rate. The bank rate is linked to the repo rate and market players believe the rate cycle has peaked.

In February, the Reserve Bank of India had raised the bank rate from six per cent to 9.5 per cent, bringing it on a par with the marginal standing facility rate.

“With the bank rate now at 9.5 per cent, companies cannot invest in instruments with coupon rates less than the bank rate. So, if the coupon offered on these tax-free bonds remains in the range of 8.3-8.5 per cent, companies cannot invest in these, and the amount to be raised would be quite large to be sourced primarily through retail/high net worth investors,” Dalal said.

The coupon rate on tax-free bonds is linked to the yields of government securities of the same tenor.

These rates should not be less than 100 basis points lower than the annualised closing yield on the government bond of the previous month.

Source: Business Standard

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Part of your health check just got tax-free

Spending on your health check-ups can also help you save tax in the new financial year. Finance Minister Pranab Mukherjee on Friday introduced a deduction of Rs 5,000 for expenses incurred on preventive health care under section 80D. Under this, citizens can save tax for the monies spent by them on their health check-ups. This will include various medical tests that individuals are asked to undergo at hospitals. The amendments made will be effective from April 1, 2012. In addition, Section 80DDB, that allows deduction for the medical treatment of specified diseases and ailments, has enhanced its limit from Rs 40,000 to Rs 60,000.

“The positive aspect of the Budget is that it has shown much more awareness and understanding on issues related to health care. It’s a step in the right direction, because giving a tax exemption to health check-up, means there is a movement towards incentivising preventive healthcare,” says Bhargav Dasgupta, managing director and chief executive, ICICI Lombard general insurance.

Section 80D allows deductions for health insurance premiums paid up to Rs 15,000 per family (spouse, self and two children), and a further deduction of Rs 15,000 if a health policy is brought in the name of parents. In case parents fall under the category of senior citizens, deductions can go up to a higher sum of Rs 20,000.

Since amendments are made into the existing section, one can make use of this deduction for preventive health care if one has not purchased a health plan yet.

BETTER TREATMENT

• Up to Rs 5,000 incurred on preventive healthcare eligible for a deduction under Section 80D
• Deduction limit for treatment of specified diseases and ailments, under Section 80DDB, raised from Rs 40,000 to Rs 60,000

However, the cap could be too small given the cost of such check-ups. The Rs 5,000-cap will be applicable for the entire family (self, spouse, children and parents). The payment made on check-ups can be made by cash or any other mode of transaction.

“This will increase the demand for medical tests and hospitals may even raise the prices on it soon. Indirectly, this may also push medical inflation up, a problem everyone is still grappling with,” says Amarnath Ananthanarayanan, managing director and chief executive, Bharti AXA general insurance.

Some insurers fear the new deduction in the section of health insurance may eat into the demand for health policies.

Source: Business Standard

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Govt allows lenders to raise Rs 60Kcr via tax-free bonds

To encourage investment in the infrastructure sector, financial institutions have been allowed to raise about Rs 60,000 crore from tax-free bonds in 2012-13.

"For the year 2011-12, tax-free bonds for Rs 30,000 crore were announced for financing infrastructure projects. I propose to double it to raise Rs 60,000 crore in 2012-13," Finance Minister Pranab Mukherjee said, while presenting the Union Budget 2012-13 in Parliament.

"This includes Rs 10,000 crore for NHAI, Rs 10,000 crore for IRFC, Rs 10,000 crore for IIFCL, Rs 5,000 crore for HUDCO, Rs 5,000 crore for National Housing Bank, Rs 5,000 crore for SIDBI, Rs 5,000 crore for ports and Rs 10,000 crore for power sector," he added.

Strengthening the investment environment, Finance Minister also said, "the domestic investment environment has suffered on multiple counts in the past year. It is time to fast track policy decisions and ensure on-time implementation of major projects."

Focusing on domestic demand-driven growth recovery, he said, "we need to emphasize on infrastructure and industrial development of the country."

"Lack of adequate infrastructure is a major constraint on our growth. The strategy we have followed so far is to increase investment in infrastructure through a combination of public investment and public private partnerships (PPP)," he added.

Mukherjee further said that during the 12th five Year Plan, infrastructure investment will go up to Rs 50 lakh crore with half of this expected from private sector.

In line with investments in the infrastructure sector, the Finance Minister will ease the burden on rupee debt of the existing power projects in the country.

"I propose to allow external commercial borrowings (ECB) to part finance rupee debt of existing power projects," he said.

Source: Financial Express

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Budget unveils tax-exempt Rajiv GESS

In order to increase retail participation in the capital market, Finance Minister Pranab Mukherjee today proposed a tax exemption scheme for new investors.

The Rajiv Gandhi Equity Savings Scheme will allow 50 per cent tax deduction for those whose annual income is below Rs 10 lakh and who invest up to Rs 50,000 in stocks.

The scheme will have a lock-in period of three years, Mukherjee said while announcing the budget proposals for 2012-13.

The move is first-ever tax benefit for direct investments in stocks.

However, Secretary Department of Economic Affairs R Gopalan later informed that this scheme for new investors can be availed only once, meaning people who have already invested in equity market cannot avail this tax benefit.

"This is once in a lifetime (offer)," he said, adding this scheme is over and above the deduction provided on investments up to Rs 1 lakh in capital market.

Gopalan said the aim is to channelise savings into the stock markets, which "our economy needs".

According to market analysts, the move will further encourage flow of savings into financial markets.

In addition, government sought to make trading in capital markets less costlier and simpler, with the lowering of securities transaction tax, along with various other measures to boost equity, commodity and bond market.

ICICI Securities' MD & CEO Anup Bagchi said the initiative like Rajiv Gandhi equity savings scheme would lead to increased participation from retail investors.

Homi Mistry, Partner, Deloitte Haskins and Sells, said tax benefits under Rajiv Gandhi Equity Saving Scheme is a step in the right direction for the benefit of capital markets.

Sunil Goyal, MD, Ladderup Corporate Advisory Pvt Ltd, said tax incentives for subscription to capital issues by retail investors will attract funds in capital market from a larger number of the investors.

Source: Financial Express

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Have you planned your income tax this year?

The financial year 2011-12 is coming to an end. It is time to finalise your income tax planning and savings. There are many sections under the Income Tax Act that enable you to reduce your income tax liability.

These are some sections you need to tap:

Section 80C

This section allows income tax exemptions and rebate to individuals. You can invest in certain specified instruments and reduce your taxable income by up to Rs 1 lakh under this section.

These are some of the major instruments that attract income tax benefits. You can invest Rs 1 lakh in one or more of these instruments to avail tax rebate under Section 80C:-

Provident funds (Employee Provident Fund and Public Provident Fund) Life insurance (term insurance and endowment plans) Pension plans Equity-linked savings schemes (ELSS) of mutual funds Specified government infrastructure bonds Repayment of housing loan (principal component) National Savings Certificate (NSC)

Section 80CCF:

This is an extension of Section 80C. The Income Tax Act allows you an additional rebate (in addition to the limit allowed under Section 80C) of up to Rs 20,000 when investing in notified infrastructure bonds. This section is a boost for infrastructure development in the country. There is an expectation that the investment limit in this section may be raised for the next year.

Home Loan Benefits:

A housing loan provides relief under the Income Tax Act. The repayment of the principal component of a housing loan attracts rebate under Section 80C of up to Rs 1 lakh. The interest payment on a housing loan attracts rebate of Rs 1.5 lakhs.

Medical Insurance:

The income tax benefit on purchase of medical insurance comes under Section 80D. You can claim a rebate in income tax on the premium paid to buy mediclaim policies. The maximum limit on the income tax rebate under this section is Rs 15,000. You can avail this deduction on medical insurance premiums paid for yourself, your spouse, parents and children.

Other Deductions (salaried individuals):

Medical allowance:

If an employer of a salaried individual offers a medical expense reimbursement allowance, an income tax deduction of up to Rs 15,000 per year against the relevant expenses is allowed.

LTA:

If an employer offers a leave travel allowance (LTA) as a part of the salary, one can avail an income tax deduction on the travel expenses. According to the norm, the LTA benefit can be availed twice in a block of four calendar years. Presently, the block applicable is from 2010 to 2013.

Review tax planning

These are some points you should keep in mind while reviewing your investment planning with respect to income tax optimisation :

Check limits:

First of all, exhaust the quotas of Section 80C and Section 80CCF. You can analyse the various options and invest to save tax under Section 80C.

Use allowances:

Salaried tax-payers should plan expenditure under medical allowance, child education allowance and conveyance allowance for maximum benefit.

Insure:

Investing in a medical insurance policy is another option to save tax, if your Section 80C limit is already exhausted. However, it is not advisable to take a medical insurance policy just for the sake of saving tax.

Source: EconomicTimes

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PAN to be tool against tax evasion

Come next financial year, the PAN card is likely to become the most potent tool for the Income Tax Department to unearth black money, tax evasion and instances of criminal financing in the country.

A recent directive of the Central Board of Direct Taxes (CBDT) to the I-T Dept has asked its officials to launch a special drive against those who have "not furnished their PAN (Permanent Account Number)" while entering into high value transactions.

The drive will end on March 20, eleven days before the current fiscal closes.

The measure has been taken on the recommendations of a high-level committee appointed by the CBDT last year to find those taxpayers who have gone missing without paying taxes, pegged at Rs 1,01,836 crore at present.

The committee under I-T Director General (Administration) was set up to examine pending cases on I-T demands under the categories "assesses not traceable" and "no assets/inadequate assets for recovery".

A top Finance Ministry official, involved in the planning of the latest drive, explains the idea behind the exercise which is being conducted across the country.

"The PAN card data which the I-T will obtain during the two month drive which started on February 20 will bolster the 360-degree profiling computer-based data-bank of the department. The new PANs will be fed into the system and then whenever a transaction is done using that identity, a flow chart of all credit/debit card, banking and other transactions from it will get displayed for the officer investigating," the official said.

"The 10-digit alphanumeric number (PAN) allotted by the I-T Department to taxpayers will be the most potent tool for the department to unearth tax crimes and evasion," the official said.

This will not only bring about a mechanism of non-intrusive investigation by department without troubling the taxpayer but will also streamline the financial data of each taxpayer for his assessing officer, the official added.

The charter of the drive mandates that taxpayers "will be required" to furnish their PAN if they already have one or "apply immediately for PAN if they do not have one".

"The department has tried to kill two birds with one stone. While the high-level committee found that a number of pending recovery cases reached a dead end because of non-availability of PAN cards, it also found that the PAN database itself is not complete. So while the committee had mandated I-T officials to go door-to-door to intimate such taxpayers, it will now be done under the umbrella of this directive," the official said.

The CBDT has also asked in the latest directive that such people will also be required to explain the source of the high value investments, deposits, expenditure and whether these were properly explained in the I-T returns filed by them.

"Persons who have not properly accounted for the high value transactions are required to pay due taxes and file the I-T return within this financial year, March 31, 2012," the directive said.

"A number of these people are those who figured in the probe of the high-level committee," another official said.

In view of the present drive, the department has also reportedly decided not to publish the names of such defaulters who owe more than Rs 10 crore as unpaid taxes, considering it as an "unfriendly measure" as of now.

The CBDT has also spelt out that there are "penal consequences" of either not reporting or obtaining a PAN card.

Source: Financial Express

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IRFC, HUDCO tax-free bonds to hit markets today

Tax-free bond issues of two Government-owned agencies — Indian Railway Finance Corporation (IRFC) and HUDCO — are to hit the market on Friday. The bonds have a tenor of 10 years and 15 years, and offer higher rates for retail investors. But, investor returns of HUDCO are marginally higher than IRFC. IRFC funds rolling stock acquisition of the Railways, while HUDCO provides housing finance to various agencies.

IRFC

The bonds of IRFC, the financing arm of Indian Railways, shall carry a coupon rate of 8 per cent per annum for 10 years and 8.1 per cent for 15 years. For the retail subscribers, who can invest a total of up to Rs 5 lakh, IRFC offers an additional coupon rate of 0.15 per cent (10 year bonds) and 0.2 per cent per annum for 15-year tenor.

The bonds are proposed to be listed on the NSE and BSE, said a Railways release. Face value of each bond is Rs 1,000, and bonds can be subscribed for a minimum of 10 and in multiples of five thereafter, it added. IRFC proposes to raise Rs 3,000 crore, with an option to retain oversubscription of up to Rs 6,300 crore.

The issue closes on February 10 or earlier (subject to the issue being open for a minimum period of 3 days).

HUDCO

HUDCO wants to mop up Rs 4,685 crore from this issue. For retail investors, the coupon rate is 8.22 per cent (10 year issue) and 8.35 per cent (15 year issue). Retail investors can invest up to Rs 5 lakh for availing themselves of these coupon rates. For other investors, the coupon rates are 8.1 per cent (10- year tenor) and 8.2 per cent (15-year tenor).

mamuni@thehindu.co.in

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