• This forum contains old posts that have been closed. New threads and replies may not be made here. Please navigate to the relevant forum to create a new thread or post a reply.
  • Welcome to Tamil Brahmins forums.

    You are currently viewing our boards as a guest which gives you limited access to view most discussions and access our other features. By joining our Free Brahmin Community you will have access to post topics, communicate privately with other members (PM), respond to polls, upload content and access many other special features. Registration is fast, simple and absolutely free so please, join our community today!

    If you have any problems with the registration process or your account login, please contact contact us.

Railway Budget 07-08 Highlights

Status
Not open for further replies.
IT Changes -- Article from Rediff

Amongst the various provisions of the Budget 2007-08, the following are some of the more significant ones that would directly affect the common man:
Basic Exemption Increase: Flattering to deceive
Yes, the basic exemption has been raised by Rs 10,000 for all categories of taxpayers. However at the same time, the education cess has also been increased. Both these cancel each other and the taxpayer comes back to square one. The cut off, as it were, is Rs 510,000, Rs 520,600 and Rs 893,000 for non-senior males, ladies and senior citizens, respectively.
To put it differently, those earning lower than the above-mentioned income levels would be marginally better off and those earning higher would end up actually paying more tax. Note that the highest tax rate has now climbed to 33.99%.
Stock Options: Expensive on both employer and employee
Stock options, now under Fringe Benefit Tax, will be taxed at 33.99%. The finance minister has gone on record stating that the authorities have yet to give details on how to determine the value of stock options and how to tax the same, yet, a plain reading of the law suggests that the difference between the Fair Maket Value and the Exercise Price will be taxed at 33.99% on the date of exercise.
Simultaneously, when the employee sells his stock option shares, capital gains would be applicable in the normal course.
Dividends become more expensive
Dividend Distribution Tax (DDT) on corporate dividends has been hiked to 15% from 12.5%. After surcharge and cess, the effective tax rate climbs to 16.995%
A couple of issues arise. Taxing corporate dividends does amount to double taxation. Dividends are declared by the company from its post-tax income. Now if the investor is taxed again (DDT is akin to taxing the investor at source), the same stream of income is being subjected to an effective tax rate of 50.98% (33.99% + 16.99%).
Secondly, foreign investors (NRIs, FIIs, etc) have to pay tax in their host country too on such dividends received. As DDT is not a tax envisaged under the Double Taxation Avoidance Agreements (DTAAs), such investors would end up bearing triple tax on the one income.
Liquid Funds: Also become more expensive
DDT for all categories of investors in Money Market Mutual Funds (MMMFs) and liquid funds has been doubled to 25% as against the earlier 12.5%. Again, the effective tax rate is actually 28.325%.
This has apparently been done to cut the arbitrage opportunity between income tax rates and distribution tax. However, here it may be mentioned that even now, arbitrage does exist as the effective tax rate works out to actually just 20%. Let me explain.
I will take a base DDT of 25% (not included surcharge and cess for simplicity) and assume a dividend to be distributed of Rs 100. So the mutual fund concerned will actually pay Rs 80 to the investor and pay Rs 20 as distribution tax. Rs 20 is 25% of Rs 80 (which was the dividend distributed). However, as far as the investor is concerned, he has borne a tax of Rs 20 on a gross income of Rs 100 which works out to just 20%.
Look at it the other way. Had the investor actually received Rs 100 in hand, he would have been asked to pay Rs 25 (25% of Rs 100) as tax. Just on account of the mutual fund paying the tax on the investor's behalf, the effective rate works out lower.
In any case, these amendments will take effect from April 1, 2007.
TDS limit for interest hiked
Amongst good news for the small investor, Bank and Post Office interest was subject to TDS over Rs 5,000. This limit has been doubled to Rs 10,000.
Extra deduction for medical insurance
Deduction in respect of medical insurance premium under Section 80D has been increased to Rs 15,000 from Rs 10,000 for non-senior taxpayers. For senior citizens, the limit has been enhanced from Rs 15,000 to Rs 20,000. Also, premium payments made by electronic mode, credit card, etc. will be allowed.
Education gets cheaper
This is indeed a salutary move. Deduction of interest payable on loan taken for higher education under Section 80E was available only to the individual taking the loan. This was a problem since the student taking the loan hardly had any taxable income and if the parent takes the loan for his or her child, the deduction was not available.
However, now, the deduction has been made applicable even in case the loan is taken for one's spouse or children.
Note that this deduction is available only for loans taken form a financial or charitable institution. Loans from employer or from other private sources aren't eligible for the tax deduction.
54EC Bonds: Elusive at best
The limit of Rs 50 lakh on capital gains bonds stays. However, it is not the limit that one is worried about -- the worry is the fact that these issues are capped. So when you sell your property, forget the limit, the bonds may just not be available --- so what was needed was to make the bonds available on tap, throughout the year --- which has not been done.
RBI Bonds: Now subject to TDS
Interest on the immensely popular RBI 8% Savings Bonds was taxable but free from TDS. Effective 1.7.2007, any interest over Rs 10,000 from such bonds would be subject to a TDS of 10%. Similarly, professional fees were subject to a TDS of 5% which has now been increased to 10%.
Service Tax: Marginal Increase
The service tax rate has actually increased from 12.36% from 12.24% on account of the additional cess. It is the declared intent of the government to increase the service tax rate eventually to 16%, however, the inflation sword has precluded an increase this time.
The basic exemption has increased from Rs 400,000 to Rs 800,000, however, this essentially benefits the small service provider but not the common man who is the receiver of the service.
Making commercial rentals subject to service tax would only make office space still more expensive.
IT companies put on the MAT
MAT, or Minimum Alternate Tax, is 10% of 'book profits.' Which means this is the least amount a company has to pay as tax. The Income Tax Act lays down the way to compute such 'book profits.' Till last year, the book profit could be adjusted for incomes and expenses related to Section 10A and 10B.
However, Budget 2007-08 intends to take Section10A and 10B out of the purview of MAT benefit thereby increasing the computed book profit to that extent.
The impact, including surcharge and cess, would be 11.33%. Therefore, those companies (especially the SMEs in the IT sector) whose effective tax rate was less than 11.33% would be directly affected.
Section 80-IA controversy
There was some confusion in the markets related to the Budget treatment of Section 80-IA. The Section 80-IA provides for a ten-year tax benefit to a company (enterprise or undertaking as it is called in the tax law) engaged in infrastructure development, Industrial Parks, SEZs, etc.
The government has clarified that Section 80-IA was a tax break intended for the original enterprise which was engaged in infrastructure development and not for companies who were merely executing the civil construction work or any other works contract on its behalf.
Thus, in a case where a company itself makes the investment and executes the development work it will be eligible for the 80-IA deduction. However, a company or a developer who merely enters into a works contract will not be eligible for the tax benefit under section 80-IA.
An immediate fall out of this measure has been a free fall in the share prices of constructors and developers who essentially were works contractors and were never intended to be benefited by this deduction.
The other news that has taken industry by surprise was that this amendment is retrospective in nature and is being made effective from 1st April, 2000
Other announcements
There are other miscellaneous announcements like the issue of tax-free bonds, dedicated infrastructure funds to be launched by mutual funds, etc. However, the details haven't yet been announced.
 
Cheaper to live in a rich country than India?

I have a question, if a govt always follows pro-poor policies, what is the incentive for poor people to stop being poor? Over a few decades will this not mean an increase in the number of poor people? Isn't this exactly what has happened in India? If one keeps taxing the rich to subsidize the poor, who would want to be rich in India?

I get the feeling that the entire setup in India is optimized for people to stay poor or in the lower middle-class category. I compared prices recently when I went to Chennai for the following living expenses:

20 yr mortgage for a decent 2-bedroom flat/condo:
Chn - 25,000 Rs/m, Austin - 42,000 Rs/m

Internet access:

Chn - 3300 Rs/m for a 2Mbps 10GB limit, Austin 2,300 Rs/m for a 6Mbps, unlimited cable internet conn

Electricity:

Chn - 1800 Rs/m for 400KwH, Austin 2000 Rs/m for 400KwH

Cable:

Chn - 240 Rs/m for 70 channels, Austin 2300 Rs/m for 70 channels


Phone:

Chn - 1300 Rs/m for 1000 minutes, Austin 1000 Rs/m unlimited, Vonage


Car, Hyundai Accent 5 yr loan, 0 down payment

Chn - 12,500 Rs/m, Austin - 9200 Rs/m

Petrol:

Chn - 5200 Rs/m for 1000 km, Austin - 2700 Rs/m for 1000 km

Car Insurance+Maintenance

Chn - 2000 Rs/m, Austin 5500 Rs/m

Home insurance + property taxes + condo maintenance fees

Chn - 2000 Rs/m, Austin 8000 Rs/m

Groceries

Chn - 3000 Rs/m, Austin 9000 Rs/m

DVD rentals (unlimited, 2 at a time)

Chn - seventymm.com 549 Rs/m, Austin - netflix 449 Rs/m

Electronics like TVs, Computers, MP3 players etc:

Chn - 20-30% more expensive than Austin

Catastrophic health insurance (single)

Chn -550 Rs/m for upto 10 lakhs, Austin 4800 Rs/m for upto 25 lakhs

Air-ticket to San Francisco or Delhi booked 21 days in advance (1200 miles away)

Chn - 10,000 Rs total Austin 14,000 Rs total
--------------------------------------------------------

Plus some other items. In short, for the same lifestyle in Chennai compared to Austin, the difference is really not that much, probably about 30% cheaper to live in Chn. However, given that the median salary in Austin is 1.8L/m (44K$/yr), I bet the average Chennaite is not making 1.5L/m. Of course, this comparison ignores the bad quality of most services in Chn like electricity, water, cable etc, in addition to the pollution, chaotic traffic, bad roads, road-rage, trash everywhere.....

Why this discrepancy? Isn't it perplexing that it is cheaper to enjoy a decent quality of life in a rich country than in a poor country where life should be more affordable? What gives?
 
This one is for you, Kashyap sir

HOW SOUND IS THE MOVE TO TAX ESOPS?

The Economic Times Amitabh Singh, Partner, Ernst & Young

There have been many reports in the media of how employees have struck gold through ESOPs in the bullish stock market. The ever alert finance ministry now seems to have found a way to tax such wealth and that too without annoying the beneficiaries, i.e., the employees. In a smart move, the ESOPs are now proposed to be taxed but with a twist that it will be taxed as a fringe benefit, which means the tax, burden is on the employer.
Hence, employees who already hold ESOPs are very happy to be spared the rigours of taxation. At the same time, the employers are sweating as they see their FBT bill going up with every rupee appreciation in their stock prices. Companies may even have to think about appropriating some portions of their profits towards a reserve to meet future FBT liability.
Benefits arising out of ESOPs are generally taxable in most countries hence one cannot say that the proposal is unique. But India stands out as perhaps the only country that proposes to tax the benefit in the hands of the employer.
The other disturbing aspect is that the proposed law will apply even to options granted prior to April 1, 2007 if they are exercised on or after that date. An option that has been granted is like a bullet out of a gun, there is nothing much the employers can do to retract it or do anything that mitigates their exposure. The least the government could have done is to propose this levy only in respect of Options that are granted on or after April 1, 2007.
The draft legislation itself creates room for ambiguities. The term ESOP has not been defined which means one will have to look at Sebi guidelines or other pieces of contemporary legislation to derive its meaning. The definition of “fair market value” is yet to be prescribed and one can only guess at this point in time on what that will be, especially in case of unlisted companies.
The government has also overlooked the predicament of the vast pool of globally mobile Indian IT professionals who have ESOPs and who may be paying tax on the same in the foreign locations where they are posted. The implications of the proposed law is that the employee will pay income tax on ESOPs in the foreign country while their Indian employer will pay FBT on the same income in India, neither taxes being creditable against each other, a classic case of same income being taxed twice!

M S Narasimhan, Professor, IIM Bangalore

It is easy to conclude any tax scheme as illogical since there is no right way of taxation. The Committee on Employee Stock Options appointed by the Securities and Exchange Board of India (Sebi) had recommended splitting the difference between the sale price of the stock vested through ESOP and exercise price into two elements and treat a part of the gain as perquisite and the rest as capital gain.
The new tax scheme has implemented the recommendation with one change — the collection point of the tax has been shifted to employer instead of employee and exempted such reward from taxation at the hands of employee.
Since there is no right way to tax citizens, an administratively simple mechanism of taxation is preferred to a complex tax administration chasing several thousands of employees who have been vested with ESOP. Since both dividend tax and current Fringe Benefit Tax on ESOP is merely shifting the collection point, there is no justification for allowing the FBT as expense or adjustable against tax liability on income.
While dividend distribution is taxed at a lower rate considering the fact that tax rate of investors range from zero to 30 percent (excluding surcharge), FBT on ESOP is at the maximum tax rate since employees getting ESOPs generally fall under highest tax bracket. Suppose the employer pays cash bonus and the employee uses the same to buy call option in the market or shares in the market — a scheme equal to ESOP.
The employee would have paid tax on such cash bonus at the rate applicable to her/ his income. Probably one can bargain for a reduction in tax rate if the industry is able to demonstrate that not all employees fall under the highest tax bracket. There are few other reasons for pleading a lower FBT on ESOP.
The larger question is — should the government encourage ESOP or discourage ESOP? So far, the government has not done anything to discourage ESOP though an illusion has been created by the tax experts in financial press that FBT is an anti-ESOP measure. Indian software and other knowledge- based industries, apart from several unique advantages, enjoy cost advantage.

Srinivas Vadlamani, CFO, Satyam Computer Services

An ESOP is an employee benefit plan that allows employees to become owners of stock in the company they work for. The main purpose of an ESOP is to reward and motivate employees to enhance shareholder value.
In most cases, an ESOP is given to an employee, rather than purchased by an employee. In that respect, an ESOP can be viewed as an equity-based deferred compensation plan for an employee and not as a fringe benefit since the benefits of the scheme can be uniquely identified with a particular employee.
In terms of tax policies associated with this instrument, the global practice is to tax the benefits in the hands of the employee. However, the current budgetary changes proposed by the finance minister to charge a fringe benefit tax (FBT) on the ESOPs means that the employer will now have to pay a tax when its employees exercise the right to get the shares, and the employees will then pay the capital gains tax when they sell them.
This is a retrograde step in my opinion as nowhere in the world is an employer made to pay a tax on a benefit that accrues to an employee purely due to market forces driving the share prices up.
The employer is also affected since ESOPs constitute a very important tool for retaining as well as attracting talent, especially in the knowledge economy sector, and the additional expenses to be incurred due to the introduction of the FBT could restrict the widespread usage of this instrument as an effective means of compensation.
Further, till date, FBT is being levied in the year of benefit. However, the current provision leads to a situation wherein tax is being levied with retrospective effect. For instance, if an employee has been granted an option in 2002 that vested in 2003 and exercise is likely to happen in 2008 — the new provisions essentially are levying tax in 2008 for a benefit, which accrued in 2003.
 
Turning Railways around

I agree with hariharan1972. He has definitely turned railways around.

I am not a fan of Lalu but I believe he has indeed done something which has not been possible by others who went before him.

Kudos!

I would give an "unequal" share of credit to Lalu for turning around Railways. I refuse to believe that such a huge turnaround in the fortunes of Railways can be accidental. It HAS to be by DESIGN.

Ofcourse agree to you that the credit for executing Lalu's & Railway Board's plans goes to the managers & employees. No disputing that.

But if you notice Lalu has been extremely smart in using the "economy upsurge" to his advantage. Which Rail Minister has had the gall to "reduce fares" & increase revenues ? Which Rail minister had the forethought to adopt technology ? Internet booking is such a big hit & even I ticket which is normal ticket home delivered by courier is such a big success. He has rationalised freight fares, introduced pvt participation in containers, initiated modernisation efforts, increased speeds of trains.

The biggest area of success is his master stroke of making the higher class travel affordable. He is giving the low cost airlines a run for their money. Also kindly note, all these things are not very easy to push thru the Indian system because of the legacy that is attached with anything Government.

I am only saying that given what was "expected" out of Lalu - which was nothing short of him being a disaster or a 'dole monger' - he has come out with flying colours. In fact British Railways are studying the Indian railways about it's turnaround.

I am told on the first meeting of his senior officials, Lalu told them that "If you have a Jersey cow, you have to milk it completely. If you don't milk it fully, you are not doing the cow any favour but only harming the cow". This example was well received and now efforts are fully on to make realise the potential of railways & make rail travel a much much better experience than never before.

However challenges lie ahead for Lalu, to make rail travel more safe & secure. But for the moment, Indian railways is in good hands.

Others have definitely contributed but Lalu is surely First Among Equals.:usa2:
 
Personal colors?

I hope your dislike of Lalu's policies in general has not prevented you from giving him credit for railway reforms.

http://en.wikipedia.org/wiki/Fodder_scam

http://news.bbc.co.uk/1/hi/world/south_asia/3514292.stm

he is a confirmed casteist and minority ( muslim, christian) appeaser.
Corruptionist par excellence. Gained CMship of bihar by following such practices but lost the same again due to over doing such policies. He initially villified the brhamins and projected himself as the messiah of the downtrodden. But once in power he favoured his own family and his yadav caste folks more and so the rest of the OBCs and SC/ST got together to trounce him in the elections.
 
Omigosh!

This was so hilarious!!! I thoroughly enjoyed it.

Do keep it coming.

Not much of a finance person myself but you bet I know a good joke when I see one!


LQ,
That makes it two of us !!!!!

Kashyapji,

PC is yet to announce the "quantum" that would be considered for taxation & the tax rate. I am curious as to how 'double taxation' will be avoided - since you incur a capital gains tax when you sell the securities. This, as i see, is clearly a move to please the Left - who are anti-corporate & anti-IT, except when the investment happens in WB.

While on ESOPs, i was listening to a Bharathiyaar song & i am tempted to quote it here for it's close "linkage to ESOPs". While listening to the song, with each line, i was left wondering what a genius Bharathiyaar is.

The song & it's linkage to ESOP as below

"Manadhil urudhi vendum"
(Be firm in your heart that you aren't leaving the Co till ESOP grant is awarded)
"Vaakinile inimai vendum"
(Be polite to your superiors, boss, project manager just about anyone above you so that he will consider you for the grant)
"Ninaivu nalladhu vendum"
(Be positive in your thinking that the next round of grant will include you)
"Nerungina porul kai pada vendum"
(Not enough if you have grants, you have to stay long enough to vest it)

"Kanavu meippada vendum"
(Your dream of striking a booty between market price & vesting price should realise)
"Kai vasamavadhu viraivil vendum"
(Vesting period should be quick & market should be conducive on vesting)
"Dhanamum inbamum vendum"
(No point in getting a mere grant, you should be able to sell it at much much higher than excercise price in the market)
"Tharaniyile perumai vendum"
(Your exercise price & selling price should be talk of the company if not the town)

"Kan thirandida vendum"
(Boss, pleaseeeeeeeeeee give me the grant)
"Kariyathil urudhi vendum"
(Pester/Cultivate your boss regularly so that you are not missed in the final list)
"Pen viduthalai vendum"
(If your spouse works in Infy / TCS / Wipro, pray that she is included)
"Periya kadavul kaakka vendum"
(M/s Premji, Nandan, Ramadorai should declare fabulous q-o-q results to keep the market momentum going up)
"Man payanura vendum, man payanura vendum"
(Land which i bought with the ESOP gain should appreciate fast enough)

“vanagam ingu then pada vendum”
(hopefully should be able to buy a pent house too)
“Unmai nindrida vendum”
(All the years of hard working/pataoing should give me something in return)

OmOmOm

I couldn’t think of a better poem on ESOPs…...What say ?

PS : meant to be light-hearted, pls don't take any offence. i have great regards for bharathiyaar.
 
Status
Not open for further replies.

Latest ads

Back
Top