MBA - 2 F INANCE. C APITAL GAINS It is the profit made on the sales of assets. If you sell at a less than purchase price, ? Commissions, fees, documentation.

MBA - 2 FINANCE

CAPITAL GAINS

It is the profit made on the sales of assets. If you sell at a less than purchase price, ? Commissions, fees, documentation costs … Capital Gains : Selling price- Cost price –

other costs Q : Shares bought Rs 5000/-, sold Rs 6000/-,

what is the capital gains.

CAPITAL GAINS TAX

Tax paid on capital gains If loss made, capital gain tax ? Two types : Short term & Long term. Depends on how long you hold the assets

before selling them. Some assets have only short term capital

tax.

CAPITAL GAIN TAX EXAMPLES

Gold : 3 yrs Shares : 1 yr , only ST capital gain tax. ST capital gains are added to your income. Stocks/MFs : 15% ST capital gains tax. LT capital gains is taxed at the flat rate

( reviewed by GOI ) but after indexation. Convert cost price using indexation & then

subtract from ______ to get capital gains.

INDEXATION CII : Cost Inflation Index for particular year Indexed PP = PP * ( CPI current yr/ CPI pur yr) Purchase Price Rs 10,00,000/- ( Yr 1995) Sale Price Rs 25,00,000/- ( Yr 2008) No of Years : _____ Purchase CII 281 Sale CII 582 Indexed Purchase Price Rs 20,71,174/- Capital Gain Rs 4,28,826/- Tax with Indexation Rs 85,765/- Tax without Indexation Rs 1,50,000/-

SIMPLE INTEREST

RS 5k invested for 5 yrs with 8% simple interest.

Q : What is the maturity amount ? Rs 7000/-

COMPOUND INTEREST

RS 5k invested for 5 yrs with 8% compound interest.

Q : What is the maturity amount ? Interest on interest. Rs 7347/-

COST OF LIVING

Amount of money required to maintain a certain standard of living.

This is measured by calculating the average cost of buying certain goods & services like food, medicines, fuel, transportation etc.

Inflation up, COL up. COL varies from place to place within India.

COL MUMBAI VS GOA Restaurants Meal 200.00 Rs      150.00 Rs      -25.00 % Meal for 2 Three-course 900.00 Rs      500.00 Rs       -44.44 % Combo Meal at Mcd 180.00 Rs      500.00 Rs       +177.78 % Domestic Beer (0.5 liter draught) 100.00 Rs     60.00 Rs      -40.00 % Imported Beer (0.33 liter bottle) 150.00 Rs     50.00 Rs      -66.67 % Cappuccino (regular) 83.64 Rs      75.00 Rs        -10.33 % Coke/Pepsi (0.33 liter bottle) 22.91 Rs     22.14 Rs       -3.33 % Water (0.33 liter bottle) 13.86 Rs      14.71 Rs      +6.16 %

numbeo.com

DIVIDEND

Is the payment made by a company to its shareholders or by MFs to their unit holders from the profits earned.

The amount of profit to be shared is decided by the company/MF.

Dividends are announced as a % of the face value of the share/unit .

Q : Face value of share Rs 10, current value Rs 200, dividend declared 40%. Dividend amount you will get if you hold 10 shares ?

MIS-SELLING

SEBI : companies/ AMCs should declare dividend amount per share, but companies don’t do that.

Securities & Exchange Board of India. Asset Management Companies People see the dividend % and invest

wrongly. People compare the dividend with the FD

ROI.

DTC

Direct Tax Code ( 30-8-2010 in LS) New set of tax laws which will replace the

existing Income Tax act of 1961. Reasons : Tax simplification, transparency &

more compliance. DTC will affect the amounts for tax savings,

tax saving options & investment options. finmin.nic.in/DTC

Highlights of Direct Tax code 1. Removal of most of the tax saving schemes: DTC removes most of the categories of exempted

income. Unit Linked Insurance Plans (ULIPs), Equity Mutual Funds (ELSS), Term deposits, NSC (National Savings certificates), Long term infrastructures bonds, house loan principal repayment, stamp duty and registration fees on purchase of house property will loose tax benefits.

2. New tax saving schemes: Tax saving based investment limit remains 100,000 but another 50,000 has been added just for pure life insurance (Sum insured is atleast 20 times the premium paid) , health insurance, mediclaims policies and tuition fees of children. But the one lakh investment can now only be done in provident fund, superannuation fund, gratuity fund and new pension scheme (NPS).

3. Tax slabs: The income tax rates and slabs have been modified. The proposed rates and slabs are as follows:

Annual Income Tax Slab Up-to INR  200,000 (for senior citizens 250,000) Nil Between INR 200,000 to 500,000 10% Between INR 500,000 to 1,000,000 20% Above INR 1,000,000 30% Men and women are treated same now 4. Home loan interest: Exemption will remain same as 1.5 lakhs per year for interest on housing loan for

self-occupied property. 5. Short and long term gains: Only half of Short-term capital gains will be taxed. e.g. if you gains 50,000,

add 25,000 to your taxable income.Long term capital gains (From equities and equity mutual funds, on which STT has been paid) are still exempted from income tax.

6. EEE and EET: As per changes on 15th June, 2010, Tax exemption at all three stages (EEE) —savings, accretions and withdrawals—to be allowed for provident funds (GPF, EPF and PPF), NPS (new pension scheme administered by PFRDA), Retirement benefits (gratuity, leave encashment, etc), pure life insurance products & annuity schemes. Earlier DTC wanted to tax withdrawals.

7. Education Cess: Surcharge and education cess are abolished. 8.  Income arising from House Property: Deductions for Rent and Maintenance would be reduced from

30% to 20% of the Gross Rent. Also all interest paid on house loan for a rented house is deductible from rent. Before DTC, if you own more than one property, there was provision for taxing notional rent even if the second

house was not put to rent. But, under the Direct Tax Code 2010 , such a concept has been  abolished.

Highlights of Direct Tax code.. Contd… 9. LTA (Leave travel allowance): Tax exemption on LTA  is abolished. 10. Education loan: Tax exemption on Education loan to continue. 11. Corporate tax: Corporate tax reduced from 34% to 30% including education cess and

surcharge. 12. Taxation of Capital gains from property sale : For sale within one year, gain is to be

added to taxable salary. For long term gain (after one year of purchase), instead of flat rate of 20% of gain after

indexation benefit, new concept has been introduced. Now gain after indexation will be added to taxable income and taxed at per the tax slab.Base date for cost of acquisition has been changed to 1st April, 2000 instead of earlier 1st April, 1981.

14. Medical reimbursement : Max limit for medical reimbursements has been increased to 50,000 per year from current 15,000 limit.

15. Tax on dividends: Equity mutual fund will attract 5% dividend distribution tax (DDT). DDT has been removed from debt and non-equity based mutual funds but now dividends on non-equity funds will be taxable in investor’s hand as per his slab rates. There will also be a TDS 0f 10% (20% in case of NRI and companies)  if dividend is more than 10,000 Rs for non-equity funds.

15. News for NRIs : As per the current laws, a NRI is liable to pay tax on global income if he is in India for a period more than 182 days in a financial year. But in new bill, this duration has been changed to just 60 days.

An NRI will be deemed as resident only if he has also resided in India for 365 days or more in the preceding four financial years, together with 60 days in any of these fiscal years.  Even if an NRI becomes a resident in any financial year, his global income does not immediately become liable to tax in India. Global income would become taxable only if the person also stayed in India for nine out of 10 precedent years, or 730 days in the preceding seven years.

This is very unfair to Seafarers. To avoid any income tax, an Indian sailor employed with a foreign ship will have to stay maximum for 60 days in India.

FINANCIAL YR (FY) & ASSESSMENT YR (AY)

Calendar year ? Financial year ? Goes across 2 years Assessment year ? 1st Apr 2011 – 31st Mar 2012 ? 1st Apr 2012 – 31st Mar 2013 ?

INVESTMENT OBJECTIVES

Liquidity Safety Returns Tax savings

Eg Your child’s age 5 yrs, investment objective is education . What will be your trade-off with above options ?

Eg any other example ?

INCOME

It is the money you receive by way of …. Salary Rent Sale of property Business profits Capital gains Interest earned

INCOME TAX

It is the tax charged by the govt on the income you earn in the financial year.

INDIA INCOME TAX SLABS 2013-2014 FOR GENERAL TAX PAYERS

Income tax slabs Tax

0 to 2,00,000 0%

2,00,001 to 5,00,000 10%

5,00,001 to 10,00,000 20%

Above 10,00,000 30%

INDIA INCOME TAX SLABS 2013-2014 FOR FEMALE TAX PAYERS

Income tax slabs Tax

0 to 2,00,000 0%

2,00,001 to 5,00,000 10%

5,00,001 to 10,00,000 20%

Above 10,00,000 30%

INDIA INCOME TAX SLABS 2013-2014 FOR SENIOR CITIZENS (AGED 60 YEARS BUT LESS THAN 80 YEARS)

Income tax slabs Tax

0 to 2,50,000 0%

2,50,001 to 5,00,000 10%

5,00,001 to 10,00,000 20%

Above 10,00,000 30%

INDIA INCOME TAX SLABS 2013-2014 FOR VERY SENIOR CITIZENS (AGED 80 AND ABOVE)

Income tax slabs Tax

0 to 2,50,000 0%

2,50,001 to 5,00,000 0%

5,00,001 to 10,00,000 20%

Above 10,00,000 30%

POINTS TO REMEMBER

Dividend income from equities/MFs is exempt from tax.

EPF claimed after 5 yrs continuous employment is exempt.

www.incometaxindia.gov.in

IMP POINT ……

There is a tax rebate to individuals whose total income is Rs 5,00,000/- or less. The tax rebate will be equal to the tax payable or Rs. 2,000/- whichever is lower.

E.g. If the total income of an individual of age 53 years is Rs. 2,30,000/- then the total tax on this Rs.2,30,000/- will be ???

But he will get a rebate of Rs. 2,000/- and the total tax payable is Rs. 1,000/- (3,000-2,000).

Thank you…..