Wealth of Over Rs 1 Crore 1% Tax on Net wealth

Wealth of Over Rs 1 Crore 1% Tax on Net wealth

The proposed Direct Taxes Code, which is expected to replace the existing Income Tax Act in 2012, has proposed to impose 1% tax on net wealth in excess of Rs 1 crore. The rate may seem harmless, but the trouble is that it has included archaeological collections, drawings, paintings, sculptures, wristwatches worth over Rs 50,000, besides cash in hand above Rs 2 lakh among other things into the list that forms wealth. In short, the high net-worth individual ( HNI) is in for some taxing times.

Under the existing law, the threshold level to kick in the wealth tax provisions is Rs 30 lakh. However,
in the existing provision, items like watches, paintings and sculptures and deposits with foreign banks are not included.

According to HNIs and the experts who manage their money, these seemingly innocent additions to the list in the new tax co de bill are likely to make life difficult for them. There would be disputes over the valuations of these pieces with the IT department as there is no uniform method to value them. This could almost result in a throwback to an era when an encounter with the I-T officials used to give people sweaty palms. Sadly, it may also have an adverse impact on individuals' appetite for collecting artworks and artefacts, a trend slowly emerging in the country, with unintended victims being budding artists and tribal artisans.

A small solace is that the first house is exempt from the wealth tax net. Considering the runaway price in real estate, it would have otherwise cast every owner of a modest 2-BHK in the suburbs into the tax net.

The DTC provision is particularly harsh on foreign citizens, including the person of Indian origin, says Singh. If you have worked abroad, created some assets there and moving back to India, you will have to pay wealth tax on your foreign assets if you have taken Indian resident status. In such a situation, you will have to pay 1% tax on your deposits in foreign banks and on the value of other assets in foreign countries.

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House property income would be subject to tax under DTC

Indians typically consider house property as an important source of investment for long-term returns.

However, with the Direct Taxes Code (DTC), 2010, proposing significant changes in the way house property income would be subject to tax, it becomes imperative for investors to take note of the changes and plan their investment decisions accordingly.

Rental Income:

The income from letting out a house property will be computed under the head — income from house property. The income from house property will be computed as gross rent less the deductions specified under DTC. Gross rent is the amount of rent received or receivable for the financial year.

One can claim deductions for the amount of tax paid to the local authority, a sum equal to 20% of the gross rent in respect of repair and maintenance of such property, and the amount of any interest paid on loan taken for the purposes of acquisition, construction, repair or renovation of such property; or the interest paid on the loan taken for the purposes of repayment of the loan. There is no restriction on the amount of interest that could be claimed as deduction in case of a let-out property.

Further, any interest in respect of the period prior to the financial year in which the house property has been acquired or constructed can be claimed as deduction in five equal instalments, beginning from the financial year in which the property has been acquired or constructed.

If the house property is owned by two or more persons with “definite and ascertainable” shares, then their income from such house property shall be computed separately in accordance with respective shares.

Self-occupied house

The provisions for the self-occupied house are broadly similar to those under the current tax law. Thus, in case of a self-occupied property, a deduction can be claimed up to Rs 1.5 lakh for the interest paid on a loan taken for the purposes of acquisition, construction, repair or renovation of a house property in the year which such property is acquired or constructed.

It is important to note that certain conditions must be satisfied to claim this deduction, which include that the house property should be owned by the person and not let-out during the financial year.

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Gold Towards new Record High

Gold towards new record High

India gold futures may extend gains at the open on Wednesday and hit record high later in the day supported by strong overseas leads, analysts said.

The most-active October gold contract on MCX last closed at 19,169 rupees per 10 grams, up 0.7 percent, after hitting a record high of 19,211 rupees in the previous session.

Gold overseas was within sight of a two-month high hit the previous day, as global sharemarkets tumbled and the euro slipped on renewed fears about the health of the global economy.

Buy gold around 19,130, targeting 19,250, maintaining a stop loss of 19,080.

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Farm land, gold are good investment options

Farm land, gold are good investment options:
Michael Burry, the former hedge-fund manager who predicted the housing market’s plunge, said he is investing in farmable land, small technology companies and gold as he hunts original ideas and braces for a weaker dollar. “I believe that agriculture land — productive agricultural land with water on site — will be very valuable in the future,” said Mr Burry in a Bloomberg Television interview.

“I’ve put a good amount of money into that,” Mr Burry, as head of Scion Capital, prodded Wall Street banks in early 2005 to create credit-default swaps to bet against bonds backed by the riskiest home loans. The strategy paid off as borrowers defaulted, letting his investors more than quintuple their money from 2000 to 2008, according to Michael Lewis’s book “The Big Short”.

It’s possible to find opportunities among small companies, because large investors and government officials focus on bigger ones, he said. He is particularly interested in small-technology firms. “Smaller companies in Asia, I think, are neglected,” he said. “There are some very cheap companies there.”

Investing in Gold

Gold is also a favoured investment as central banks issue debt and devalue their currencies, he said. Governments haven’t adequately addressed the causes of the financial crisis and maybe sowing the seeds for future problems by borrowing, he said.

In the US, lawmakers showed they didn’t understand how to prevent another crisis when they gave the Federal Reserve and chairman Ben S Bernanke additional authority, he said.

Background in Medicine

Originally, investing was a hobby for Mr Burry, who as a resident neurosurgeon at Stanford Hospital in the 90s typed his ideas onto message boards late at night. It’s possible Mr Burry is part of “an extremely small group” of economists and investors who are “really exceptionally adroit” at forecasting, former Fed chairman Alan Greenspan had said in April. Mr Burry has been critical of the role Greenspan played in fuelling the crisis with low interest rates.

Goldman Sachs

Mr Burry said Wall Street i-banks such as Goldman Sachs Group shouldn’t trade on their own account and don’t always act in the best interests of their clients. The firm is disbanding its principal-strategies business, one of the groups that make bets with the company’s own money, two people with knowledge of the decision said last week.

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DTC May create more Tax pressure to NRI's

DTC May create more Tax pressure to NRI's

More non-resident Indians (NRIs) are likely to start paying income tax in the country when the proposed Direct Taxes Code (DTC) Bill becomes law and comes into effect from April 1, 2012.

The new bill introduced in Parliament proposes to impose tax on the global income of NRIs if they stay in India for a period or periods amounting to more than 60 days in a year.

Under the existing Income Tax Act, 1961, an NRI is liable to pay tax on global income if he is in India in that year for a period or periods amounting to 182 days.

In short, if an NRI wants to escape the tax net he will have to spend 10 months out of the country compared to six months under the existing law.

The new DTC also retains the existing provision under which an NRI is also liable to pay tax on his global income if he resides in India for a period of 365 days or more over a period of four years prior to the assessment year.

According to senior officials, the purpose is to prevent the evasion of tax by some individuals who deliberately take up NRI status and organise their travel plans merely to avoid paying tax.

It is expected that longer stays abroad would be more costly and also more inconvenient for such individuals who enjoy a higher standard of living in their own country.

"They are, therefore, likely to offer to pay tax rather than incur a higher expenditure and face the inconvenience of a long stay abroad," a senior official said.

In addition, DTC has removed the ' resident but not ordinarily resident (RNOR)' category to simplify tax laws. Now, there will be two categories, 'resident' and 'non-resident', which makes things simpler and clearer.

According to tax experts, there would be a liability on an NRI who carries out business in a country with which India has a double taxation avoidance agreement (DTAA). The non-resident would be considered a resident if he stays for more than 60 days in India.

In the case of a resident of a non-treaty country with which India does not have a DTAA, the tax burden would be higher if he stays for more than 60 days in India.

The individual will have to pay tax on all the global income in India as well as the country of residence as per the prevailing tax laws of that country.

At present, India has comprehensive DTAAs with about 74 countries, including the US, the UK, Singapore, Thailand, New Zealand, Australia and Saudi Arabia.
NRIs to face more tax pressure in new DTC

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Drug Prices could further increase - FDI cap at 49% in pharma

Fearing uncontrolled mergers and acquisitions (M&As) by foreign drug firms that could lead to further increase in drug prices and also cartelisation, the government is eyeing capping the 100 per cent foreign direct investment (FDI) currently allowed through automatic route in the pharma sector at 49 per cent and that too through the government route.

The finance ministry as well as the Planning Commission have advised the concerned ministries to expedite the process to ensure that 65 per cent of Indians, who according to the World Health Organisation (WHO) still lack access to essential medicines, are not deprived of affordable and high-quality medicines.

Earlier this year, Piramal Healthcare sold its domestic formulations business to US-based Abbot for Rs 17,353 crore.

This is the second-biggest acquisition of an Indian drug firm, after the country's largest drug maker Ranbaxy was acquired by Japan's Daiichi Sankyo for Rs 21,574 crore in 2008.

Concerned that acquisition of Indian pharma firms by multinational corporations (MNCs) was impacting the availability of low-cost medicines, the commerce and industry ministry, which formulates FDI norms had proposed tightening the rules so that Indian acquisitions by MNCs flow through it and not through the automatic route.

It had also mooted the idea of offering licenses to domestic firms to produce patented drugs to protect consumers' interests.

The commerce ministry has also come out with a discussion paper on "Compulsory Licensing"-a system whereby a third party other than the patent holder is allowed to produce and market a patented product or process-for formulating a coherent and concerted approach. The discussion paper seeks views from all stakeholders by this month-end.

Several developed and developing countries have introduced compulsory licensing. But these licenses under WTO norms have not taken off in India yet due to the absence of manufacturing facilities. Currently, a large part of the cancer drugs sold in India are patented and manufactured by MNCs such as Novartis, GSK and Roche, which cost over a lakh for a month-long treatment making these drugs unaffordable for the Indian population.

The paper also points at legal provisions and other related aspects of patent laws in India. It suggests the introduction of a compulsory licensing system to put a check on spiralling drug prices. It has also suggested measures to make available affordable drugs within the ambit of the National Pharmaceutical Pricing Authority (NPPA) by expanding the number of drugs from its current scrutiny of pricing of 74 drugs. Another option could be by invoking the Competition Act, 2002.

The health ministry has also objected to lobbying by global drugmakers to change India's intellectual property rules.

The Prime Minister's Office (PMO) had circulated a note based on views by global drugmakers that seeks changes such as legislative review of India's patent laws, data exclusivity and implementation of patent linkages.

If implemented, the proposals can have a huge bearing on the grant of patents in India, affecting the cost of treatment.

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Lack of Transparency in Gold jewellery prices

While the price of gold is fixed and uniform, there is no uniformity in the making charges. While branded jewellery is sold with making charges of Rs 150 per gram or even more, the small jewellers charge Rs 60-80. Sometimes, your family jeweller may be willing to let go of even that labour charge.

And in the capital's jewellery markets, the banners and hoardings all around claim 'Pure Gold-No Making Charges'. So, how is it that when the price of the gold is the same at all showrooms, jewellers sell the ornaments by charging a nominal amount as making charges? Afterall, the jewellers have also to pay the wages of the goldsmiths and bear the overhead costs.

The answer to this question was provided in October, 2001 by the Bureau of Indian Standards (BIS). In a survey conducted by BIS on gold jewellery, 15 jewellery items were purchased from small and big outlets located in seven important markets of Delhi. All the jewellers assured that the pieces purchased were of 22 carat gold with the 916 required fineness. All the 15 samples comprising bangles, rings, chains, eartops and necklace sets were tested as per ISI 1418: 1999 standard at a BIS approved assaying centre of MMTC. The results, however, were an eye-opener.

Out of the 15 samples, only three were found to be of the claimed purity. The rest were of much lower purity than the claimed 22 caratage. On an average, the purity fell short by 15.5 per cent. Out of 12 samples, seven were short in purity by more than 15 per cent.

Thus, six samples of 22 carat gold turned out to be 18 carat.

One sample was of 13.5 carat, one of 19 carat, another of 21 carat, a fourth of 17 carat and the remaining two were also below the claimed 22 carat.

There is yet another allurement.

Every jeweller will assure you that he will buy back the ornaments, if returned, at the then prevailing rate of gold.

The knack is that the ornaments are rarely returned because they pass on from one generation to the other and by the time, they are to be returned, if at all, for remaking, many years have passed by and no one remembers from which shop they were purchased.

Even if one manages to reach the same jeweller on a rare occasion, he will gladly pay the price prevalent but deduct in the process the tanka, wastage, meena and polish charges.

All this tantamounts to unfair trade practice because the consumers do not get the ornaments of the projected quality.

If the jewellers levy the full making charges and add to it their reasonable profit, the consumers will at least get the ornaments of the claimed caratage. But with the currently prevailing deceptive methods of reducing the making charge, the ornaments of far lower purity are passed on. This has been going on since times immemorial.

The above trade practice was noticed by the MRTP Commission as well as by the Consumer Courts. But barring passing orders in isolated cases, no action of general application has been taken and the malaise has been continuing.

Pending the authorities taking up the issue for an authoritative verdict, two courses need consideration for immediate implementation. One, that the jewellers can be directed to charge their due making charges and not to meddle with the quality of gold. The second alternative is to ensure that only hallmarked jewellery is sold. Jewellers will never do so voluntarily because they will have no chance of fooling the customers as has been going on everywhere.

Hallmarking is a foolproof method to accurately determine and record the exact gold content in the jewellery. It is high time that the governmental steps in and makes hallmarking of jewelery obligatory to put an end to fleecing gold buyers.

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