Friday, February 26, 2010

Union Budget 2010-11: Now, renting of immovable property is a taxable service

The Budget has also clarified that renting of immovable property is a taxable service. It would be applied retrospectively from June 1, 2007.
The government today brought eight new services, including brand promotion, under the tax net even as Finance Minister Pranab Mukherjee retained the service tax rate at 10 per cent.

Services promoting brand of goods, services, events and business entity have been brought under the tax net, according to Budget memorandum presented by Mukherjee.

Similarly, permitting commercial use or exploitation of any event organised by a person or organisation is taxable.

To read more, please, visit Service tax net widened, rate unchanged

Union Budget 2010-11: Finance Minister on real estate, and housing

Rural Development

80. Indira Awas Yojana is a popular rural housing scheme for weaker sections. Taking note of the increase in the cost of construction, I propose to raise the unit cost under this scheme to Rs.45,000 in the plain areas and to Rs.48,500 in the hilly areas. For the year 2010-11, the allocation for this scheme is being increased to Rs.10,000 crore.

Urban Development and Housing

82. "Swarna Jayanti Shahari Rozgar Yojana" designed to provide employment opportunities in urban areas, has been strengthened with focus on community participation, skill development and self employment support structures. For the year 2010-11, I propose to increase the allocation for urban development by more than 75 per cent from Rs.3,060 crore to Rs.5,400 crore. In addition, the allocation for Housing and Urban Poverty Alleviation is also being raised from Rs.850 crore to Rs.1,000 crore in 2010-11.

83. While presenting the Union Budget for the year 2009-10, I had announced a Scheme of one per cent interest subvention on housing loans up to Rs.10 lakhs where the cost of the house does not exceed Rs.20 lakhs. I propose to extend this Scheme up to March 31, 2011. Accordingly, I propose to provide a sum of Rs.700 crore for this Scheme for the year 2010-11.

84. The Rajiv Awas Yojana (RAY) for slum dwellers and urban poor was announced last year to extend support to States that are willing to provide property rights to slum dwellers. This scheme is now ready to take off. I propose to allocate Rs.1,270 crore for 2010-11 as compared to Rs.150 crore last year. This marks an increase of over 700 per cent. The Government's efforts in the implementation of RAY would be to encourage the States to create a slum free India at the earliest.

Direct Taxes:

1) 133. To provide one time interim relief to the housing and real estate sector which was impacted by the global recession, I propose to allow pending projects to be completed within a period of five years instead of four years for claiming a deduction on their profits. I also propose to relax the norms for built-up area of shops and other commercial establishments in housing projects to enable basic facilities for their residents.
Full text of Pranab Mukherjee's Budget 2010-11 speech

Union Budget 2010-11: Direct Tax Code (DTC) to come from April 1, 2011

Finance minister Pranab Mukherjee on Friday said the uniform Direct Tax Code (DTC) will come into effect from April 1 next year.

"We have already begun wide discussions before implementing the uniform Direct Tax Code by April 1, 2011. We are involving people and other stake holders on its design," said the finance minister while presenting the General Budget for 2010-11 in the Lok Sabha.

The new code seeks to replace the 50-year-old Income Tax Act - that has seen as many as 4,500 amendments since it was enacted in 1961 - to reflect the needs of an emerging economy.

The DTC has been criticized widely including from various political parties who feel that the measure has failed to come up to the aspirations of modern India.

To read more, please, visit ibn live

Union Budget 2010-11: revised tax slabs

The finance minister proposed the following slabs for individual tax payers:

There will be no tax for income upto Rs 1.6 lakh. This was the same earlier.

For income between 1.6 lakh - 5 lakh, the tax liability will be 10%. The older slab was 1.6 - 3 lakh.

For income between 5 lakh - 8 lakh, the tax liability will be 20%. Earlier 20% tax was deducted on Rs 3-5 lakh income.

Individuals with income of above Rs 8 lakh will have tax liability of 30%. Earlier 30% was deducted on income of Rs 5 lakh and above.

The government would allow a deduction of up to Rs 20,000 for investments in long-term infrastructure bonds. The deduction would be in addition to Rs 100,000 allowed under Section 80C of India's Income Tax Act.

To read more, please, visit The Economic Times

The real woes of investing in realty

And surprisingly, real estate investment doesn’t seem to carry any of negative attributes associated other assets such as equities (risky and unfaithful) and banks and post-office deposits (poor real returns).

The scramble to secure a pie of the lucrative real estate market has turned into frenzy ever since the government announced a tax-break on housing loans opening floodgates to the private sector investment in real estate projects. It’s not uncommon to find individuals owning three or even four residential properties. But this over reliance on real estate as financial planning tool can turn out to be a liability in old age. Consider this, post retirement, an individual needs an income stream that is regular, fairly predictable, can rise with the increase in inflation and most importantly easy to administer.

For all, its advertised virtues, real estate fails on the most of the above criteria. As mentioned above, a house is most often the largest investment for any individual, but it is seldom the biggest source of income/cash flows for a retiree.

This is because post-tax yields (i.e. rents adjusted for municipal taxes, income tax on rental income and maintenance costs) are pitifully low in India.

To read more, please, visit ET Slide Shows

Sunday, February 21, 2010

Balancing act

The nagging inflation could negate the returns offered on your investments
Getting out of an expansionary monetary policy is incredibly more difficult than getting in. It is like the Chakravyuh in the Mahabharata—you know how to get in, but not many people know how to get out,” said Reserve Bank Governor Duvvuri Subbarao on January 29. Subbarao, however, seems equipped and set to do the task.

As the first line of attack, he increased the cash reserve ratio (the amount of deposits banks are required to keep with the apex bank) by 75 basis points to 5.75 per cent. But his warning of unleashing more weapons to contain inflation, expected to be at 8.5 per cent by end-March, has left retail investors, too, with the complex task of beating inflation as they invest in the India growth story.

Real Estate:

Anita Sharma, a media professional, is scampering to complete her property buyout in Mumbai’s Kharghar in February itself. “I decided to hurry up so that I get a home loan before interest rates go up. Also, with the economy expected to grow at a high rate, the increase in salaries will lead to higher demand, pushing up prices further,” she said.

According to the RBI, real estate prices have gone up because of the increasing optimism about the recovery and high levels of liquidity. “In the medium-long-term horizon (4-7 years), real estate will beat inflation. The key is to buy the property at an early stage in the project to cash-in on the capital appreciation,” said Kaustav Roy, executive director, Cushman and Wakefield.

The demand now is high for affordable homes (up to Rs 40 lakh). The RBI has upped its growth forecast indicating that the economy will grow at 7.5 per cent. This would fuel demand for both residential and commercial property. The commercial rental business, which has been slow of late, is expected to gather steam over the next year. “Historically, when growth has been over 7 per cent, the real estate sector has done well,” said Sunil Malhotra, vice-president, finance, Omaxe Builders. To read more, please, visit the week

Wednesday, February 17, 2010

Will the base rate be fairer than BPLR?

Home loan borrowers know that old customers on floating rate loans see the rates rise, but not fall. Will the base rate change this unfair game?
For years, home loan borrowers on floating rates felt cheated by banks as they paid more when interest rates rose, but did not pay less when they fell. Banks kept rates high for old customers and reduced them for new ones by keeping the benchmark prime lending rate (BPLR) sticky.

To deal with this problem, among others, the Reserve Bank of India (RBI) on Wednesday announced the move from a BPLR model to a base rate system, effective 1 April. The new rate will apply to all fresh loans but old loans, when they come up for renewal, can switch.

To read more, please, visit

Bringing transparency in loan pricing

Higher levels of transparency can be achieved by disclosing important information on loan pricing and possible fees to the borrower before he or she signs an agreement.
“Transparency” was the key word when the Reserve Bank of India (RBI) freed the interest rates from a regulated regime from April 2010. The newly introduced Base Rate is expected to be significantly lower than the prevailing Benchmark Prime Lending Rate (BPLR) and thus the beneficiary would be individual borrowers.

In a notification to all scheduled commercial banks, the RBI stated that the Base Rate system will replace the BPLR system with effect from April 1, 2010. Banks may determine their actual lending rates on loans and advances with reference to the Base Rate.

To read more, please, visit The Hindu