Sunday, September 9, 2007

F & F

( Finance & Future)

Power On .......Future On

Future On .... INDIA On

Watch where you are going - Service tax to hit your foreign trip

Your vacation may now cost more with the government deciding to enforce collection of service tax from all tour operators on foreign trips. The additional levy on outbound tours would include the education cess and higher and secondary education cess, besides service tax.

Recently, the Commissionerate of Service Tax in Delhi had called a meeting of all major tour operators where the travel and tourism companies were apprised about their service tax liability। When this did not have the desired effect, the commissionerate booked three big players in the outbound tour segment for more than Rs 23 crore on account of tax evasion. Sources said an investigation is on against others who have not yet deposited service tax. As the service tax and other additional cess are being recovered for the financial year 2006-07, a post-trip bill from your tour operator should not surprise you.

Already, foreign airlines have been made to pay for service tax on their premium travel in India। British Airways coughed up Rs 107 crore and Lufthansa shelled out more than Rs 5 crore.

The BUDGET, how it changes your life.........

Smart investments can help you save 88% tax

By now, you know PC, ya the FM has substantially reduced the amount you’re required to pay as income tax. But are you aware that you could legitimately restrict your tax payout to barely 1% of gross income by using various investment options?

And that the FM has now made it lucrative to be a dutiful child — and parent?

On the face of it, you have to start paying tax the moment your income crosses Rs 1.50 lakh — if you’re a man — and Rs 1.80 lakh if you’re a woman. But a little smart investing goes a long way when it comes to tax-saving. Here’s an example — you could pay as little as Rs 6,695 for the whole year, saving tax of Rs 50,000 in the process, if you are earning Rs 5 lakh per annum.

That’s a saving of almost 88%. For a woman, tax liability can drop even further, to just Rs 3,605.

Here’s how. You already have the basic exemption limit. You also have the option of getting up to Rs 1 lakh deducted from taxable income by investing in instruments covered by Section 80C. These include provident fund, equity-linked savings schemes, insurance plans, and fixed deposits. Expenses incurred for tuition fees for your children and repayment of the principal component of a home loan are also included in this. Besides, interest payment of upto Rs 1.50 lakh on a home loan taken to buy a house for personal use is also deductible.

Assuming an interest rate of 10%, taking a loan of Rs 20 lakh will result in an EMI of Rs 19,300, of which a substantial chunk will initially be the interest part. So you can avail of the maximum deduction benefit of Rs 1.50 lakh from your income.

You can save tax while feeling good about yourself. You can claim deduction upto Rs 20,000 to buy a mediclaim policy for your parents, if at least one of them is a senior citizen. Plus, there’s a Rs 15,000 deduction against medical cover for yourself, your wife and children.

Invest in kin’s name, reap more benefit

New Delhi: Strong family bonds may help tax payers invest smartly and reduce the tax payout to barely 1%. In all, you can pay nil tax on a total of Rs 4.35 lakh (Rs 1.50 lakh exemption limit plus Rs 1 lakh under Section 80C plus medical insurance of Rs 35,000 and another Rs 1.50 lakh as deduction for interest payment on housing loan). That leaves a taxable income of Rs 65,000. Taxed at 10%, with the education cess of 3% thrown in, that works out to a tax payout of Rs 6,695. If you don’t make any of those investments, your tax liability will be Rs 56,650 — or almost Rs 50,000 more. Now, doesn’t it make sense to do some tax planning?

Incidentally, while you don’t really need a reason to love a child, but the Budget has just provided an incentive to do so. With the increase in the basic exemption limit to Rs 1.80 lakh, finance minister P Chidambaram has given a unique opportunity to save money for your daughter. If you gift Rs 20 lakh to your girl child, which goes tax free to her, her interest income at the rate of 9% will be Rs 1.80 lakh. If you invest the amount back in her name, there will be no tax on the interest income.

If the Rs 20 lakh were to remain in your account, the interest income on this would be clubbed with your income. And it would attract tax at the maximum rate at which you pay income tax.

If your marginal tax rate is 30%, on Rs 1.80 lakh interest income, you would pay a tax of Rs 55,620 including the education cess. Obviously, the strategy to gift Rs 20 lakh to your child will lead to substantial savings for you. At the same time, the money can be used by your daughter for her education later.

In the case of male child, the basic exemption limit is Rs 1.50 lakh. Therefore, the maximum income which can go tax-free is Rs 1.50 lakh. You can earn this much by gifting Rs 16.66 lakh to your child on a rate of return of 9%. In this case, you will save a tax of Rs 46,350 per annum.

Investing in Bangalore a good option now

The city offers a variety of options if you are looking at investing in property

Bangalore offers a variety of good investment options. On the one hand, the large number of people coming into the IT sector makes residential spaces a good option. On the other, the related demand for retail and recreation makes property in the retail segment attractive too. The international airport will lead to the commercial development of the city changing gears. This will fuel the demand for office spaces and create another option for investors.

A positive factor that works well for all investors here is the long term character this market promotes. It is not a market for speculative buying, simply because the long term holds greater promise. This creates a healthy environment where those who plough money into the property industry here will stay invested for a long haul. The stability is good for both the industry and investors alike. Property is an asset that will yield healthy returns here - the longer you hold on, the higher will be the returns.

Buying property in Bangalore used to be relatively less complicated. The IT-led appreciation in some parts and the relatively more economical options in others made the choice easier. In the context of the changing dimensions of the city, the location you choose to buy property in depends on other parameters too. The metro rail, international airport and major arterial roads being developed are all pushing property prices, apart from IT-related development.

Investing in property in the city is not as easy a decision as it used to be a year ago. The international airport is at one end of the city. The IT Corridor has its draw at the other end. The metro rail project is changing the dynamics in the central areas. The West is all set to play a significant role with another IT belt that's on the anvil. In such a scenario, where does one buy?

In other words, the city's property sector has more than one trigger now. So, on the one hand, you have property that appreciates based on civic infrastructure in the vicinity, and on the other, you have property that sees appreciation on the back of the IT industry. And within these two dimensions, you can choose from different price bands, based on the sort of project.

A property investment now needs to be based on the objective : -
  • do you need rental returns,
  • long term plans (will you move into it at some point yourself),
  • and priority (do you want to stay close to the airport, a Ring Road or an IT cluster).

If capital gain is the only objective, it becomes a decision between a higher priced property in a prime locality and relatively more economical option in a developing area with promise. Many localities hold considerable promise in the light of the developments on the anvil - both in the Comprehensive Development Plan and market forces that are driving prices.

Property as an investment has always been an attractive proposition. It is even more so when the city is in the middle of a growth curve. Investing at this stage will see sharper growth in the years ahead. All it takes in Bangalore is one good road to push prices in a locality. Surely, an international airport and metro rail will mean good news for the property industry.

  • Property is an asset that will yield healthy returns here
  • the longer you hold on, the higher will be the returns.

Shopping for a SECOND HOME

With falling loan rates, now is the time to buy that second home you always wanted.

Let me show you around some prime real estate in India

Planning to buy a SECOND HOME as an investment? Here’s a checklist:

  • Track the suburbs. Keep an eye out for articles on highways being built,
houses are bound to follow
  • Make a field trip to the property. Invest in a property that is coming up;
it will have appreciated by the time of completion
  • If you’re planning to rent the place out, it is better to buy a smaller,
highend apartment rather than a larger middle-income level place
  • It’s safest to rent your house out as a company guest house on an
11-month lease with an escalation clause that factors in a 10-15%

annual hike in rent. Providing basic furnishing and white goods make the rent shoot up
  • Take 10 months advance rent
  • Commercial properties give a better rate of return (10-15%)
as opposed to residential property (5% if you’re lucky)


Manish Kothari is an investment banker, and his wife, Varsha, a financial analyst. Together, they own a house in Mumbai’s Mulund area. Recently, the Kotharis bought another property in Ghatkopar, “for the purpose of investment,” says Varsha. “We made the basic down payment and took a loan for the rest. We plan to put the place up for rent and are treating it like a longterm investment,” explains Manish.

The Kotharis are one of many Indian couples with large disposable incomes that are looking at real estate as an investment opportunity. These are essentially people who already own one property and want to buy another.


“In the NCR, couples are lapping up houses anywhere in the range of Rs 35-80 lakh,” says Raminder Grover, CEO (residential property) Jones Lang Lasalle Meghraj. “With home loan rates going down, it’s definitely a good time to buy that second house. But if you’re looking at another property as an investment, you must remember that the returns will only start coming after a period of 48 months. If someone is willing to factor in that gestation period, they should go ahead and buy.” Grover says sectors of Gurgaon (Rs 2,300-12,000/ sq ft), Noida (Rs 3,000-7,500/sq ft), Ghaziabad (Rs 1,800-3,500/sq ft), Faridabad (Rs 1,800-3,000/sq ft), Manesar (Rs 2,400-2,600/sq ft) are prime areas to buy property in the NCR.


Mumbai-based Chetan D Narain, president of the India Institute Of Real Estate, feels rates in mid-town Mumbai — areas such as Prabhadevi, Worli and Bandra — are already at a high and will continue to rise further. “Investing in these regions will not fetch a good rate on rental returns. Areas such as Malad, Borivali, Ghatkopar, Vikhroli and Mulund have the most feasibility in growth as of now,” says Narain. If you’re looking to buy a place in any of these areas, you may have to shell out anywhere from Rs 4,000-6,000/sq ft in Ghatkopar, Vikhroli and Mulund and Rs 5,500-7,500/sq ft in Borivali and Malad.

Narain is also clear that the ‘gestation period’ must be kept in mind when looking at a house as an investment. “The purpose of investment has to be well defined. If it is long-term investment with a seven to 10-year horizon then, yes.”


Down South, Bangalore’s real estate market is witnessing a period of correction and has already dropped by 15% this year. But real estate brokers recommend waiting for another few months in order to cash in on a further drop in prices that is expected. “In another two-three months, prices will fall by another 20% or so. Though prices in the central regions of the city, in a radius of 5 km from MG Road, will only rise, areas like Whitefield, Kanakapura, Marathahalli, and Sarjapur Road will see a sharp drop in apartment prices,” says Feroze Abdulla, MD, Feroze’s Estate Agency. “There has been a 40% drop in sales recorded in the sub-registrar offices in peripheral areas of the city. The reason is that supply has outstripped demand and the unrealistic prices being quoted by developers,” he adds.

The going rates in the areas mentioned above would be between Rs 3,500 and 5,000/ sq ft. Rentals for a three-bedroom apartment in Whitefield and Marthahalli will be between Rs 10,000 and 15,000. However, with the opening of the new Bengaluru International Airport in north Bangalore, people are seen gravitating towards that direction, when traditionally most of the real estate activity was seen in the south and east of the city. Says Nitesh Shetty, MD of property development company Nitesh Estates, “There is a large section of people that is seen investing in a second home and is keen on securing a fixed monthly rental or investing to earn a good return on appreciation.”


This is a great time for real estate investment in Kolkata. In the last year, property prices have grown steadily but not hit the roof. While prices increased by 35-40% in 2006-07, the appreciation was 15-20% in 2007-08. This means value levels are very realistic and have not appreciated due to speculated movement but demand-led dynamics. “Since 1998-99, prices have seen a steady growth. In the past two-and-a-half years, they have doubled. It’s best to book now, particularly because home loan rates are on the verge of being slashed by a percentage point,” explains Abhijit Das, managing director, Kolkata regional office of Jones Lang Lasalle Meghraj.

Providing an insight into the areas that are prime property in Kolkata, Das says, “Rajarhat, Bantala, West Howrah and EM Bypass are the locations where prices are reasonable and people are investing in a big way. Compared to Rs 8,000 -14,000/sq ft at Ballygunge, Rs 6,000-10,000/sq ft at Alipore and Rs 9,000-12,000/sq ft at Gurusaday Road, property prices are pegged at Rs 2,600-3,100/sq ft at New Town, Rajarat, Rs 1,800-2,200/sq ft at Bantala and Rs 3,000-5,000 at EM Bypass.”

Investment options for HNIs in the New Year

With economic conditions around the world expected to change in the coming years, there are certain areas that high networth individuals (HNIs) should focus more on while building their investment portfolio.

Mergers and acquisitions are expected to reach a higher scale, considering the need for consolidation and scale. “Therefore, a lot of investment from HNIs is bound to funnel M&A related deals,” says Mrunmay Das of Das Capital Management and Advisors. Private equity (PE) will remain in vogue in 2008, but more wealth will follow the exotic PE route with complex payout structures, adds Das.

With the government relaxing the norms for Indians investing overseas, the trend of HNIs investing in foreign assets could see substantial ramp up as people go in search of returns, which are getting priced out in India.The equity market behaviour in the latter part of 2007 has mystified even experts.

“The wealth management strategies of HNI investors should focus on the aspects of greater diversification through customized innovative strategies looking at the present market scenario and the high liquidity factor,” says wealth consultant Anand K S.Fixed income is expected to make a return to the portfolio in some shape this year, compared to 2007, when it was almost negligible. It may come in various forms of structuring compared to plain vanilla debt papers or bank deposits.

With the global interest rate environment softening, initiated by the Fed rate cuts, fixed income could experience the bull-run seen in the early part of this decade. “Interest rates in India have peaked compared to other developed economies and may start falling, albeit slowly, in 2008. This will only give healthy returns from a fixed income portfolio,” says Das.

Commercial real estate will become a key investment option for large HNIs. Second rung cities with SEZ opportunities are expected to attract sizable allocation. Large real estate companies may turn direct borrowers from HNIs through attractive structured products with higher coupon-plus-conversion rates.


Real estate: Go beyond the purchase of a second home or farm house. Instead look for direct investments in projects under construction or through leased properties.

Art: Exotics like art will become a normal part of the asset allocation and may move towards losing the exotic title in the coming years. Good option to diversify your portfolio.

Gold: Buying gold bullion coins is a good option to capitalize on the price movements of the precious metal. The other option is to invest in Gold Exchange Traded funds, which are available for trading on stock exchanges.

Structured products: Invest in securities that combine the characteristics of traditional investments like stocks and bonds with foreign exchange, commodities and hedge funds.

Financial security plan for women

A software professional (26), has been saving money for five years without any proper investment planning. All she has are a few fixed deposits, an insurance policy to save tax and a savings account. With more women taking up jobs immediately after completing studies, disposable household incomes have increased, but the saving method has remained largely traditional.

“It’s important for women to channelize their savings into a good investment plan and capitalize on the booming market. After all, women are considered better savers than men,” says a wealth manager.

Women in the age group of 25-35 years should especially be financially equipped, as they tend to encounter more contingencies than men. “They usually relocate after marriage, take breaks and plan children. So it’s necessary that their investment plan be sufficient to meet the changes,” says a wealth manager.

For working women it’s essential to prioritize their objectives and goals. The planning should have a ‘to do’ list. Based on the nature of short and long-term goals the investment instruments should be selected. Women tend to have low risk-taking capacity and so aren’t very active in the markets and in trading. Besides, their decisions tend to be based on inputs from parents or spouse. “However, they are very systematic and focus on their needs,” says Chetna, Manager @ a risk management firm.

The ideal investment avenues for women are mutual fund SIPs (systematic investment plans), fixed income securities, gold, unit linked insurance plans and property. “We recommend SIPs in equity mutual funds for women investors, which goes well with their low risk appetite, at the same time helps in wealth creation,” says Portfolio @ leading wealth management firm. “It’s a good idea to plan for their personal needs and family needs like children’s education.

A home loan can be considered from tax planning plus investment perspective and if married can even be jointly done with the spouse.”

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