Its' no more raining cash in your Home

Over the past few days, we are reading a lot about the possible sectors that would get affected by the black money eradication move started by honorable PM. People, in past, used real estate to buy benami properties and stash their unaccounted money in it. It was used as a Mecca for breeding corruption with bribery being given at every level of construction to speed the clearance of the project. There was a lot of cash involved from the time the foundation stone being laid till the keys of the newly constructed house was given to the  buyer. This was more rampant in the residential properties, where the buyer usually is at lower tone of negotiations. 

But now, the demonetization of high value denominations currencies is likely to lower down the cash component which had become a routine in every single real estate deal. The major area anticipated to be hit by check on cash payment is the secondary sales market, where to evade the high capital gain tax and higher stamp duty; the seller would register a lower amount of sales agreement. The remaining amount would be paid in cash. The luxury segment of real estate also sees a lot of payment in cash. Since, the buyer is self-sufficient to buy his property without any loan component; the chances of irregularities are high here. There were times when people set up a dummy family to divide the existing physical cash.Hence, now the government has taken stringent steps to ensure no deposits in relatives or domestic helps to evade taxes, it is not possible to save one’s non taxed money for a long time. On a positive note, the expected interest rates would also be lowered with banks offering good rates to utilize the increase in its deposit amounts. This would lower the high EMIs on people servicing houses with a loan.

The real estate market is likely to see a drop in its sales as people with huge cash reserves would avoid transacting for time being without declaring the same in their bank accounts. This is of course subject they are holding their cash balances in demonetized denominations. The genuine home buyer will now get a chance to get a fair price home as per his needs. We believe that these changes would be more visible in the metro and tier I cities. 

The introduction of Real Estate Regulation and Development Act 2016, the Benami Transactions Act and now with the demonetization announcement, sellers could face short term trouble but it will help to slowly eradicate the deep embedded corruption in the sector. It would also bring a lot of transparency in the entire dealing making it inevitable for the builders and developers to give a fair price. It is a beginning of a new revolution and will take time to catch more heat. Lets’ help the country clean its dirt. The Dirt of black money infecting the country’s good fortune. 

Regards,

Saarthi Financial Planners

Gift Tax.. All about it

With the demonetization noose dangling around everyone’s neck, people with huge cash stack held up in their vaults are rushing around their CAs office to understand the best way to get rid of it. One of the easiest ways is to distribute or spread your unaccounted cash as gifts with a back dated gift deed. A lot of people misuse this system to launder money, accumulate black money, and create anonymous properties in the name of non-existing relatives. However, it is not easy and viable option in all cases. We would today discuss more Taxation on gifts received.

How do you define a Gift? 

A "Gift" means transfer from one person to another of any existing movable or immovable property without any coercion or consideration in money or money's worth. It includes any receipts below Rs. 50,000 each year in cash, movable or non-movable assets. It includes land, building or flat. Movable assets also include security market instruments, jewellery, art pieces or paintings

How are gifts taxed?

Cash gifts received beyond Rs 50,000 in a financial year are taxable. The tax is charged as per the personal slab.

In case of non-movable assets, the difference between fair market value and price paid for acquisition is payable if the stamp duty is more than Rs 50000.

For movable assets, the entire value is taxed if it above Rs 50000. 

When gifts received tax exempt?

a)Gift received from relatives – blood relatives, spouse and lineal ascendants/descendants.

b) Gifts received on the occasion of marriage.

c) Gifts received under will or by way of inheritance.

d) Gifts received in contemplation of death of the payer.

How to document Gift transactions on Registered Deed or plain paper?

A gift deed is a written proof in which the donor transfers title to the donee of the asset without any payment or consideration. It talks about the transfer of legal title of the property where the consideration is not monetary but transferred out of love and affection. Except immovable property, where a registered instrument is necessary, all other assets can be transferred with simple writing on plain paper.  

We would like to sum it up saying that transferring asset to immediate family members or loved ones via gift deed has its own implications in taxes. So it is very necessary to clarify all your paper work before you accept any gift.

Regards 

Saarthi Financial Planners

Missing in action - Notes of 500 & 1000

The recent announcement of ban of 500 and 1000 notes by the Government of India has paralyzed the entire nation. It has created panic in the consumer class and suddenly all round people are feeling the need to use paper money. People living on ATMs and bank withdrawals are left confused with no direction about step forward. Think about it if you hold just two notes in hand and both are no more legally valid for transactions. That’s what demonetization does to you.

What is demonetization of money?

Demonetization is process of stripping a particular currency unit as mode of exchange. It is declared to be no more valid for any exchange of goods and would hold zero value. This step is basically undertaken to curb inflation and help curb the non-accounted cash.  

Does it affect your personal cash flow?

     i.      The short term impact of this decision will affect our liquidity. There would be shortfall in currency supply. Also, a higher 2000 denomination note announced would not be useful for major of small income group people, who need to plan their home budget around these few thousands. Also, to purchase daily essential commodities, we need to shell out a few 100’s which are currently not easily available.

    ii.    The consumption level of people would come down in discretionary expenses. It would affect the business for local retailers, who have not adapted to utilization of online payment wallets or card payment mode. Petrol fuelling stations are major areas after lifestyle expenses, which come across as high cash expenses. for some time, fuel stations could see a fall in its collections until people prefer to refill for higher denominations.

   iii.   The situation of low supply of cash, would affect the equity market in short term as people feel it is a negative to be stripped from money.

  iv.  The cash payment has been majorly responsible for spiking up the real estate markets is expected to correct downwards with this change. People would think twice in future before stashing up cash at home.    

What should I do?

Every change is a lesson to be learned and remembered for future. The unplanned move has made it more mandatory for us to be cautious in our dealings with law:

a)   Don’t find ways to dodge law. If you have high surplus in cash it is better to bring it in legal purview and invest it to help it grow well.

b)   Taking over night decisions to cover one mistake is another grave and should be avoided. Buying gold or real estate to save your tax liability is not a wise decision. Such small thinking gives rise to imbalance in pricing and demand.

c)   Shortfall of cash is a temporary situation expected to last for a few days or months. If possible list down the necessary expenses and plan to spend in it first.

d)   Look around, you might find people who are unable to even meet their daily requirements. Help them in every possible ways.

How much cash can one hold in their hand/ home?

As per Income Tax Act, there is no maximum limit for the amount of cash one can have with himself. Some time ago, there was news to plug the circulating non account at home to 15 lakhs. However, there was no such official announcement made to this further. Liquid cash in foreign currency is defined under FEMA (Foreign Exchange Management Act) is limited to USD2,000.

Hence, what we should understand is that although there is no fixed amount of the maximum cash allowed, we need to be prepared in case of any query or income tax raid.  So how is the limit fixed for cash in hand:-

a)   Understand well the source of your cash, if it withdrawn from a bank, then it should be having a credit entry in your bank statement/ passbook. If it is a cash gift, unless it is small token of shagun, it is always handy to have a gift deed or documentary proof at your disposal. The tax should be paid on the withdrawn amount.

b)   The personal balance sheet should have a proper tally of all your income sources and expenses- including debit/credit cards. Try to highlight the big expenses so that you can easily identify them.

c)   Unless and until, you have planned a big purchase (not possible in non-cash way), it is necessary to avoid cash balances as it is troublesome as well as risky. As per contingency planning rule, you can divide your funds between savings account and home.

d)   For house wives or retired individuals, who don’t have taxable income (below Rs 2.5 lakhs below 60 years) and simply maintain cash at home to meet, their expenses would not be taxed. However, they need to declare the amount in their bank account once. Over the time, they can withdraw and use the same.

The most important point to be remembered is simply holding cash does not entirely amount to black money. If you have cash or undeclared asset, it is necessary to pay necessary tax on it and bring it in legal ambit. “Having cash balance does mean owning black money, but it gives rise to parallel economy, that hinders complete growth of economy”

all about new Rs.2000 note

Source: https://twitter.com/RBI

all about new Rs.500 note

Source: https://twitter.com/RBI

A beginner’s guide to commodity markets

The wheat used to make our chapatti, the cotton we wear in our clothes, the gold used in our jewellery, the fuel that runs our cars, etc; are all traded across the world in major exchanges. Outside the equity fanatic world exists’ a small but powerful community, which earns a good amount of money by trading in these items. Earlier it was more done in need based form or barter as we can term it. But now it has taken a huge gigantic shape and size. This market is commonly referred as commodities markets.

A humble beginning – Gap between demand & supply

In India organized form of commodity trading market started in 1875, when traders came together in Bombay Cotton Trade Association. It later got converted into Bombay Cotton Exchange Ltd. Later on oilseeds, castor seeds, groundnuts, spices and materials like jute etc joined the commodities market.

With the beginning of economic liberalization, importance of organized commodity trading had gained momentum. Commodities markets are governed by the Forward Contracts (Regulation) Act, 1952. It is a division of the Ministry of Consumer Affairs, Food and Public Distribution. As early as 2002 (ten years after liberalization), there were around 20 commodity exchanges in India, trading in 42 commodities.

What is commodity market?

A commodity market is a highly volatile and risky derivative market. It deals in future pricing trends of the underlying commodities. The Commodity index constituted on NSE is not same as the commodity market. These offer immense potential to become a separate asset class for real taking investors, arbitrageurs and speculators.

Where do commodities markets invest our money?

The exchanges deal in agricultural products, metals including precious metals and energy resources. Some of commonly traded items:

Agricultural	Industrial Metals	Precious Metal	Energy
Coffee	Copper	Gold	Crude Oil
Sugar	Lead	Platinum	Natural Gas
Cocoa	Zinc	Palladium
Maize	Tin	Silver
Rough rice	Aluminium
Soybean	Nickel
Wheat
Sunflower Oil
Barley
Dal

               (Source – Kotak Commodities)

How we begin commodity trading?

1)  Choose your broker

You can begin trading in commodities by registering with brokers who are affiliated in either one of the national commodity exchange market in India:

1)   National Commodity and Derivative Exchange –

 http://www.ncdex.com/Index.aspx

2)   Multi Commodity Exchange of India Ltd - https://www.mcxindia.com/

3)   National Multi Commodity Exchange of India Ltd - http://www.nmce.com/

These exchange facilitate trading and settlement in commodity markets. Globally, to deal in precious metals we have to register or fid a broker for NYMEX, LME or COMEX. A complete list of brokers can be made on respective websites.

2)  Deposit Margin Money

Margins are of two types, the initial margin and the maintenance margin. They vary with commodities and exchanges usually the initial margin ranges from 5-10% of the contract value.

The maintenance margin is mostly lower than the initial margin. They depend on the movement achieved in the customer’s account depending on his mark to market position. If there is any profit there is an option to withdraw any extra funds from his margin account. However, if the account falls below the minimum requirement the investor needs to top up his account to the minimum. The trading can begin with as low as Rs.5000.

3)  Read about the commodity movements

Read financial newspapers for information on spot prices and for relevant news and articles on most commodities. Weather and other government policies also play a major role in these products, so keep an eye on them too. Brokers also provide research and analysis support. Beyond this for precious metals and energy resources global news are very significant impact makers.

So once the above is done, you just need to attach your bank account to the broker trading account and create a demat account for commodity trading like equity. The charges and brokerage would be made available by brokers at the time of signing of contract.

Commodity trading is most done as speculative trading so the preferred mode of settlement is cash but if you want to take delivery on expiry of contract, the exchanges do have warehouses. So, in that case you need to preserve the warehouse receipts. In case of physical delivery, you might be charged sales tax. 

Where can I go in case of any complaint or default in contract?

The FMC maintains details about the exchange administration and seek timely intervention to inspect the books of brokers. In case of any misappropriation or foul practices are found or if the exchanges themselves fail to take action, the FMC would step ahead.  If there is any default in settlement by either party in contract, then the exchanges maintain sufficient funds to protect the investor from any loss. 

So go ahead and take a plunge, in the really interesting world of commodity trading.”Aate dal ka bhav pata chal jayega”, I mean it literally.

Regards,

Saarthi Financial Planners