UNION BUDGET 2010-11 PROPOSALS

1. Individual / HUF Tax Slabs.
Up to 1,60,000 :- Nil
1,60,000 - 5,00,000 :- 10%
5,00,000 – 8,00,000 :- 20%
Above 8,00,000 :- 30%
2. Income tax return form to be made simple, Saral 2 form for individuals to come
into force, it will have only 2 pages
3. New Direct Tax Code by April, 2011
4. Additional Deduction of 20,000/- available for investment in Long Term
Infrastructure Bonds. This benefit is available above present 1,00,000/- on
savings instrument available U/s 80C
5. MAT Increased from 15% to 18% of the Book Profits.
6. Surcharge for Domestic Companies reduced from 10% to 7.5%
7. Relaxation of Audit with Business Income up to Rs.60 Lacs & Professional Income
Up to Rs.15 Lacs.
8. Threshold limit for TDS applicability to be rationalized.
9. No capital gains tax on conversion of a business entity into LPP
10.It is proposed to increase the interest chargeable u/s 201(1A) for late payment
of TDS from one percent to one and one -half percent for every month or part of
a month
11.Custom duty on gold to be reduced
12.Rationalisation of custom duty on gaming software
13.Excise duty on petrol, diesel increased
14.Mobile phones to be cheaper
15.Peak custom duty unchanged at 10%
16.5% custom duty on crude petrol back
17.Petro products to cost more
18.Cement to cost more
19.Large cars, SUVs to cost more
20.Cigarettes, non-smoking, chewing tobacco to cost more
21.Cross Tax Receipts Rs 7. 46 Lakh crore
22.R&D deduction hiked to 200%
23.Fiscal stimulus to be partially rolled back
24.GST to be implemented by 2011
25.Fuel price hike in due course
26.Defence allocation up by 6000 cr
27.Technology Advisory Group to function under Nandan Nilekani
28.15% rise in plan expenditure
29.Increase in allocation for school education
30.Interest subvention to benefit handicraft, jewellery and gem exports
31.Social sector spending up to 1.37 lakh crore
32.Bharat Nirman outlay Rs 48,000 cr
33.NREGA allocation Rs 40,100 cr
34.Banks in all villages with over 2000 population
35.Subsidy for affordable housing increased
36.Special allocation for unorganized labour sector
37.Slum free India at the earliest

BUDGET EXPECTIONS

The budget is important event in the country effecting planning’s of man people but what can we expect from the budget. The following points one can expect from the budget.
1.Full / Phase manner rollback of stimulus package.
2.Hike in personal income tax basic limits.
3.hike in excise duty
4.Benefits to export oriented sectors.
5.More benefits for software industry
6.Review of the STT system due to implementation of New Direct Tax Code from 2011-12
7.Road map for implementation of GST
8.Disinvestment of other PSU
9.Certain announcements with regard to housing sectors
10.Strategy for bringing down the Fiscal deficit.
11.Infrastructure spending for development of Roads etc.
12.The GOI may also consider to bring down subsidy for fertilizers due to gas based production.
13.Reconsider tax benefits U/s80C
14.May bring in more stiff provisions for tax evasion

I feel the budget may surprise many of us because the main effort will be to bring down deficit without hurting the growth of the country. However with inflation at 8.5% and likely to cross 10% in near term, the only option available to FM is to Full / phase manner rollback of stimulus package. However these packages will continue to EOU because the export is just picked up for last 2 months or so with increase of 10%. The main beneficiary will be the ITES, Textiles & EOU etc.
Therefore taking into consideration above points i feel that budget will be a disciple affairs and one should not expect more from FM. The market may react negatively with regard to rollback of stimulus packages & Hike in petrol etc.
WITH ROLLBACK OF STIMULAS the IIP will stabilise at around 12%, GDP at 7% and inflation will be at 3-4% after rollback for first FY and growth will be at better rate provided there is no policy overlapse from GOI.

BENEFIT OF INVESTING IN EQUITY SHARES

Many investors will invest in the stock market without knowing its benefit and risk involved in it, but market is always right to reward its investors whether long term or short term prospective. However investors may find painful times and joyful profits based on the market conditions and there investment strategy but we should know the benefits of investing in equity shares to understand its implications. The benefits of investing in equity shares (Listed) are:-

• Dividend is exempted from tax Under Section 10(34) of Income Tax Act.
• Long Term Gains is exempted from tax Under Section 10(38) of Income Tax Act (If shares are sold in recognized stock exchange).
• The holding period for calculating Long term Capital Gain is 12 months (other assets its 36 months).
• Short term capital gains is taxed at lower rates that is 15%
• Dividend is not constant but can vary as per profitability of company.
• High risk and return always follows.
• Easily cashable
• Capital appreciation is high compare to other assets class.
• Easy to gift and transfer by demat mode.
• Low transaction & carrying cost.
• Bonus issue by companies if good profitability. This will maximize wealth.
• Hedge against inflations.

The equity shares of listed companies are one of the best investment avenues that are present. It can give good returns when calculated for many years. There may be years when returns may be very bad like the year 2008. But new investor should invest in shares of listed companies in systematic approach without giving importance to volume / quantity but quality of shares purchased. For example if you desired to invest every month 3000/- it not big issue you can buy say 10 Dabur Ltd, 16 Lakshmi Vilas bank(LVB) etc. over period of 12 months you can accumulate over 120 Dabur & 200 LVB with benefit of bringing down cost of investment when market is falling otherwise book profit. But never feel bad of low volume / quantity but quality and invest on long term basis on SIP approach only.

CITY UNION BANK LTD

CUB is 105 years old South Based Bank with 222 branches in India with strong presence in Tamil Nadu. CUB has consistent track record of dividend and profitability since IPO, currently it has issued rights shares in ratio of 1:4 at 6/- per share, post rights issue Equity share capital will increase to Rs.40 Cr. In order to Improve its business & comply with prudential norms the bank has proposed to go for QIP issue which can be for Rs.300 Cr.
At Current Market Price of Rs.25/- per share Long term Investor can approach this stock with Long term target of 40/- & Short term target of 30/-. Further its pertinent to mention that post rights issue the EPS will be 3/- and book value of 21/- and investor can expect another Rights Issue / Bonus from bank along with QIP which will increase the Paid up capital upto Rs.100 Cr.
For the FY 2009 the bank performance was ok with total Income has grown 35% and Profitability by 20% but the provisions were around Rs.105 Cr. During Q2 for Current FY Total Income Increased by 31% and profitability by 22%.
The only risk to this recommendation is that any new provisioning Norms by RBI or such other crises will only effect the profitability of the company.
It is to be noted that targets mentioned above may change with the dilution of equity share capital by bank.

TAXATION ON DERIVATIVES TRANSACTIONS.

The definition of “Speculative Transaction” in Section 43(5) of Income Tax Act, 1961 has been amended by Finance Act, 2005 with effect from AY 2006-2007 to exclude transaction in derivates from the purview of speculative transaction.
Income from Derivates Transaction will be treated as Business Income and taxed at normal rates as applicable to Individual / HUF. An Individual / HUF should file Return of income in Form ITR-4 if he does derivate transaction along with any other sources of Income.
Further its pertinent to mention that an individual / HUF may be liable to Tax Audit U/s 44AB of Income Tax Act, 1961 if “Assessee carry’s on business where Total Sales / Turnover / Gross Receipts exceeds Rs.40 Lakhs. Therefore if the transaction under derivates transaction exceeds Rs.40 Lakhs then Tax Audit provisions will be applicable.
The above view is given only in respect to Individual / HUF.

LAKSHMI VILAS BANK LTD

Lakshmi Vilas Bank (LVB) is a 83 year old karur based bank with 251 branches spread over 13 states. Investor can consider this bank with a Long & Short term point of view. Currently the bank has announced Right issue 1:1 at 54/- per share which is discount to current market price.
Investor can approach this stock with stable fair value of 90/- per share. This can also be considered target for Short to Medium term target and Long term 125/-. Currently the weakness in the price is due to rights issue.
The banks book value for FY 2008-09 was 91/- and post rights issue it will be in range of around 75-80/- per share with EPS of around 9/- values this share very cheaply in the market compare to other South Based Banks trading at price to book value of 1.25 – 1.50.
The financial performance for the first half is excellent and this bank has consistent track record of dividend and has always rewarded its shareholder with Bonus & Rights issue.

HIMATSINGKA SEDI

Long Term Investors can consider this stock with price target of 100/- and short target of 60/-. This company has consistent track record of dividend except last 2 years due to losses on account of forex transaction but now things have change and company has come out with excellent results showing good profits. The company has paid up capital of 50 Cr. ad reserves of 505 cr. That is book value of 55/- for current first half it has shown EPS of 1.67 which translates to EPS of 3.5-4/- per share. Further its pertinent to mention that with captive power plant it save huge cost also so going forward it will show EPS of 7/- in FY2010-11 considering these factors Long term view is 100+.