guest posts

The following is a guest post by Mr. Aashish Ramchand. Aashish is a Chartered Accountant by qualification and the co-founder of makemyreturns.com, an online tax advisory and filing site. He is very passionate about Indian taxes and loves to write articles about the Indian tax system. He has worked with KPMG and JRC advisory both in international and domestic taxation respectively. His cumulative experience in taxation is 5-years. He has also completed Level 1 of CFA (USA) exam. If you need to connect with Aashish you can reach him at aashish@makemyreturns.com. You can also follow him on twitter through the handle @aashishjr.

I’m personally interested in the topic of ESOP (Employee Stock Option Plans) Valuation and Taxation since D has this option at work and we’re actively participating. I’d been meaning to read-up on this topic when luckily for me Aashish was kind enough to write-up a whole guest post on this topic. Aashish has also kindly agreed to answer any questions that you may have through the comments section below. So, feel free to ask your questions, clarifications, and doubts on this topic through the comments section on this post.

Now, over to Aashish.

Sweat Equity SharesProvisions with respect to valuation of sweat equity shares as a perquisite in the hands of an employee.

Sweat equity shares means “equity shares issued by a company to its employees or directors at a discount or for a consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions by whatever named called. These sweat equity shares must be transferred on or after April 1 2009. If these securities were transferred during April 1 2007 and March 31, 2009, then the employer is liable to pay fringe benefit tax. As mentioned above these shares are allotted directly either or indirectly by the employer to the employee either free of cost or at a concessional rate.

If the above mentioned provisions are satisfied, the perquisite will be chargeable to tax in the hands of the employee in the assessment year relevant to the previous year in which shares or securities are allotted to the employee For the purpose of valuation of the perquisite one has to find out the fair market value of shares. The fair market value of the shares will be calculated on the date on which the employee exercises the option. Amount actually recovered from the employee in respect of the shares shall be deducted.

In case where on the date of exercising the option, the share in the company is listed on a recognized stock exchange in India, the fair market value shall be the average of the opening price and the closing price of the share on that date on the said stock exchange. When however on the date of exercising the option, the share is listed on more than one recognized stock exchange, the fair market value shall be the average of opening price and closing price of the share on the recognized stock exchange which records the highest volume of trading of the shares. Where on the date of exercising the option, there is no trading in the share on any recognized stock exchange in India; the fair market value shall be the closing price of the share on any recognized stock exchange on a date closest to the date of exercise of the option and immediately preceding such date.

In a case where on the date of exercise of option, the share in the company is not listed on a recognized stock exchange in India, the fair market value shall be such value of the share in the company as determined by a merchant banker on the specified date. Specified date means date of exercise of option or any date earlier than the date of exercise of option not being a date which is more than 180 days earlier than the date of exercise of option.

Let me explain the entire concept by means of an illustration (click on the image if you need to see a larger version) —

Image of ESOP grant illustration

In the above illustration, perquisite will be taxable in the hands of Mr. Mark, as shares are allotted on or after April 1, 2009. The value of the perquisite will be Rs. 2, 68, 000 i.e. 400 shares x 670 [700-30(being pre-determined price)]. The cost of acquisition in the hands of Mr. Mark for the purpose of determining capital gain at the time of transfer of these shares will be Rs. 700 per share i.e. the fair market value on the date of exercise of option.

A quick reminder — Aashish has kindly agreed to answer any questions that you may have through the comments section below. So, feel free to ask your questions, clarifications, and doubts on this topic through the comments section on this post.

And to wrap-up, a quick note about Make My Returns

Make My Returns is the brainchild of three entrepreneurs with vast experience in the internet and tax domain specifically in income tax returns and income tax efiling space. We are a team of young, enthusiastic guys who want to make taxes that much easier for everyone else. Our core product offering through Make My Returns is a simple and easy income tax efiling service for online filing of income tax in India. Efiling of income tax returns online has never been more simpler and stress-free. We have different packages to suit your needs like do it yourself, expert help and also a specific online income tax return package for NRIs.

{ 6 comments }

I followed-up with reader T S Ashok, the winner of the December book giveaway for the Savings and Investment Yearbook 2012 by Value Research what his key takeaways from the book were. Here’s Ashok’s response in an easy to read Q & A format –

Q: What are your Top-5 key takeaways from the Savings and Investment Yearbook 2012 by Value Research?

Here are the five key topics in the book (these were also accepted by many of my friends as good investment options after reading the book). When I said it directly, they did not accept the fact. But after reading the topics themselves, they accepted.

a. Mutual Funds
b. Post Office RD
c. Infrastructure Bonds
d. Stocks — Equity
e. Income Tax Planning

Q: What is your overall assessment of the Savings and Investment Yearbook 2012 by Value Research?

This is a very good book for beginners especially for those who’ve just started their earning career with their first job. It is also very helpful for people who are retired and who want to know where to keep their most valuable money after retirement. But for those who have already started doing financial planning and who are regular readers of blogs like yours, they may feel that the information in the book is very old. Just my view.

Thanks Ashok for helping spread financial knowledge and awareness through this giveaway. Look forward to your participation in future contests.

{ 1 comment }

Guest Post: Five Key Takeaways From the ERE-Book

by Vinaya HS on April 13, 2012

in Finance

I followed-up with reader Ashutosh, the winner of the Early Retirement Extreme book that also happened to be the first ever book giveaway on Capital Advisor, what his key takeaways from the book were. Here’s Ashutosh’s response in an easy to read Q & A format –

First of all let me apologize for the delay in response. I can give a million excuses, but the bottom-line is, it was plain laziness period. I have read the ERE-book almost full, the last few chapters still remain, however I think I am in a position now to answer your questions.

[Once you win a book giveaway on Capital Advisor, I make it a point to keep prodding you until you actually read the book!]

Q: What are your top-5 key takeaways from the ERE-book?

  • Start Early – Most of us only begin to realize the importance of investing when we cross thirty.

  • Forget Timing, Think Compounding – Don’t set a mental block like “I will start investing the day I can save Rs 20,000 per month.” The amount doesn’t matter, it’s all about timing and compounding.

  • Salary & Saving are Not Linked – Very few of us really are able to differentiate between the two. Common misnomer is higher the salary the better it is. Seldom do people realize that if you are earning more and spending even more, you are surely headed towards a debt trap.

  • Control Your Lifestyle Expenses – It’s very important to keep such expenses under control. Most of us automatically assume that bigger designation implies that we ought to be eating at certain star rated hotels / hanging out at certain “hep” places.

  • Do Your Goal Setting – Goal setting quantifies the amount of money, the time frame required and also the method to reach there.

Q: What is your overall assessment of the ERE-book?

ERE gives a very different perspective on retirement planning. A book written by a non-finance person, based on his first hand experience on the journey towards financial freedom. The feeling of “been there-done that” comes out very clearly throughout the book. This is something that lacks in most other books, even the ones written by financial planning experts.

Thanks, Ashutosh.

I now request you to pass the book on to someone you know who can benefit from it.

{ 6 comments }

I followed-up with Anil, the winner of the I Will Teach You To Be Rich book giveaway, on what his key takeaways from the book were (that’s also one way to ensure that the winners actually read the book!). Anil was kind enough to write a pretty detailed response that I’m posting as a guest post in Q & A format.

What are your Top-5 key takeaways from the IWTYTBR-book?

  • Start early. In most cases, the investments which we make at the beginning of our career give the highest returns.

  • Do not try to keep up with friends in terms of expenses. We, or rather I, tend to buy things which our friends bought. We do not know why they bought those things but we always want to keep up with friends. I have this habit and I’m still trying to get rid of it. A very good example is clothes. Most of my friends buy branded clothes. Though I like to dress simple, I buy branded clothes.

  • Conscious spending. We really need to know what we are interested in buying and what we actually end up buying. In my case, I should track my expenses and find out where my money is going. I’m yet to figure out what’s needed and what’s unnecessary. It’s OK to spend guilt-free on something but it’s also important to cut down that money somewhere else.

  • Save for a goal. When we save for a goal, we save more than when we save without a goal. It doesn’t make much sense if we’re saving without any goal. We can as well spend that money as we have not yet set goals. Goals could be anything like marriage, retirement, buying a home or car, taking a vacation or just about anything which requires more than your monthly take-home salary.

  • Focus on the big wins. This is similar to me earlier comment on conscious spending. If we cut down our expenses on minor things we might not save much. We should rather focus rather on the big wins.

  • Savings and checking accounts in the US are equivalent to savings and emergency account in my terms. Emergency account could be split between debt funds and a normal savings account. I have two savings accounts — ICICI and SBI. ICICI is like my checking account and SBI is my savings (emergency account).

  • Get rid of emotions and do the calculations. A good example is about credit cards. The author has mentioned that he pays annual fees on credit cards because he accumulates more points which translate to more benefits. I never thought so. I always had the notion that I should not pay for something which is available for free. I should now compare holistically.

What is your overall assessment of the IWTYTBR-book?

The book was very simple to read and understand. Some of the chapters such as credit cards, IRA, 401(k) were not completely relevant but we could relate to those as we have similar equivalents. I liked the comparison between frugal people and cheap people. On reading the book, I could come to the conclusion that the US financial system thrives on defaulting customers. I also have felt that Indian Banks are a lot more mature — no overdraft charges, higher interest on savings account, etc. But the APR on credit cards in India is too high compared to that in the US.

The chapter on getting everything automated is tough. I have one question related to that. It’s easy to setup ECS for different things such as credit card, power bill, phone bill, etc. But the problem comes when the phone or other utilities are disconnected and the money is debited for that despite asking the bank to stop the ECS. I have read several such cases and for this reason I have never issued an ECS. I guess I’m deviating from the main point. Overall, the book had several lessons.

Thanks, Anil.

I now request you to pass the book on to someone you know who can benefit from it.

{ 3 comments }

The following is a guest post from reader Nikhil Shah and deals with the intricacies of investing in the soon to close investment opportunity in PFC’s Tax Free Bond Issue along with the income tax angle. Nikhil’s analysis also contains a very interesting perspective on how you can plan for major financial goals through this investment route. A couple of weeks back, Nikhil had also put-up a detailed analysis of NHAI’s Tax Free Bond Issue.

Since I’ve already provided some background information to these tax free bond issues, this time we’ll go straight to the calculations and analysis which you can download from the link below:

Click here to download calculations and analysis for the PFC Tax Free Bond Issue (courtesy Nikhil Shah).

Please let me know if you have any questions by leaving a comment to this post. I will respond to your queries at the earliest.

Disclaimer:

All views and opinions are my own and have no relation whatsoever with any person or firm. The information provided is just for guidance. It may not be absolutely or technically correct. The information could easily be dated. Always check with Fund Company/Brokerage/Financial Advisor/other relevant institution for the correct information. Information provided on this Blog/Web Site is for informational purpose only. It is the reader’s responsibility to ascertain the facts, conditions and risk factors. All investments are subject to market risks. Read all scheme related documents carefully before investing. You are advised to consult your financial advisor before taking any investment decision. Read the prospectus before investing in these bonds.

{ 4 comments }

The following is a guest post from reader Nikhil Shah and deals with the intricacies of investing in the soon to close investment opportunity in NHAI’s Tax Free Bond Issue along with the income tax angle. Nikhil’s analysis also contains a very interesting perspective on how you can plan for major financial goals through this investment route. A couple of weeks back, Nikhil had also put-up a detailed analysis of L&T’s Infrastructure Bond issue.

The Central Board for Direct Taxes (CBDT) has allowed four firms to raise up to Rs 30,000 crore through the issue of Tax Free Bonds in FY 2011-2012. The National Highways Authority of India (NHAI; an autonomous authority of the Govt. of India under the Ministry of Road Transport and Highways (MoRTH) constituted on Jun 15, 1985) and the Indian Railway Finance Corporation (IRFC) have each been allowed to raise up to Rs 10,000 crore. The Housing and Urban Development Corporation (HUDCO) and Power Finance Corporation (PFC) are allowed to raise up to Rs 5,000 crore each. Tax free bonds means that the interest earned from these bonds is exempt from income tax and is therefore not considered while computing one’s total income.

The Rs 10,000 crore National Highways Authority of India bond offering which opened for subscription on December 28, 2011 offers a good opportunity for investors to lock-in funds at higher yields and earn tax-free interest income.

40% of the Rs 10,000 crore issue is earmarked for institutional investors while another 30% is earmarked for retail investors and high net worth individuals. The bonds will have differential coupon rates of 8.2% for 10-years and 8.3% for 15-years. The NHAI issue presents a good opportunity for investors to lock money in “AAA”-rated sovereign-like bonds at higher yields. Apart from high coupon rates and safety, these bonds will be very liquid because of the large float. Investors will easily be able to buy and sell these bonds on the exchange.

An 8% tax-free coupon rate is very much comparable to an investment product that delivers 12% pre-tax returns. This issuance is even better than bank fixed deposits which are currently giving about 9% pre-tax returns. Also, with interest rates expected to slide over the next few months, these bonds can generate higher returns by giving you an option to sell these bonds at a relatively higher coupon rate.

I’ve prepared detailed calculations and analysis which you can download from the link below:

Click here to download calculations and analysis for the NHAI Tax Free Bond Issue (courtesy Nikhil Shah).

There are six sheets containing the following information:

  • Sheet #1 shows Present Value to Future Value computations.

  • Sheet #2 shows computation of pre-tax yield for Individuals & HUF and also for Banks & Corporates.

  • Sheet #3 shows some useful calculations and tools.

  • Sheet #4 shows how much to invest to get desired amount.

  • Sheet #5 shows Child Education Expenses Planning via Tax Free Bonds

  • Sheet #6 shows Retirement Expenses Planning via Tax Free Bonds.

For additional information about this bond issue, please download the FAQ from the link below:

Click here to download FAQs for the NHAI Tax Free Bond Issue (courtesy Nikhil Shah).

Disclaimer [from Nikhil]:

All views and opinions are my own and have no relation whatsoever with any person or firm. The information provided is just for guidance. It may not be absolutely or technically correct. The information could easily be dated. Always check with Fund Company/Brokerage/Financial Advisor/other relevant institution for the correct information. Information provided on this Blog/Web Site is for informational purpose only. It is the reader’s responsibility to ascertain the facts, conditions and risk factors. All investments are subject to market risks. Read all scheme related documents carefully before investing. You are advised to consult your financial advisor before taking any investment decision. Read the prospectus before investing in these bonds.

{ 6 comments }

The following is a guest post from reader Nikhil Shah and deals with the intricacies of investing in the soon to close investment opportunity in L&T’s Infrastructure Bond issue along with the income tax angle. Earlier this year, Nikhil had also put-up a detailed analysis of the previous L&T bond issue.

Dear All,

The year is coming to an end and it’s time to plan and invest for saving your income tax. Apart from your regular tax saving instruments eligible for deductions of up to Rs 1 lakh, there are long-term infrastructure bonds in the market. These infrastructure bonds are debt instruments wherein an investment up to Rs 20,000 is eligible for individual income tax benefits under section 80CCF.

The yields on Government Securities have been on a downturn in the recent past. Currently the 10 year G-sec is trading at around 8.31% which is 57 bps (basis points) lower than the October closing which was 8.88%. In other words, INFLATION is going down.

So you are requested to please grab this wonderful opportunity and invest in L&T Infra Bond issue which is currently running and closes on 24-Dec-2011. I’ve also created an investment analysis calculator which you can download from the link below.

Link:

Click to download a detailed analysis of L & T Infra Bonds.

Regards,

Nikhil Shah

{ 5 comments }

This is a guest post from Shilpa at Under the Rainbow. Though Shilpa claims that “she knows zilch about financial planning,” her posts always prove the opposite. In this post she explains why you really ought to be careful when you act as a reference for someone else’s financial dealings.

I learned this lesson the hard way. A colleague of mine wanted a personal loan and asked me if he could use my name and number as a reference. Having known him for a long time, I agreed. A few months later he quit the company, quit the city, and changed his mobile number. We lost contact.

And then started a slew of calls from the bank wanting to know his whereabouts. Since I had no idea, I said so but the calls didn’t stop. Even now, after more than two years, I get these calls when I am in the middle of a meeting, driving, or trying to put my baby to sleep. Each time a different person calls and I have to explain the situation all over again.

No amount of mails, scraps, and pokes have yielded any response from this colleague. I do not want to change my mobile number because of someone else’s wrong doing. Sigh! I guess I’ll just have to answer these calls until the bank marks this colleague as a defaulter and forgets him.

In this day and age, you really need to be careful about who you act as a reference for.

Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

{ 1 comment }

Awareness Fridays: An Introduction to Gratuity

by Vinaya HS on July 17, 2009

in Finance

This is a guest post from Shilpa at Under the Rainbow. Though Shilpa claims that “she knows zilch about financial planning,” her guest posts never fail to prove the opposite.

Gratuity is a favor or gift, usually in the form of money, given by an employer to an employee in return for the employee’s loyal service. It is an employer’s way of thanking an employee for his loyalty. As per the Payment of Gratuity Act 1972, a company with ten or more employees should pay fifteen days’ salary (i.e. Basic + Dearness Allowance) to the employee on completion of a minimum of five years of uninterrupted service at the time of separation (by the way of resignation or retirement or death).

Gratuity up to Rs 350,000 is exempt from income tax. For a government employee, any amount is tax free. In case of death of the employee, the entire Gratuity is paid to the nominee without any tax deductions. An employer can also voluntarily choose to pay more Gratuity, but that amount would be taxable.

Here’s a simple example:

Mohan has resigned from ABC Pharmaceuticals after twenty years of continuous service. At that time, his Basic salary was Rs 22,000. His average number of work days per month was 22. The Gratuity payable would therefore be (Rs 22,000 / 22 days) * 15 days per year of service * 20 years of service = Rs 300,000.

I’d love to hear from your readers if they’re aware of any real examples — say if a family member or friend has received Gratuity.

Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

{ 1 comment }

Tweets on 2009-06-24

by Vinaya HS on June 24, 2009

in Finance

Yesterday, I talked about why it makes sense to have a higher basic pay as part of your salary? My friend and guest blogger Shilpa immediately took my calculations forward in order to determine what difference the basic pay would make to your take home salary.

Grab a copy of her calculations.

What do you think?

Thanks Shilpa. Do you still claim to know zilch about financial planning?

{ 3 comments }

This is a guest post from Shilpa at Under the Rainbow. Though Shilpa claims that “she knows zilch about financial planning,” her post below proves the opposite. This story-style post on personal finance is the first of its kind on this blog and is the perfect complement to my posts on EPF.

In 1993, Mr. and Mrs. Parasher, aged 45 and 43 respectively, both government employees had just paid off their home loan. They had three children — a son studying in class eight and twin daughters studying in class five. Although Mr. Parasher was setting aside small amounts for retirement for some time, it was now that he thought is the right time to start serious retirement planning.

At that point, Mr. Parasher’s basic pay was about Rs 5,000 per month. 12% of his basic was being cut from his monthly gross towards EPF, his company was contributing an equal amount, with the total contributions being compounded at 8-9% every year (variable annually).

The first step Mr. Parasher took to secure his retired life was to voluntarily contribute to his EPF account over and above the standard 12%. He increased his contribution to EPF to about 18% (12% EPF + 6% VPF) of his basic. The company still contributed 12% of the basic. With time came promotions and salary hikes. He took advantage of this and gradually increased his VPF percentage.

In 2000, Mrs. Parasher took a voluntary retirement from service and that fetched her a sum of rupees seven lakhs. At that time, their son was pursuing Engineering degree and the daughters were still in school. The Parashers set aside this money for their daughters’ education and marriage.

Early last year, in 2008, Mr. Parasher retired. At that time, his basic pay was about Rs 25,000 per month and his VPF contribution was about 80% of the basic. He now draws a pension amount of over Rs 22,000 a month — good enough to lead a decent lifestyle.

VPF or Voluntary Provident Fund is not applicable only to pensionable jobs. Since the PF interest is compounded annually, it is a good idea to contribute over and above the EPF and transfer the account when you move across companies. You will have a sizable sum at the end of your work life.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

{ 17 comments }

I’ve been contemplating on this topic since quite some time. In a recent email discussion, Lakshmi, a friend and keen observer of this blog, put my thoughts into words. She says,

There are three things that should be taught at school, which unfortunately are not taught:

  • How to earn honestly,
  • How to manage the money you’ve earned, and
  • How to lead a healthy life

Looking back, I wish I was taught about — or at least made aware of — topics such as health insurance, life insurance, goal-oriented saving and investing, the power of compounding, etc. while in school or, even better, in college. If I’d had knowledge on these topics prior to entering the workforce, I wouldn’t have made these really dumb mistakes.

What do you think?

{ 4 comments }