February 2016 – OneMint

Budget 2016 Announcements

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Budget 2016 has got presented in the Parliament today and I would like to highlight the key announcements here on this forum for a further discussion and deep understanding:

* Global Slowdown – Global growth has slowed down from 3.4% in 2014 to 3.1% in 2015.

* Indian Growth Strong – India is a ‘bright spot’ amidst a slowing global economy. The World Economic Forum has said that India’s growth is ‘extraordinarily high’. The growth of GDP has now accelerated to 7.6%.

* Inflation in Control – CPI inflation has come down to 5.4%, providing big relief to the public.

* Drastic Fall in Current Account Deficit – The Current Account deficit has declined from $18.4 billion in the first half of last year to $14.4 billion this year. It is projected to be 1.4% of GDP at the end of this year.

* New Health Insurance Scheme – A health insurance scheme which protects one-third of India’s population against hospitalisation expenditure is also being announced.

* Tax-Free Infrastructure Bonds – To augment infrastructure spending further, Government will permit mobilisation of additional finances to the extent of Rs. 31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority through raising of Bonds during 2016-17.

* Retail Investment in G-Secs – To improve greater retail participation in Government securities, RBI will facilitate their participation in the primary and secondary markets through stock exchanges and access to NDS-OM trading platform.

* Boost to Commodities Market – New derivative products will be developed by SEBI in the Commodity Derivatives market.

* Bank Recapitalisation – To support the Banks in these efforts as well as to support credit growth, I have proposed an allocation of Rs. 25,000 crore in BE 2016-17 towards recapitalisation of Public Sector Banks.

* PSU Bank Transformation – The process of transformation of IDBI Bank has already started. Government will take it forward and also consider the option of reducing its stake to below 50%.

* Listing of General Insurance CPSEs – Public shareholding in Government-owned companies is a means of ensuring higher levels of transparency and accountability. To promote this objective, the general insurance companies owned by the Government will be listed in the stock exchanges.

* Fiscal Deficit Targets – The fiscal deficit in RE 2015-16 and BE 2016-17 have been retained at 3.9% and 3.5% of GDP respectively. While doing so, I have ensured that the development agenda has not been compromised.

Relief to small tax payers:

Rebate u/s 87A Raised from Rs. 2,000 to Rs. 5,000 – In order to lessen tax burden on individuals with income not exceeding Rs. 5 lakhs, I propose to raise the ceiling of tax rebate under section 87A from Rs. 2,000 to Rs. 5,000. There are 2 crore tax payers in this category who will get a relief of Rs. 3,000 in their tax liability.

Deduction u/s 80GG Raised from Rs. 24,000 to Rs. 60,000 – The people who do not have any house of their own and also do not get any house rent allowance (HRA) from any employer today get a deduction of Rs. 24,000 per annum from their income to compensate them for the rent they pay. I propose to increase the limit of deduction in respect of rent paid under section 80GG from Rs. 24,000 per annum to Rs. 60,000 per annum, which should provide relief to those who live in rented houses.

Measures to boost growth and employment generation:

Cut in tax rates for new manufacturing companies – The new manufacturing companies which are incorporated on or after 1.3.2016 are proposed to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.

Cut in corporate tax rates for small enterprises with up to Rs. 5 crore turnover – I also propose to lower the corporate income tax rate for the next financial year of relatively small enterprises i.e companies with turnover not exceeding Rs. 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.

Measures for moving towards a pensioned society:

NPS Withdrawal Partially Tax Exempt Now – I propose to make withdrawal up to 40% of the corpus at the time of retirement tax exempt in the case of National Pension Scheme (NPS).

EPF Withdrawal Partially Taxable Now – In case of superannuation funds and recognized provident funds, including EPF, the same norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made after 1.4.2016.

Annuity to Legal Heir Tax Exempt – Further, the annuity fund which goes to the legal heir after the death of pensioner will not be taxable in all three cases. Also, we are proposing a monetary limit for contribution of employer in recognized Provident and Superannuation Fund of Rs. 1.5 lakh per annum for taking tax benefit.

NPS/EPF Annuity Service Tax Exempt – I propose to exempt from service tax the Annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees.

Service Tax on Annuity Policies Reduced – I also propose to reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases.

Measures for promoting affordable housing:

Tax Incentives to First Time Home Buyers – For the ‘first – home buyers’, I propose to give deduction for additional interest of Rs. 50,000 per annum for loans up to Rs. 35 lakh sanctioned during the next financial year, provided the value of the house does not exceed Rs. 50 lakh.

Boost to REITs – I propose that any distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax (DDT).

Additional resource mobilization for agriculture, rural economy and clean environment:

10% DDT on Rs. 10 Lakh Dividend Income – I propose that in addition to DDT paid by the companies, tax at the rate of 10% of gross amount of dividend will be payable by the recipients, that is, individuals, HUFs and firms receiving dividend in excess of Rs. 10 lakh per annum.

Hike in Surcharge from 12% to 15% – I also propose to raise the surcharge from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs. 1 crore.

TCS of 1% on Cars & Luxury Goods – I also propose to collect tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs. 10 lakh and purchase of goods and services in cash exceeding Rs. 2 lakh.

Hike in STT on ‘Options’ – Rate of Securities Transaction tax (STT) in case of ‘Options’ is proposed to be increased from 0.017% to 0.05%.

Hike in Service Tax from 14.5% to 15% – I propose to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June 2016.

1% Infastructure Cess on Small Cars, 2.5% on Diesel Cars & 4% on Big Cars & SUVs – The pollution and traffic situation in Indian cities is a matter of concern. I propose to levy an infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs.

Hike in Excise Duty on Jewellery – I also propose to impose an excise duty of ‘1% without input tax credit or 12.5% with input tax credit’ on articles of jewellery.

There has been no change in the tax slab rates and tax deductions u/s 80C, 80D etc. So, no material change would be there as far as individual taxation is concerned. Some people would be disappointed about the EPF withdrawal getting taxable, but I think it was required to have a uniformity between EPF and NPS. So, I think it is a good move.

Moreover, as feared earlier, I think the budget did not have any major negatives in the form of long term capital gain (LTCG) tax on equity transactions or increasing the LTCG holding period to 3 years or a 2% hike in Service Tax. Finance Minister Mr. Arun Jaitley has tried to make a balance between the government’s financial constraints and the task of improving the growth momentum. Going forward, much will depend on the global economic conditions and how fast the government is able to push economic reforms.

Are you satisfied with Budget 2016? What could have been done to make it a good budget for you? Please share your thoughts about it here. If you need any clarification regarding any of the proposals, please let me know and I’ll try my best to answer it as soon as possible.

HUDCO 7.69% Tax-Free Bonds – Tranche II – March 2016 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

It seems like the hunger for tax-free bonds is just growing unabated and whatever the issue size be it would be gobbled up by the investors on the first day itself. HUDCO will launch its second issue of tax-free bonds from 2nd of March i.e. the coming Wednesday and though the company has fixed March 10 to be the closing date of this issue, I think there is no need to emphasize here on this forum that nobody should expect to get any allotment if the bid is not made on the first day itself.

It will be the ninth such issue of tax-free bonds for the current financial year, but none of the issues has lasted for more than one day to get oversubscribed, except for the NHAI Tranche I in December. Though I think for any issue to last for more than one day the quota for the retail investors has to be more than Rs. 2,000-2,500 crore, this issue has only Rs. 715 crore for the individual investors investing Rs. 10 lakhs or less.

Here are the main features of HUDCO Tax-Free Bonds Tranche II:

Size of the Issue – Out of Rs. 5,000 crore allocated to HUDCO to be raised this financial year, 70% i.e. Rs. 3,500 crore should be raised through public issues. HUDCO raised Rs. 1,711.50 crore through its first public issue in January and it will raise the remaining Rs. 1,788.50 crore in this issue.

Coupon Rates on Offer – HUDCO issue will carry coupon rates which are absolutely same as offered by NHAI in its issue which got closed yesterday – 7.29% for the 10-year option and 7.69% for the 15-year option. Like the NHAI issue, this issue also will not offer the 20-year option.

For the non-retail investors, coupon rate will be lower by 25 basis points (or 0.25%) for the 10-year option and 30 basis points (or 0.30%) for the 15-year option, as it was the case in the NHAI issue as well.

Rating of the Issue – CARE and India Ratings have assigned ‘AAA’ rating to the issue, indicating that the issue is quite safe to invest and the company is highly likely to pay its debt obligations in a timely manner. Also, these bonds are ‘Secured’ in nature and in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

NRI/QFI Investment Not Allowed – Again, Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 20% of the issue is reserved i.e. Rs. 357.70 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 357.70 crore

Category III – High Net Worth Individuals including HUFs – 20% of the issue is reserved i.e. Rs. 357.70 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 715.40 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first-come-first-served (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing & Allotment – HUDCO bonds will get listed only on the Bombay Stock Exchange (BSE). The company will allot the bonds and get them listed within 12 working days from the closing date of the issue.

Demat A/c. Not Mandatory – It is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical form as well. Whether you apply for these bonds in demat or physical form, the interest payment will still be credited to your bank account through ECS.

Also, even if you get these bonds allotted in an electronic form, you have the option to rematerialize your holding in physical/certificate form if you decide to close your demat account in future.

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the stock exchanges within 12 working days of the closing date.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

Interest Payment Date – HUDCO will make its first interest payment on December 15 this year and subsequent interest payments will also be made on December 15 every year, except the last interest payment, which will be made to the bondholders along with the redemption amount on the maturity date.

Record Date – For the payment of interest or the maturity amount, record date will be fixed 15 days prior to the date on which such amount is due to be payable.

Should you invest in this issue?

Budget 2016 will be presented in the parliament on February 29 and we will get to know whether we will have these tax-free bonds available or not for the next financial year. In case the finance minister Mr. Arun Jaitley decides against extending this facility to these public sector units, then I think there will be a rise in the demand for the already listed tax-free bonds and hence, we can expect a rise in their market value as well.

Also, a higher fiscal deficit number will result in an increase in bond yields, which in turn will result in a higher coupon rates for the IRFC and NABARD issues. So, in case there is a jump in bond yields, then you should wait for the these two issues to decide on your final investments. I’ll update this post on March 1 after the climax of Budget 2016 gets revealed.

Expected Launch Date of IRFC and NABARD Issues – 2nd week of March

Application Form for HUDCO Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in HUDCO tax-free bonds, you can contact me at +919811797407

NHAI 7.69% Tax-Free Bonds – Tranche II – February 2016 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

2016 so far has turned out to be a nightmare for the equity investors. Portfolios have undergone a massive value erosion and sentiment has turned extremely negative. Financial advisors, who were recommending a higher allocation to equity so far, have also become cautious to advise higher equity investments. Some analysts have started calling it a bearish phase and not just a deep correction in a bullish phase.

However, it is not just the equity portfolios which are bleeding. Debt portion of portfolios are also facing the music. Past few months have seen the 10-year G-Sec yield rising to 7.95% from a range of 7.60-7.65% in September last year. Due to a scary fall in international crude prices and commodity prices like steel, aluminium etc., many companies are facing it difficult to service their debt. Credit rating agencies have also started downgrading these companies resulting in a fall in the NAVs of debt mutual funds which have lent huge money to such companies.

In such a difficult environment, investors want to opt for safer investment options and it seems that tax-free bonds are among the best options available. NHAI is launching one such issue from 24th February i.e. Wednesday and the issue is scheduled to get closed on the first of March. NHAI will raise Rs. 3,300 crore from this issue.

Here you have the salient features of this issue:

Size of the Issue – Though base size of this issue is Rs. 500 crore, NHAI will retain an additional Rs. 2,800 crore in case of oversubscription, thus making it a Rs. 3,300 crore issue. NHAI has already raised approximately Rs. 15,700 crore by issuing tax-free bonds through its public issue in December and a couple of private placements in September 2015 and February 2016.

With this Rs. 3,300 crore issue, NHAI will exhaust its full quota of Rs. 19,000 crore for the current financial year.

Coupon Rates on Offer – With a widening gap between the 10-year G-Sec yield and 15-year G-Sec yield, NHAI issue will carry 7.69% coupon rate for 15 years and 7.29% for 10 years. As with its first issue, 20-year investment option will not be there this time as well.

For the non-retail investors, coupon rate will be lower by 25 basis points (or 0.25%) for the 10-year option and 30 basis points (or 0.30%) for the 15-year option.

Rating of the Issue – CRISIL, ICRA, CARE and India Ratings have once again assigned ‘AAA’ rating to this issue. Also, these bonds are ‘Secured’ in nature i.e. in case of any default, the bondholders would carry a right to make claim on certain assets of the company.

NRI/QFI Investment Not Allowed – Like its previous issue, Non-Resident Indians (NRIs) won’t be able to make investment in this issue as well. Qualified Foreign Investors (QFIs) are also not eligible to invest in this issue.

Category I – Qualified Institutional Bidders (QIBs) – 20% of the issue is reserved i.e. Rs. 660 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 660 crore

Category III – High Net Worth Individuals including HUFs – 20% of the issue is reserved i.e. Rs. 660 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 1,320 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing & Allotment – NHAI has again decided to get these bonds listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as Bombay Stock Exchange (BSE). Bonds will be allotted and get listed on the exchanges within 12 working days from the closing date of the issue.

Demat A/c. Not Mandatory – Again, it is not mandatory to have a demat account to apply for these bonds. Investors have the option to subscribe to these bonds in physical form also. Also, even if you get these bonds allotted in your demat account, you have the option to rematerialize your holding in physical/certificate form if you decide to close your demat account in future.

However, whether you apply for these bonds in demat form or physical form, the interest payment will still get credited to your bank account through ECS.

No Lock-In Period – These tax-free bonds do not carry any lock-in period and you can buy/sell them on the stock exchanges at the market price whenever you want.

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates i.e. 7.29% p.a. for 10 years and 7.69% p.a. for 15 years, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Interest Payment Date – NHAI will make its first interest payment on October 1 this year and subsequent interest payments will also be made on October 1 every year, except the last interest payment, which will be made to the bondholders along with the redemption amount on the maturity date.

Record Date – For the payment of interest or the maturity amount, record date will be fixed 15 days prior to the date on which such amount is due to be payable.

Should you invest in this issue?

I think tax-free bonds are one of the best fixed income options available for the retail investors. There is no fixed income option which carries so many distinct advantages which these bonds have, like tax-free interest, easy liquidity, favourable tax liability if sold after holding for more than one year, scope of capital appreciation, annual interest payments etc. Risk-averse investors with a long term view should definitely invest in these bonds.

Also, there is no certainty that these bonds will be allowed to be issued next year as well. For that, we’ll have to wait for the Budget speech on February 29. In case the Finance Minister decides not to allow these bonds for the next year, it will result in a sharp increase in their demand. Also, as there is a difference of 0.40% between the interest rates of 10-year bonds and 15-year bonds, I think it makes more sense to subscribe to the 15-year option.

Application Form for NHAI Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in NHAI tax-free bonds, you can contact me at +919811797407

National Pension System (NPS) – Save Tax u/s 80CCD (1B) worth Rs. 15,450

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

We all want to save taxes. We all invest to save taxes. Some invest in PPF, some in ELSS, some in NSC, some invest in 5-year bank fixed deposits. But, we all know the maximum investment limit for saving tax under section 80C is Rs. 1,50,000. So, we all want to save more tax, over and above 80C. But, there are only a limited number of investment options which provide tax exemption other than 80C. One of those options is NPS – National Pension System.

Introduced in Budget 2015, your contribution in NPS can save you tax of up to Rs. 15,450, if you are in the highest tax bracket of 30%. NPS provides an additional deduction of Rs. 50,000 from your taxable income. Interested? Read on.

So, let’s start our journey to know more about this tax saving investment avenue and see whether it truly makes sense to invest in it or it is better to pay tax and invest in mutual funds to earn higher tax-free returns.

How to open an NPS account?

Online Account – There are 2 ways to open an NPS account online – one, directly through NPS Trust’s website and two, through an intermediary, like your bank, ICICI Direct, HDFC Securities etc.

Offline Mode – You can also approach a POS (Point of Service) and get this account opened.

Documents Required – PAN card copy, address proof copy, 2 passport-size photographs, investment cheque and Duly Filled Subscriber Registration Form.

Exclusive Tax Benefit u/s 80CCD (1B)

If you decide to invest in NPS, you can avail a tax exemption of Rs. 50,000 from your taxable income. As the minimum investment requirement is Rs. 6,000, you can contribute any amount between Rs. 6,000 and Rs. 50,000 to save tax.

Which Account is eligible for Rs. 50,000 Deduction – Tier I or Tier II? – Your contribution to Tier I account is eligible for up to Rs. 50,000 tax deduction u/s 80CCD (1B). Tier II account does not entitle you to any tax deduction.

Minimum/Maximum Annual Contribution – As per the NPS rules, you need to contribute at least Rs. 6,000 in this account in a financial year. However, you can do so in multiple instalments and minimum contribution in a single contribution is Rs. 500.

However, there is no upper limit on your contribution to NPS. You can contribute any amount to your NPS account. But, as far as tax benefit is concerned, you can have only up to Rs. 50,000 in tax deduction.

Six/Seven Pension Fund Managers – These are the pension fund managers (PFMs) which are managing the subscribers’ money in NPS at present.

HDFC Pension Management Company
LIC Pension Fund
ICICI Prudential Pension Fund
Kotak Mahindra Pension Fund
Reliance Pension Fund
SBI Pension Fund
UTI Retirement Solutions

Seven Annuity Service Providers – These are the insurance companies which would provide you pension as you retire at 60 years of age.

Life Insurance Corporation of India (LIC)
SBI Life Insurance
ICICI Prudential Life Insurance
Bajaj Allianz Life Insurance
Star-Daichi Life Insurance
Reliance Life Insurance
HDFC Standard Life Insurance

Where your money gets Invested? – Your NPS contribution will get invested in Equity (E), Government Securities (G) or Corporate Debt Securities (C) either as per your own choice (Active Choice) or as per your age (Auto Choice).

Active Choice – Under “Active Choice”, you can have your money invested in these three asset classes as per your own choice. You can allocate your money among these three asset classes (E, G or C), but there is a cap of 50% for Equity (E) investment allocation.

Auto Choice – Under “Auto Choice”, your money gets invested based on your age i.e. the higher your age as the subscriber, the lower would be the allocation for Equity.

Returns – As NPS is completely market driven, there is no guaranteed/defined return in this pension scheme. Returns get accumulated throughout its tenure and get paid as annuity or lump sum benefit on maturity.

Historical Equity Returns of NPS (Returns as on 31st December, 2015)

Historical Corporate Debt Returns of NPS (Returns as on 31st December, 2015)

Historical Government Securities Returns of NPS (Returns as on 31st December, 2015)

Charges – This account attracts a processing charge of 0.25% of your contribution amount, subject to a minimum charge of Rs. 20, plus service tax as applicable. So, if you contribute Rs. 6,000, then Rs. 20 + service tax will be the charges. In case your contribution is Rs. 50,000, then a charge of Rs. 125 + service tax will be deducted from your account.

Exit – As you turn 60, you will be required to use at least 40% (maximum 100%) of your accumulated savings to buy a life annuity from an insurance company. Rest 60% or less, you can withdraw as lump sum amount. If you decide to exit before 60 years of age, you will have to buy an annuity with 80% of your accumulated savings, rest 20% amount you can withdraw as the lump sum benefit. Both, annuity income as well as the lump sum withdrawal, will be taxable.

In case of death before 60 years of age, entire pension corpus will be paid to the nominee of the subscriber.

Should you invest in NPS?

Please check this post – Should you invest in NPS Post Budget 2016?

Also, if you think I have missed to cover any important aspect(s) of NPS, then please share it here, I’ll try to include it in the post above.