No PAN means more TDS Apr 03, 2010

No PAN means more TDS

April 3, 2010

Weekly Facts
	Close	Change	%Change
BSE Sensex	17,692.62	133.8	0.76%
Re/US$	44.92	0.6	1.30%
Gold Rs/10g	16,380.00	70.0	0.43%
Crude ($/barrel)	81.30	2.9	3.65%
FD Rates (1-Yr)	5.00%-6.50%

Weekly change as on April 1, 2010

No PAN means more TDS

Impact

Now resident and non-resident persons should get ready to shell out more tax in the form of Tax Deduction at Source (TDS) on any income received by them on or after April 1, 2010, if they do not disclose their Permanent Account Number (PAN). The TDS could be as high as 20% for those not quoting their PAN, as against the regular rate of 2% - 10%.

The Budget 2009-10 had made it mandatory for residents and non-residents to quote the PAN or face a higher rate of TDS. This has come into effect from Thursday, April 1, 2010.

The new rule comes with a severe penalty if not followed. Any failure to deduct taxes at appropriate rates will now result in disallowance of expenditure, recovery of the additional tax and levy of interest and penalty from the party that fails to make the additional deduction.

The intention behind this rule is clearly to encourage more people to obtain a PAN, and thus enhance transparency on the system, thus enabling the income tax authorities to establish an audit trail and identify tax evaders. On the other hand:

Such a measure could be a burden on senior citizens if do not have a PAN card, since for all transactions they will now be required to provide their PAN

Non-residents having just one-off transactions with Indian parties will be burdened, since they will have to obtain a PAN card; failing which they will suffer a much higher TDS on their income

Overall, it's a good initiative!

Doom to Boom in 365 days!

(Source: ACE MF)

It certainly pays to invest on a dooms day. It also goes well with the idea of value investing, since it gives investors an excellent opportunity to buy stocks and equity mutual funds at attractive prices.

A year back on March 9, 2009, "bottom fishing" occurred. The BSE Sensex hit a low of 8,160.40 points on that day, giving an opportunity to investors to truly undertake value buying. Since then the markets have been on a bull run. Undoubtedly there was a series of events - negative and positive, which took place, but the equity market has sailed through quite smoothly. So, if an investor had to invest Rs 10,000 on dooms day (March 9, 2009), the same today would have yielded him Rs 20,364, thus giving an outstanding return of roughly 104%.

We at Personal FN have been continuously advocating the idea of long term investing. To manage the hiccups of the equity markets, we believe Systematic Investment Plans (SIPs) of mutual funds can work great wonders for your portfolio since SIPs provide investors the advantage of rupee-cost averaging and compounding.

ATMs may soon turn smarter

Impact

The Automated Teller Machines (ATMs) since their launch have changed little. Till date, ATMs offer services such as dispensing cash, depositing cash and printing mini statements. But now, many banks are working to make their ATMs smarter. The smart ATMs will combine the convenience of ATMs with the versatility of bank branches.

According to bankers, ATMs will soon allow customers to do the following:

Pay taxes and bills

Buy and sell products such as mutual funds

Swiftly get cheques cleared

Transfer funds

Update pass books

Book tickets

Recharge mobiles

"Next-generation ATMs will a blend of internet kiosks and cash points. They will be closer to being a self-service branch", said Sanjay Sharma, MD and CEO of IDBI Intech, the technology arm of IDBI Bank.

Currently IDBI Intech is testing ATMs which will allow customers to make bill payments and also allow quick clearance of cheques. Yes Bank too, is starting pilot programmes on video phone banking, from April 2010.

While we think that such initiatives of turning ATMs smarter is good for customers, as it will bring in ease and convenience in banking, we also feel that adequate security measures should be in place for the attempt to be successful.

Now Visa power for insurance premium payment

Impact

Now the payment of life and general insurance premium will be faster and easier,

since Visa has joined hands with 20 insurance companies in India. For payment of insurance premium (life and general insurance), customers will simply have to log on to the respective insurance companies website and make the payment.

Customers also have the option to pay their premiums over the phone through their insurance company call centre or sign-up for a standing instruction with the bank. And if a customer is already a Visa customer, he has to log on to www.visabillpay.in and make the payment.

Among the 20 insurance companies that have joined hands with Visa, are Aegon Religare Life Insurance, Bajaj Alliance Life Insurance, Bajaj Alliance General Insurance, Bharti AXA Life Insurance, SBI Life Insurance, Birla Sun Life Insurance, ICICI Prudential Life Insurance and ICICI Lombard General Insurance.

We believe that such automation of the premium payment process will help insurance companies to improve and speed-up their customer service, which in turn will be in the larger interest of the customers.

INTERVIEW

In an interview with the Mint, Mr. Jahangir Aziz, the Chief Economist in India for JP MorganChase and Company, expressed his views on inflation and Reserve Bank of India’s (RBI's) reaction to the same.

On inflation he feels that we should wait for a couple of weeks and see what kind of impact we get from the increased agriculture harvest. He says this is not a supply-side phenomenon, but rather a demand-side phenomenon. According to him, inflation is at about 8.0 - 8.5% for FY11 average. He expects inflation to peak in June 2010 to around 11.5 - 12.0%, and then slow down to about 6.5% - 7.0% by March 2011. "We are looking at a new normal...probably 6.5-7.0%", he said. He believes that across the board, the supply shortages in agriculture will also be seen in industrial production.

He also mentioned that it will be prudent for investors to adopt the hold strategy, since the viciousness in the fall, which was experienced two years back, is unlikely to be repeated now. He said that there aren’t any bubble formations in the Indian equity markets.

When asked on how he sees RBI reacting to the same (inflation), he said "probably we may see another 25 basis points (increase) in April 2010 (at the Annual Monetary Policy Review Meeting) and another 50 basis points (increase) in July 2010 policy meeting". He also expects RBI to look at reserve requirement and start taking out the excess liquidity.

AND OTHER NEWS...

State Bank of India will soon announce an extension of its special home loan scheme till April 30, 2010. It will roll out a new scheme under which the interest rate will be fixed at 8% p.a. for the first year, 9% p.a. for the next two years and thereafter at floating rate for the remaining tenure of the loan.

Saving account holders will earn more interest, from April 1, 2010 since banks will calculate interest at 3.5% p.a. on their savings account balance on a daily average basis, unlike the earlier method where banks calculated interest on minimum balance between the 10th and last day of every month, where the average interest payout worked out to 2.9% p.a.

SBI Funds Management Pvt. Ltd. (a joint venture between SBI & SGAM) has introduced an online payment option in SBI Mutual Fund schemes through State Bank of India's ATM-cum-debit card. This facility is available for all mutual funds (equity and debt). SBI Mutual Fund is the first fund house to launch this new payment option.

Finance Secretary, Mr. Ashok Chawla mentioned that only banks and financial institutions will be allowed to issue tax-free infrastructure bonds. "It is a misconception that private companies will be allowed to issue them", he said after attending a High Level Co-ordination Committee (HLCC) meeting of financial sector regulators in Mumbai.

Indian Commodity Exchange Ltd., (ICEX) the newest commodity exchange in the country, will soon launch a new 10 grams gold contract. "The product is almost ready and we hope to soon launch the futures contract", said Mr. Ajit Mittal, MD and CEO of ICEX.

The ministry of corporate affairs will launch the regional version of its newly launched Investor Education Protection Fund (IEPF) website in next 6 months to educate investors on stock markets.

Standard Chartered Bank filed a draft prospectus to raise upto $ 750 million through Indian Depository Receipts (IDRs). This is the first time that a foreign company is trying to list shares in India through IDRs.

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