DTC introduced in the Parliament

Finance Minister Mr Pranab Mukherjee introduced DTC in the Parliament today. If it passes through, the existing 1961 Income tax act will be replaced by the new act. There are a number of proposed changes in the DTC, complete details of which are not known at. The new code will come into act from FY 2012 – 2013 that is assessment year 2013-2014 as opposed to the earlier understanding of FY 2011 -2012.   Read more

August 30, 2010 | Filed Under Income Tax | Leave a Comment 

IFCI Infrastructure bonds for tax deduction FY 2010 – 2011

IFCI  (The Industrial Finance Corporation of India) has come up with infrastructure bonds which are eligible for tax deduction under section 80CCF of the Income Tax act, 1961.

The salient features of IFCI long term infrastructure bonds are as below. In case of over-subscription IFCI can issue more bonds. Read more

August 29, 2010 | Filed Under Income Tax | 1 Comment 

Infrastructure bonds for tax saving FY 2010 - 2011

IFCI (The Industrial Finance Corporation of India) is the first company to come up with infrastructure bonds eligible for tax benefit under section 80CCF of the Income Tax act, 1961 for long term Infrastructure Bonds.  As you know for the FY 2010 -2011 there is a tax deduction for an additional maximum amount of Rs 20,000 over and above the 1 Lakh limit available under section 80C.

Before taking a decision to invest in infrastructure bonds, please read the below to understand if you would really get benefit out of it. Read more

August 29, 2010 | Filed Under Income Tax | Leave a Comment 

Proposed Income Tax Slabs for FY 2011 - 2012

Union Cabinet approved a proposed Direct Tax Code (DTC) on Thursday and now it will be sent to Standing Committee’s review.  It would be presented in the parliament on Monday. The proposal has a plenty of changes to the existing structure. The exemption limit for the individual general category to be raised to 2 L from 1.6 L, and there are changes to the slabs. However, it is said that the exemptions under section 80 (c) etc would be terminated.

Also there would be exemptions of surcharge and cess on corporate taxes and the tax rate would come down to 30 % from the existing 33%. All the changes would be displayed on finance ministry’s site once they have been introduced in the Parliament. Read more

August 28, 2010 | Filed Under Income Tax | Leave a Comment 

What are Treasury STRIPS

Treasury strips are created out of coupons of treasury notes and treasury bonds and the principle.  Government dealer firms and authorized market participants like banks buy treasury notes and treasury bonds (which usually pay coupons semi-annually) and market the coupons as separate zero coupon bonds.
 
The main purpose of this stripping is to create liquidity in the market by offering coupons as separate bonds of different maturity periods to meet the needs of different investors of varying tenor preferences.
 
A treasury bond of 15 year tenor is split into 31 zero coupon bonds; 30 out of semi-annual coupons and one out of principal, paid at the end of 15 years.  
 
To elaborate further, in the above example if the Treasury bond pays the coupons at a rate of 10% and the face value of the bond is $10,000
 
Zero coupon bonds can be created as below
 
1st Zero Coupon bond of face value/redemption value  $500 and tenor 6 months (1st coupon: 10,000 * 0.1 * 6/12) 
2nd  Zero Coupon bond of face value  $500 and tenor 1 year 
 
and so on
 
And 31st zero Coupon bond of $10,000 and tenor of 15 years.
 
Notes:
Treasury bond:  A long term bond issued by federal government
Treasury note: A medium term bond issued by federal government
Treasury bill: A short term bond issued by federal government
STRIP is an Acronym for Separate Trading of Registered Interest and Principal Securities
Since Treasury bills, themselves are zero coupon bonds, they are not stripped further.
Treasury strips are not yet available in India. Government and RBI are making efforts to make them available in the near future.
 
 
August 22, 2010 | Filed Under Bonds, Fundamental Analysis, Income Tax | Leave a Comment 

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