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HSBC India Manufacturing PMI: Up at 57.9

HSBC's India Purchase Managers' Index (PMI) is up to 57.9 from last month's 56.8. The PMI is an imageearly indicator, which quantifies the orders received by firms. India gets two PMIs - Manufacturing and Services.

Budget: Mutual Fund Dividends To Companies at 30% Dividend Tax

Now for an interesting hidden (i.e. not yet spoken about) aspect of the budget.

According to the finance bill, any income distributed by debt funds to companies (or anyone other than an individual) will get hit with dividend tax of 30%.

Earlier the rate was 25% for liquid funds and 20% on other funds. Now it's all been bumped up to 30%, presumably to remove the discrepancy with fixed deposits.

Saudi Takes Up Libyan Shortfall, RIL benefits

A fallout of the Libyan Crisis is that Saudi Arabia is taking up the slack. Except, it can't easily replace Libyan Crude.

“Libya is a producer of light, sweet crude,” says Andy Lipow, president of Lipow Oil Associates, a Houston consultant. “The spare capacity among Opec members is heavy, high-sulphur crude.”

Heavy, sour = higher density, higher sulphur content than "light, sweet". I doubt people are weighing or tasting the darn thing.

The spiel is that refinining heavy-sour is much more difficult, and there are a lot of refineries doing only light-sweet (in industry parlance, aren't "complex" enough). The article goes on to say that these refineries are in trouble, they have to find other light, sweet sources, blah blah.

NPS Gets a Tax Saving Fillip in Budget2011

The Central Government pays 10% to the National Pension Scheme (NPS) for all its employees, with employees putting in another 10%. Even private employers may do so.

Your own contribution had the exemption upto Rs. 1 lakh, an overall limit for all such tax saving avenues such as insurance payments, children's education fees, ELSS mutual fund investments ad so on. Earlier even the employer's payments came into the same deduction, and employers weren't allowed to reduce that amount as a business expense.

Now the employer's payment does not come into the 1 lakh limit, and they can expense it. But if it's not taxed to your employer (i.e. the money is allowed as an expense), does that mean it will be taxed as a perquisite? We don't know - the bill doesn't say!

Two cases then: one, the employer's contribution is taxed in your hands as a perk. What's the point, then? You pay taxes today on money you can't touch till you retire, and when you get that money you pay taxes on it again.

Second, that such employer's contribution is not taxed in your hands. That makes sense, and brings it on par with other superannuation fund payments (like pension schemes). This is cool, but remember any withdrawal from a pension scheme is taxed, so all you're doing is deferring the tax. Nevertheless, policy clarity would be welcome.

Budget2011: No Need For Salaried Employees To File Returns?

There's a lot of talk about whether salaried employees will not need to file returns, because Pronob-da mentioned something in the budget speech. What he said was:

The Board shall soon notify a category of salaried taxpayers who will not be required to file a return of income as their tax liability has been discharged by their employer through deduction at source.

As far as I know, who qualifies has not been announced. But it won't apply to you if:

a) you have a house and rent it out

SEZ Developers On The MAT

Minimum Alternate Tax (or MAT) will apply for SEZ developers as well. Not just the real estate players, even companies like Opto Circuits had gone into developing SEZs. The funda was that if you developed an SEZ, or if you were a unit in an SEZ, you paid no MAT at all, regardless of how much profit you had made. This is a useful way to move money around and make it non-taxable.

Developers in SEZs will now pay MAT as well.

Also such SEZ developers paid no dividend distribution tax (DDT); but from 1 June 2011, they will have to pay 15% DDT.

This affects way too many stocks, if you ask me. I need to find out how to make a list of them without killing myself.

Budget 2011: The Said and the Unsaid

With this budget, the FM has said a lot, but there is a lot that he has left unsaid, which are just as important. But let me cut the bullshit and get to the point: what does this mean for you?

Budget 2011: Chat Transcript

What is more important in this budget is what WASN'T said, not what was.  But here's the transcript of what I wrote at the Yahoo chat through the budget.

Amnestasia: A disease where you forget to pay tax

My article at Yahoo: Amnestasia: A disease where you forget to pay tax on the Yahoo Budget Site.

(Reproduced in full)

There have been some calls for an "amnesty" scheme again. The concept is simple: people who have stashed away money and not paid tax on it, should be allowed to do so now, and thus escape the ignominy of being called cheats and put in jail.

The reasons for providing such an amnesty scheme is two-fold: a) this money wouldn't be caught anyway, because it is stashed in locations otherwise unknown and b) the government will be happy to have the money now.

Yet, this has a huge issue of moral outrage - why bother paying taxes, when every once in a while, the government throws an amnesty scheme? You could hide money forever and whenever there is an amnesty scheme, declare what you want and you're home scot free. This does no justice to the honest taxpayer, or even the government. On a personal note, I am absolutely against such a scheme at the ethical level - but then, I have reason to be, since I have no such tainted money.

Cutting Real Estate Down To Size

My article at Yahoo: Cutting Real Estate Down To Size on their Budget Site.

(Reproduced in full)

In an economy that is seeing ridiculous levels of increase in real estate prices, it is strange that we continue to give it sops, sometimes to an extreme. Let me list the ways real estate is "preferred" as a mode of investment.

First, you are allowed an income tax deduction of Rs. 150,000 on the interest paid for the home you live in. This, you think, is justified; you are also allowed a deduction (without limit) on any education loan. But it doesn't apply to any other loan you ever take - car loans, personal loans, a loan to buy that fridge that ensures your food doesn't rot and so on. I would recommend that either all interest paid on a loan for ANY durable - like cars or fridges - be tax free. After all, the government charges the bank income tax on that money.

Or, they must remove the special exemption for housing loan interest completely. Education loan exemptions are far less kind; they should stay, for the only reason that education is far more useful. A house is only as useful as a car nowadays.
Second, if you buy a second house, you're allowed to deduct an unlimited amount of interest paid on the loan. Again, just because no other item on your personal balance sheet is allowed that kind of deduction, I say remove it for housing, or let everything else in. How can you incentivize SECOND houses, for goodness sake!