Is GST Tax beneficial for you?

Goods and Service Tax is an Indirect Tax planning to be implemented by the government next year in India. Now what is an Indirect Tax? Indirect Tax is a tax which we pay on every goods and services and Manufacturer /Service providers get it paid from us- The Consumers! We pay the Tax on food we eat from restaurants, entertainment tax for movies in Theatres, on our mobile bills, tours, and so on and so forth.  Similarly Manufacturers pay Central and State Sales Tax on the good Manufactured and also on the Goods sold. These taxes are again recovered from us.

Goods and Services Tax (GST) will replace all these indirect taxes. It is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. Well this plan is proposed since 2009 but yet been worked upon to be implemented. At this crucial time when India is looking for ways to increase funds it is believed GST will help improve tax collection and also simplify it reducing the possibility of corruption. In the long run consumers may get cheaper products as taxes won’t be levied at every stage of manufacture to sales. It will promote exports.

GST will replace octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, etc, thus avoiding multiple layers of taxation that currently exist in India.

It is quite relieving to know that these many taxes would be removed. But the tax range of these taxes mostly did not exceed 12.5% and the new GST might have a fixed range of 16%-18% as proposed by the finance minister. So how much the tax payers are going to be convinced on this new tax reform and also how much it will benefit us time will say and also when the actual details of this system is announced!

For more information and updates on GST visit  http://gstindia.com/

D.V.P

 

Bonds

Bonds are fixed income securities issued to the public. It is a debt for the issuer. When you buy it or invest in bonds you are lending money to the issuer of bonds and you receive interest on it semi-annually or annually called as Coupons. It can also be explained in 3 categories based on time period of the bonds to maturity.

Bills:

Also known as T-Bills or Treasury Bills. It is short term i.e.  less than one year

Notes:

Debts issued for more than one year up to 10 years

Bonds:

Debts issued for more than 10 years

Types of Bonds

 There are several types of bonds differing from issuers, credit rating, maturity period, etc.

To provide with the basic types, there are

·         Municipal Bonds

·         Government Bonds

·         Corporate Bonds

Municipal Bonds are issued by the City Municipal and Government bonds by a country. These bonds have the least risk of defaulting i.e. you are mostly sure you will not lose your money. As the risk is lowest, the returns on it would be low.

Corporate Bonds are issued by companies. Its risk is higher than the government bonds and therefore they provide higher returns on the bonds. Some bonds can be based on

·         Asset Based Bonds

·         Mortgage based Bonds

These bonds are backed by assets or mortgage or group of mortgages.  These bonds connect the home and business loan consumers with investors. People take loans from bank, banks pool the loan in to various Bonds as they are have the security of assets or mortgage.  Banks sell these bonds to investors.

Usually you receive Coupon payments (interest) on bonds semi-annually or annually. But there are also a Bond called

·         Zero Coupon Bonds

In this you as an investor do not receive any coupon payment throughout the holding period. But you can buy it at a discount and get receive the par value at the end of the maturity. What does this mean in simple terms? I’ll tell you with an example.

Coupon and Yield

Assume there is a Bond with par value of Rs.1000. It is a Zero coupon bond. So you are getting it at a discount. You can buy it at Rs.600 and at the end of the maturity i.e. 10 years or whatever the maturity time is, you will receive Rs.1000

Confusion about bond is that you are said there is a 3% Coupon and the return or yield of the Bond is 12%. So, what is the difference between both?

 If a Rs.1000 Bond has 3% coupon, then you receive Rs.30 annually as Coupon payment

The market value of Bond can increase or decrease as it is tradable like shares. The market value of bonds might have gone around Rs.1090. The overall coupon payments and the increase in your Bond price since the time you bought shows you the overall yield. This would be explained in detail in another article.

D.V.P

Share Capital and its terms

What are Shares and the various terms attached to it? In the Balance sheet of an listed we would find Authorised Capital, Issued Shares, Subscribed shares and so on

Share Capital

Shares are the way a company raises long term capital for its business. Shares give a part of the company’s ownership to the shareholders. If it is owned by the promoters of the business, it is known as Treasury Shares. Rest of the shares can be owned by the public, retail investors or institutional investors.

Authorised Capital

It is the maximum number of shares available for the listed company to be issued for trading.

Issued Capital

The shares issued by the company to the Insiders of the company and to the public

Treasury Capital

The shares issued to the promoters and insiders of the company

Outstanding Shares

It is the shares available publicly to trade

Subscribed Shares

It is those issued shares which public and insiders subscribe to get or accept.

Called up Capital

The amount asked by the company to pay. It can be the full amount or instalments. Eg: If you own 100 shares of Rs.10. The total value becomes Rs.1000. The company calls up Rs.5 on per share i.e. you are supposed to pay Rs.5 per share totalling Rs.500/-

Calls in Arrear

When the called amount is not paid by the shareholder

Calls in Advance

When the shareholders pay more than the called amount

Paid up Capital

It is the amount paid by the shareholders on the shares and received by the company on the called up capital.

Forfeited Capital

If the shareholder doesn’t pay the call amount or loses it as he/she doesn’t follow the regulations of the company i.e. reselling or transferring the shares in a restricted period, etc. The company takes back or forfeits the shares and may re-issue it to others.

-D.V.P

Lease and Rent

Lease and Rent are usually misunderstood by laymen as a synonym. What is the difference? Which is a better option? Well, here is a little brief into it.
Rent is a periodically payment to the landlord for the usage of property/ asset usually for a short term. It can be just a verbal contract or written contract. It is quite flexible as it’s easier to make changes in the contract terms.
Lease is a legal written agreement between two people/parties for the usage of a property for a fixed amount of time and rent (money). It is usually for a long period of time. The agreement is not flexible as neither party can change its term until the lease expires or both the parties agree to change. The payer is called Lessee and the receiver is called Lessor.
Rent on the other hand is very flexible and its term can be changed by the Owner of the property eg. They can increase the rent and it is upon the tenants whether they want to accept it or leave it. In lease, you cannot charge differently from the agreement unless both parties agree and make a new one.
In lease, the tenant has to pay monthly and/or follow the code of conduct as mentioned in the agreement, the tenant also cannot vacate the property before the agreement time expires, else the agreement is broken.
Rent is automatically renewed at the end of the term unless both the parties are not willing to continue. Lease has to be renewed with new agreement.
Which option is better? Well that depends upon the need of the person. Rent suits temporary requirements and for Longer establishment plans go for Lease because some properties/assets are also available at a depreciated rate to be purchased after the end of the Lease period. So, it’s like using the asset currently and accumulating money in the time course to buy the asset in future.
D.V.P

Key Ratios to review a BANK

The ratios which will help you to review about a bank’s overall financial position are as follows:

1.     Credit to Deposit Ratio

This reflects the ability of the bank to make optimal use of the available resources.  How much of Loans it has given compared to the Deposit it has.

2.     Capital Adequacy Ratio

It reflects whether there is adequate capital for growth of the bank. RBI has set a minimum of 9% as the CAR.

= Capital (Tier I + Tier II) / Risk Adjusted (Weighted) Assets

3.     Non Performing Assets Ratio

It checks how much of nonperforming assets or assets which is not giving you any returns are there compared to the overall Average total assets.

= NPA/ Avg. Total Assets 

4.     Provision Coverage Ratio

It is how much of provisions have the bank made for the troubled part of its loan. If it has over protectively provided in a year then it would most probably not need to provide much in the next year.

5.     Return on Assets

This ratio lets you know how much of returns are generated for the amount of assets invested.

= Net Profit/Avg. Total Assets

D.V.P