MFs to 'dance' on Exchanges?

The Securities Exchange Board of India (SEBI) is now planning to enable investors to buy and sell their mutual fund units through the stock exchanges. The fund houses will also be allowed to sell New Fund Offers (NFOs).

It would be optional for the fund houses to use this platform. If the fund house decides to opt for listing its units on the stock exchange, it would benefit them through lower distribution costs. We analysed the pros and cons for the investors if SEBI decides to do so.

PROS:

• Infuse convenience in mutual fund transactions
• Reduce paper work
• Promote liquidity
• Help in portfolio tracking

CONS:

• Lure to engage in trading activities might result in a deviation from long term financial goals
• More trading will lead to higher transaction costs which will impact the return on investment

We believe that despite the cons, the pros make this proposed initiative a positive for the retail investor.

There is no such thing as a free gift!

If you are receiving gifts from your friends, there is a price tag attached - not from your friend but from the taxman!

From October 1, 2009, gifts received from non-relatives will be included in the taxable income of individuals and will be taxed at the normal tax bracket. Earlier, only cash gifts over Rs 50,000 were taxed as income in the hands of the recipient individual or HUF.

As per the amendment to provisions of Section 56(2) (vii) introduced by the Finance Act, 2009, the under-mentioned items will also be included in the income of the individual assessees and HUFs if they are received as a gift by them. The same will be brought to tax if the aggregate value of all gifts exceeds Rs. 50,000 in any previous year:

• Land and building
• Shares and securities
• Jewellery
• Archaeological collections
• Drawings
• Paintings
• Sculptures
• Any work of art

Additionally, if you are thrilled at negotiating a deal below the Fair Market Value (FMV), watch out for the tax axe from the Income-tax Assessing Officer (AO). If the purchase consideration is inadequate i.e. substantially lower than the FMV, then it will attract tax. The AO would take the FMV of such a purchase or the differential value of such a purchase, if it exceeds Rs 50,000.

However, provision for taxability of gifts shall NOT apply to any sum of money or any property received

• from any relatives or
• on the occasion of marriage or
• under a will or by way of inheritance

The term ‘relative’ will mean as defined under section 56 of the Income-tax Act, 1961 and not as understood under common parlance.

Further, if you receive any other valuables such as a motor car, electronics, furniture, etc. you will be saved from being taxed and you can continue to enjoy the luxury of receiving any of these gifts even beyond October, 2009.

We believe that such a fiscal measure by the government will bring in more assessees under the tax bracket. However, it would have been more appropriate if the government had a separate exemption limit for each category of asset in the list. For example, incase of land and building, the exemption limit of Rs 50,000 is meaningless; instead it could have been enhanced to say Rs 10 lakh.