No tax on retirement benefits under new draft code

The revised draft Direct Taxes Code (DTC) proposes tax exemption on retirement benefits, the Public Provident Fund (PPF), the Government Provident Fund (GPF), the Recognised Provident Funds and the Employees Provident Fund and addresses important issues such as Minimum Alternate Tax (MAT).

It also takes care of taxation of long-term savings, capital gains and housing loans.

Releasing the revised DTC draft here on Tuesday, Revenue Secretary Sunil Mitra said provident funds would not be taxed on withdrawal.

Also, a proposal to levy MAT on corporates based on their assets had been dropped. However, the DTC did not give any details on the Income-Tax structure such as the slabs or rates, which were provided in the first draft released in August 2009.

“As of now, it is proposed to provide the EEE [exempt-exempt-exempt] method of taxation for GPF, PPF, the Employees Provident Fund and Recognised Provident Funds,” it said.

The Revenue Secretary said taxation rates in the first draft — which suggested 10 per cent tax on income from Rs.1.60 lakh to Rs.10 lakh and 20 per cent on income between Rs.10 lakh and Rs.25 lakh and 30 per cent for the income beyond that were illustrative. The rates would be made known only in the proposed Act.

The revised draft puts pensions administered by the interim regulator, the Pension Fund Regulatory and Development Authority, including pension of government employees who were recruited since January 2004, under the EEE treatment. The first DTC draft had proposed to tax all savings schemes, bringing them under the EET mode.

Budget 2010 Update for Salaried Employees

Budget 2010 Update for Salaried Employees

A. Increase in take-home salary

The income tax slabs have been expanded in Budget 2010. Income above Rs. 5 lakh will be

taxed at 10 per cent, income between Rs. 5-8 lakh will be taxed at 20 per cent, and income

above Rs. 8 lakh will be taxed at 30 per cent.

The impact of expanded tax slabs will be an increased take-home salary. See the table

below for the increase in your take-home salary based on your taxable income:

Taxable Income Increase in monthly take-home salary

Up to Rs. 3 lakh Nil

Rs. 4 lakh Rs. 687 (men), Rs. 858 (women)

Rs. 5 lakh Rs. 1,717

Rs. 6 lakh Rs. 2,575

Rs. 7 lakh Rs. 3,433

Rs. 8 lakh and above Rs. 4,292

B. Additional savings of Rs. 6,180

After Budget 2010, you can make an additional investment of up to Rs. 20,000 in long-term

infrastructure bonds to get additional tax savings of Rs. 6,180.

These tax savings are over and above the Rs. 1 lakh investment for PPF, NSC, tuition fees

etc., under section 80C.

C. Housing Loan

If you wish to take a home loan and the cost of the house does not exceed Rs. 20 lakh, then

the home loans of Rs. 10 lakh will cost less till 31st March 2011.

Forgot to present investment receipts during proof verification?

You can make the investment/payment for income tax deductions till March 31, 2010. Even

if your receipts are not considered for TDS deduction, you can still claim tax refund in your

income tax return for all the investments that you make during the financial year.

Since the income tax returns are e-filed, you do not need to attach any investment receipts

or any other document with your e-return. You should keep the receipts with your for your

records.

Infosys to revive eastern India plan

Infosys to revive eastern India plan

Tuesday, March 23, 2010

Mumbai: Infosys Technologies, India’s second-largest IT firm by employee strength, is looking at setting up special economic zones (SEZs) in West Bengal and Assam, a senior executive of Infosys told DNA.

The move will throw up more job offers for computer science graduates and engineers in Eastern India.

Infosys already has a development centre in Software Technology Park at Bhubaneshwar, set up in 2000, which now employs about 3,000 software engineers. The firm is now looking to invest Rs 300 crore for its second project in Bhubaneshwar that will have a capacity of 5,000.

In Kolkata, Infosys had planned to invest Rs 500 crore to set up a development centre in 2004, housing 5,000 people. The project got delayed and in June 2009 an IT township project in Salt Lake, Kolkata was scrapped by the West Bengal government following a controversy.

However, in September the state government offered 45 acres each to Infosys and Wipro to set up development centres. But by then Infosys had developed second thoughts on the offer due to uncertainty in business environment.

“We were going slow on the offer due to the market meltdown. Additionally, the political climate in the state was not conducive then. But now we are considering the offer and evaluating it again,” said the Infosys executive who did not wish to be named as the company is in the mandatory silent period before the announcement of quarterly results.

Besides Kolkata, Infosys is also evaluating setting up an SEZ in Assam in the North East. “We are looking at North East to expand as well, but the problem there is of infrastructure and availability of professionals,” said the Infosys executive.

The company is looking to hire more than 20,000 professionals in FY10-11 due to improving business scenario. Infosys, which had 109,882 employees at the end of calendar year 2009, sees about 2,500 employees leave the firm every three months.

The Infosys move comes close on the heels of interest from Union government to attract investment in developing North East.
Earlier this month Sachin Pilot, minister of state for IT and communications spoke about government’s interest in developing Northeastern India. “North East can become a big centre for attracting investments from the private sector in business process outsourcing and knowledge process outsourcing,” Pilot said.

According to the minister, the Union government has helped Sikkim to set up a 50-seater business process unit and launched 3G services through BSNL. Similarly, the government is planning a software park at Itanagar for developing computer software and extending related professional services.

“I have already met the chief minister of Arunachal Pradesh. We are hoping to start this project soon. The state will then have a lot more money from the central government, which it can’t afford now,” the minister had said.

Pay more tax on FD interest from April 2010

As per section 206AA introduced by Finance (No. 2) Act, 2009 effective April 01, 2010, every person who receives income on which TDS is deductible shall furnish his PAN, failing which TDS shall be deducted at the rate of 20% in case of Domestic deposits and 30.90% in case of NRO deposits. Additionally, in the absence of PAN, Form 15G/H and other exemption certificates will be invalid even if submitted & penal TDS will be applicable. 

 If you have FDs that earn more than 10 thousand rupees per annum then you need to pay TDS on interest earned above 10 thousand at the rate of 10%. By submitting form 15G/H you can stop the bank from deducting this TDS.

Gratuity Calculation: The Gratuity Limit Rose From 3.5 Lakh to 10 Lakhs

Gratuity Calculation: The Gratuity Limit Rose From 3.5 Lakh to 10 Lakhs:
In the age of dearness and inflation it is the good news for private sector employees that the private sector will get the Gratuity of Ten Lakhs. As per gratuity act India, Gratuity limit was 3.5 lakhs. Now the limit of Gratuity has been raised from 3, 50000 lakhs to 10, 00000 lakhs. This decision of government will give advantage and relief to private sector employees. Now as per Graduity act there is no tax imposed on the income of 10 Lakhs.

On Thursday, in the lead of PM Manmohan Singh, this decision was taken at a cabinet meeting. This proposal of Labor and Employment Ministry has been given approval. Although many state governments has provided this type of advantage earlier. It is better decision regarding gratuity act to raise the Graduity limit.

CCEA has taken decision to open the 137 General Nursing and midwife school to remove the scarcity of nurses and midwives. These schools will be made in Bihar, Chhattisgarh, Madhya Pradesh, UP, Uttarakhand, Rajasthan, Orissa, Himachal Pradesh and others. The amount of 1370 crores will be spent on this planning.

For the Gratuity calculation the gratuity calculation formula is

1. basic/26 x 15 days x number of years of service

OR

2. BASIC + DA (Last Pay drawn) X 15 /26 X No. OF YEARS WORKS

Gratuity is to be paid to any employee only he provides service for a minimum time of five years at a stretch with his employer in company. The Gratuity calculation is done as per the last average remuneration drawn and time in years served by an employee.

New Tax Slabs for 2010-11

 PERSONAL TAX RATES

For individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI):

Income Tax Rates/Slab for Assesment Year 2011-12 (F Y 2010-11)	Rate (%)
Up to 1,60,000 Up to 1,90,000 (for women) Up to 2,40,000 (for resident individual of 65 years or above)	NIL
1,60,001 – 5,00,000	10
5,00,001 – 8,00,000	20
8,00,001 upwards	30

Income Tax Rates/Slab for Assesment Year 2010-11 (F Y 2009-10)	Rate (%)
Up to 1,60,000 Up to 1,90,000 (for women) Up to 2,40,000 (for resident individual of 65 years or above)	NIL
1,60,001 – 3,00,000	10
3,00,001 – 5,00,000	20
5,00,001 upwards	30*
*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000. Note : - Education cess is applicable @ 3 per cent on income tax, inclusive of surcharge if there is any. A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount. Agricultural income is exempt from income-tax.

New Tax rules from April 2011

Big tax cut coming in April 2011

New Delhi, Aug 13 2009 :  Finance minister Pranab Mukherjee on Wednesday unveiled a roadmap for reforms in direct taxes that promises to drastically cut the tax liability of most individuals by considerably raising tax slabs.

The new direct taxes code, proposed to be implemented from April 2011, aims to moderate effective tax rates in the hope that this will encourage more people to pay up.

The most significant changes proposed are in personal incometax, which could lead to tax savings of up to Rs 2.67 lakh each year. The 10 percent tax rate, currently applicable for incomes between Rs 1.6 lakh and Rs 3 lakh, will apply to incomes between Rs 1.6 lakh and Rs 10 lakh, which means those with incomes between Rs 3 lakh and Rs 10 lakh could save up to Rs 1.17 lakh from their annual tax liability.

The next slab of 20 percent would be applicable for incomes between Rs 10 lakh and Rs 25 lakh instead of — as is currently — between Rs 3 lakh and Rs 5 lakh and the 30 percent slab would be for incomes exceeding Rs 25 lakh, which now kicks in at Rs 5 lakh.

The benefits to taxpayers with annual incomes of Rs 25 lakh or more as a result of these changes would be about Rs 2.67 lakh per annum.

As the icing on the cake, the new code proposes to allow for exemptions on savings up to Rs 3 lakh rather than the Rs 1 lakh now allowed under Section 80C of the I-T Act. There is a catch, though. There is no mention of any exemption for housing loans, though the exemption for higher educational loans will stay.

The exemption limit at which taxes kick in will continue to be higher for women and senior citizens. For women, their tax meter will start ticking when their income exceeds Rs 1.9 lakh per annum, whereas senior citizens will have to pay tax only if they earn more than Rs 2.4 lakh a year.

A change that could be problematic for many individuals is in the treatment of post-retirement benefits like provident fund. The adoption of the EET (exempt-exempt-tax) method will mean that any withdrawal of money from your PF account, for whatever reason, will attract a tax since the amount withdrawn will be treated as part of your income for that year. This will, however, apply only to amounts that accrue April 2011 onwards.

Like personal taxes, the corporate tax rate too is to be cut from the existing 30 percent (excluding cesses and surcharges) for domestic firms to 25 percent. Also, companies can carry forward losses for as long as they like, while earlier, a loss in a year could be set off against profits only within the next eight years.

In the case of foreign companies, however, in addition to this 25 percent tax, there will be a 15 percent tax on 'branch profits'. Branch profits, the code explains, are defined as total income minus corporate tax. This seems to suggest that the effective tax rate for foreign firms could actually be slightly higher than the current 35 percent.

Another big change is inclusion of financial assets — like shares and deposits — in the calculation of wealthtax. The whammy is sought to be offset by a reduction in the wealth tax rate from 1 percent to 0.25 percent and an increase in the threshold limit to Rs 50 crore. It's also proposed to do away with the securities transaction tax, and change the manner in which tax holidays for infrastructure industries is given.

Explaining the rationale behind these changes, the FM said: 'The aim of the direct tax code is better compliance and better realization with likely expansion in the tax base.'

He added, 'All direct tax laws have been brought under one umbrella and laid down in a manner that it will eliminate the scope of litigation.'

Former FM and union home minister P Chidambaram who had begun the process of rewriting the tax laws after Budget 2005-06 said: 'It underlines the philosophy of the government, that is, a regulated free market system... The new direct tax code will promote economic activity and entrepreneurship.'

The code has been put up on the finance ministry's website and the government has invited suggestions. It plans to introduce a draft bill to enact the new code in Parliament in the Winter Session.

Apply for US visa online from Feb 1 - India - The Times of India

Now, apply for US visa online from Feb 1
13 January 2010

MUMBAI: Are you thinking of studying in US ? Or travelling to America for a holiday? If so, here’s some good news for you. The process of applying for a US visa just got a tad less cumbersome.

The US is introducing a new, high-tech, completely online system for non-immigrant visas, which will be in place by February 1. While applicants could complete their visa application forms online earlier too, they will now be able to submit the application form online, thus eliminating the need for paper applications.

“The new application forms will ask only those questions that are relevant to you as an applicant,’’ said Jim Herman, the US Embassy’s minister counsellor for consular affairs at the US embassy.

While the old application form had the applicant’s signature on it, the new ones will require a digital signature, which involves typing in a unique code number. After the applying, there will be a confirmation page with applicants need to have as a record."

"What are the new SEBI guidelines all about MF investing?

"What are the new SEBI guidelines all about?

Relevant extract of the SEBI circular released on June 30, 2009 (SEBI/IMD/CIR No.
4/168230/09) is as follows:

'In order to empower the investors in deciding the commission paid to distributors in accordance with the level of service received, to bring about more transparency in payment of commissions and to incentivise long term investment, it has been decided that:

There shall be no entry load for all mutual fund schemes



The scheme application forms shall carry a suitable disclosure to the effect that the


upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor



Of the exit load or CDSC charged to the investor, a maximum of 1% of the


redemption proceeds shall be maintained in a separate account which can be used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme immediately
The distributors should disclose all the commissions (in the form of trail commission


or any other mode) payable to them for the different competing schemes of various mutual funds from amongst which the scheme is being recommended to the investor
This circular shall be applicable for :
Investments in mutual fund schemes (including additional purchases and
switch-in to a scheme from other schemes) with effect from August 1, 2009
Redemptions from mutual fund schemes (including switch-out from other
schemes) with effect from August 1, 2009
New mutual fund schemes launched on and after August 1, 2009; and
Systematic Investment Plans (SIPs) registered on or after August 1, 2009'"

Fringe Pinches

As you are aware, the Finance Act 2009-10 has done away with the concept of Fringe Benefits Tax. Consequently, all the erstwhile ‘Fringe Benefits’ like Car related components, Food Coupons, etc., will now be treated as perquisites and taxed accordingly at normal income tax rates applicable to your income.

The Central Board of Direct Taxes has recently issued the guidelines on valuation of these perquisites. These valuations and their consequent taxation are effective from 01 Apr 2009.

As per the valuation circulated, Food Coupons are exempt to the extent of Rs. 50/- per meal. Hence the maximum amount that is tax free as far as food coupons are concerned has been frozen at Rs.1100/- per month. Since these rules are effective 01 Apr 2009, the resultant tax on the balance amount of Rs. 550/- already paid per month will be recovered in retrospect, in the remaining months i.e., January 2010 to March 2010.

As a policy change in relation to food coupons, the monthly value of food coupons will be Rs. 1100/- effective Jan 2010. Employees who have presently opted for food coupons, will be paid Rs. 550/- as special allowance along with food coupons amounting to Rs. 1100/-.

Best regards,

Team Corporate HR

10 investment resolutions for 2010

Moneycontrol.com - 10 investment resolutions for 2010: "10 investment resolutions for 2010
Published on Tue, Dec 29, 2009 at 13:59 | Updated at Wed, Dec 30, 2009 at 13:02

Every year starts with a handful of New Year resolutions – losing weight, giving up a bad habit, spending more time with family, or anything personal or professional. When we can make so many commitments to different parts of our lives – why forget our money? Let us welcome 2010 with ten simple investment resolutions we can all strive to make:

1. I will truly invest for the long-term
Everybody claims to be a long-term investor, but nobody really is. Most investors are relentlessly checking their portfolio every day, often more than professional money managers, and they lose sight of the long term. Checking your portfolio every day leads to overtrading, which only makes your broker and the tax department richer. Don’t forget that when you invest in a stock, you invest in a business – businesses don’t change materially every day.

2. I will not trade on tips
We love investment tips, from our brokers, bankers, family, and cocktail party acquaintances, particularly when they come for free. We are also happy to trade on those tips, forgetting that most of them are not grounded in any kind of reality. Anybody with an opinion who has watched a little bit of TV will give you a tip – that does not mean it makes sense and that certainly doesn’t mean you put hard earned money behind it.

3. I will be disciplined and not emotional about investments
It’s very easy to see an article about the 10% rise in a mid-cap stock and go out and buy it, forgetting that news is meant to get you excited. If there is one place where discipline and not emotion pays off, it is your money. Make a plan when you build a portfolio – why are you building a portfolio, when do you intend to sell it to use the money, when would you increase it?

4. I will do due diligence on my fund manager
It is very easy to invest with a fund manager and then blame him when something goes wrong. Do the due diligence before investing. Just because you are investing in a known fund house doesn’t not mean the fund manager is competent. Find out about the fund manager’s track record and ask the manager about their practices – accounting, reporting, redeeming funds, talking to clients – to see if you can really rely on them.

5. I will have reasonable expectations with my money
Investing in the stock market will not double your money in a year – you should stop working if it did. Have reasonable expectations from your money and money manager. A manager who can beat the market by 5% every year net of all fees has done very well by global standards and a manager who claims they can beat it by 30% a year is lying. Any equity investment will lose some money in a 2008 like crisis – no manager can perfectly call a crisis and neither can you.

6. I will try something new with my money
Are you tired of saying every money manager sounds the same and that there is nothing new in the market? Think again – the market is full of young boutique managers with interesting ideas and new approaches to investing. All you have to do is seek them out and give them a listen. Suspend your existing beliefs and learn new approaches to investing, and try them out, at least in a small dose. If nothing, it adds valuable diversification to your portfolio.

7. I will invest based on my needs
No two investors are the same and every investor has different needs based on their income, life stage and responsibilities. Investing isn’t about gambling or playing the market for fun, it is about building long term wealth to meet your future needs. Understand what your needs are and then invest appropriately in different asset classes and instruments.

8. I will think about risk
Most investors conveniently ignore the more important side in the risk-return equation of finance – the risk side. Risk exists and is different by stock, sector, and asset class, and every investor should have a basic understanding of risk. Don’t evaluate the return on any investment independent of the risk of that investment. Get mathematical with risk – you always want to know the return numbers on an investment, ask for the risk ones too.

9. I will not follow the herd
Who doesn’t love following the herd, whether it is movies, music or money? If everyone is subscribing to the Reliance Power IPO, there must be something great about it, right? Wrong. What everyone is investing in or not investing in doesn’t have to be right – in fact, investing by nature is about discovering opportunities that others haven’t. Next time, when you make an investment decision, don’t look to the world for validation.

10. I will invest, today
If you do one thing in 2010, don’t try to time when you invest. There is always a great excuse not to invest – market has run up too much, I am busy with other things, I don’t understand the market, afraid of a correction, can’t afford it. All the stars in the investing world never align and no time is a perfect time to invest – that is why markets work. If you are truly investing for the long term (Resolution 1), there is no difference between today and two weeks later.

Keeping even of a few of these simple resolutions will make us smarter, safer, and if nothing else, saner investors. This decade, let’s remember the lessons of the financial crisis, let’s be cautious yet creative with our money, and most importantly, let’s take our money seriously.

Welcome to 2010 – wishing both you and your money a Happy New Year!"

Here is my two cents addition into this post:
I really appreciate the power of long term investments, and equity always pays in long term. For professionals mutual fund investments are the best way to earn money as stocks are more time demanding, and in market downfall it demands more and more maintenance which is tough to do. So, mutual fund is the safe bet and there will be a bunch of fund managers to look after my funds. Yes, your guess is true, you may earn more by direct equity investments with a risk that you are investing based upon your limited knowledge. So, jay ho MFs.
--Kongkon

Investment strategies for 2010

Moneycontrol.com - Investment strategies for 2010: "Investment strategies for 2010
Published on Tue, Dec 29, 2009 at 13:24 | Updated at Tue, Dec 29, 2009 at 14:37 | Source : Moneycontrol.com


2009 has been a rollercoaster ride for major asset classes such as equity, debt and real estate. The only exception was Gold which not only survived the wild swings on the way downward but made new highs with the spot price crossing the 18000 mark for the first time. Since the peak gold has corrected almost 6-7% and seems to be consolidating at the current levels. So what does 2010 hold in store for investors?

Let’s take a look at each asset class and explore the opportunities and threats.

Equity: 2009 has proven to be a golden year for the stock market with returns of around 64% till 21st December 2009. Markets have been range bound for a while now and Nifty was unable to break 5200 on the upside and it seems now that we are in a corrective phase since the last few days. There is a lot of noise of a further 20-30% correction. There is nothing impossible in the markets and there is no sane way of really figuring out whether a 20-30% correction would indeed happen. If a sharper correction does indeed happen, then it could be an exciting opportunity for people who have missed the bus. On the other hand what happens if the market corrects a little (10%) but then goes up sharply in the first couple of weeks of January or does not correct from the current levels and goes up.

There are many events such as the third quarter corporate earnings, budget, interest rate announcements by the RBI, global earnings data and so on that will have a major impact on the stock markets. The point I am making is that there is no way one can predict the course of the Sensex or Nifty over the next few days or months. Valuations might look a little stretched but again GDP and earnings growth are improving quickly. Typically when markets recover valuations do look stretched for a while because there is more money coming in as earnings start to catch up and before you realize markets can tread much higher levels. Advance tax numbers have been good and corporate earnings in the third quarter is likely to be strong. I will not be surprised to see markets inch upwards to very high levels by Diwali time (2010) or late next year. I believe that domestic liquidity primarily from life insurance companies will be extremely strong into 2010 and they will buy heavily the dips that markets would present from time to time.

Your strategy should be to invest regularly through SIPs or in a staggered manner and take advantage of the dips. This has been one of the best ways to make money in the Indian stock markets in the last 25 years and 2010 will be no different. At the same time if the market shoots up sharply we will rebalance your portfolio. In fact rebalancing the portfolio will be a very important theme in 2010."

Gold: Indians have always been big buyers of gold. However once the price crossed 15000 and scaled new highs, buying interest has gone down as many believe that gold prices are way too high. At the same time central banks around the world have been buying gold as if there is no tomorrow. One of the key reasons is that gold is an alternate currency that can come in extremely handy during tough times. I decided to check on the Gold Knowledge Quotient of several people with a very basic question and trust me the answers were uninspiring.

1. What percentage of gold is actually present in 22K gold jewellery?
2. If the gold price is 18000 in the spot market, will you get the same rate for your jewellery?

Gold is traditionally weighed in Troy Ounces (31.1035 grammes) which is 3.1 tolas. The proportion of gold in jewellery is measured on the carat (or karat) scale. The word carat comes from the carob seed, which was originally used to balance scales in Oriental bazaars. Pure gold is designated 24 carat, which compares with the "fineness" by which bar gold is defined.

Pure gold Gold alloys	Caratage	Fineness	% Gold
	24	1000	100
	22	916.7	91.67
	18	750	75
	14	583.3	58.3
	10	416.7	41.67
	9	375	37.5

As you can see from the above table, 22K gold has just 91.67% of gold.
Try selling jewellery anytime and the first thing that a jeweler will do after verifying the purity will be to multiply the spot gold rate by 91.67 %. Hence when you sell gold even though the price of gold might be 18000 you will get far less than 18000 (at least 9.1% less) . Hence when you buy gold you must make sure that you are charged in the same proportion.

Gold is a great buy at 12000 but many experts believe that we will never see those levels. In fact some even believe that we will never see 15000 levels in gold. However being an optimist, I like to believe that sooner than later we might get to see 15000 odd levels. The best strategy once again is to invest in a staggered manner on the downside.

Invest in gold every month and the best part is that you can even buy 1 gm every month through a Gold Exchange Traded Fund. There are several such as Benchmark, Kotak, Reliance, Quantum, UTI and SBIMF Gold Exchange Traded funds that you can buy. Gold has given excellent returns in the last 7 odd years and I like to believe 2010 will be no different if the price corrects from the current level of Rs. 17000 to slightly more meaningful levels.

Real Estate: After a correction of 20-30% or so between January and May 2009, prices have started to look up again. Builders have been able to raise funds easily after the election results in May 2009 as some FIIs were more than keen to take exposure to the real estate sector. However this is one asset class where you can see a huge bubble building up because the single factor – affordability, which determines the fate of the real estate market, has gone for a toss. No business can run on funding forever and a business must sell and generate free operating cash flows. A slowdown in home loan growth is clearly visible even at very low rates. One of the key things which a lot of builders are missing out is that people do not buy real estate markets because interest rates are low. They buy because prices are affordable and there is a clear need. Ask yourself “Would you buy something if interest rates are 0% but you are unable to afford it?” We all saw the effects of this miscalculated borrowing through the sub prime crisis. A sub prime might not happen here as a lot of real estate dealings are still in cash and also the fact that Indians have been prudent savers and buyers. However given the state of real estate prices which are artificially held up, prices must correct by 30-50% from the current levels for houses to be affordable. 2010 might not be that year as a lot of developers have paid off their debt for 2010 as well but the same cannot be said of 2011 and beyond if prices are not brought down meaningfully. Till then you will not miss much by not taking exposure in this space unless there is a mouth watering deal that comes around.

Debt: Rising inflation is a huge concern and it is quite likely that RBI will hike CRR (Cash Reserve Ratio). CRR is the percentage of amount banks must keep with RBI. The hike will help in sucking out excessive liquidity in the system. Bond Yields have already started hardening and one is already witnessing negative returns from gilt and long term income funds. The best options in the debt fund space here will be to look at Fixed Maturity Plans (FMPs), and Short Term Income Funds which can still generate around 7% post tax returns. In the highest tax brackets, the best avenue for short term money is liquid plus and floating rate funds. When it comes to fixed deposits, do not lock yourself in long term fixed rates as the rates could get better late next year. The key here is to look out for better post tax returns.

Like elsewhere in life, it really pays to keep things simple and this is what you need to precisely do in 2010.

Wish you and your family a Very Happy, Healthy & Prosperous 2010