findocblog

Blog

  • Income Tax Return: Settling The Old vs New Tax Regime

    Income Tax Return: Settling The Old vs New Tax Regime

    The Finance Minister Ms. Nirmala Sitharaman introduced the Union Budget on 1st February 2020 with the aim to boost the Indian economy.

    New vs Old Tax Rates for Personal Tax

    Income Tax Slab for New FY 2020-21 New Tax Rate Old Tax Rate
    1). Upto Rs 2.5 Lakhs Exempt Exempt
    2). Rs 2.5- Rs 5 Lakhs 5% 5%
    3) Rs 5- Rs 7.5 Lakhs 10% 20%
    4). Rs 7.5 -Rs 10 Lakhs 15% 20%
    5). Rs10- Rs12.5 Lakhs 20% 30%
    6). Rs12.5-Rs 15 Lakhs 25% 30%
    7). Above Rs 15 Lakhs 30% 30%

    If an individual wishes to avail the new tax rates as announced by Budget 2020, he/ she will not be eligible to claim the following tax benefits:

    1. Leave travel concession as contained in clause (5) of section 10.
    2. House rent allowance as contained in clause (13A) of section 10.
    3. The allowances as contained in clause (14) of section 10.
    4. Standard deduction of Rs. 50,000 u/s 16.
    5. Employment/professional tax deduction as contained in section 16.
    6. Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law).
    7. Any deduction under chapter VI-A ; [except 80CCD(2) – NPS Contribution by the employer.

    The tax rates have been reduced but with the new tax rates one cannot avail around 70 tax exemptions and deductions out of more than 100 which were earlier can be availed. So, basically, one has to forego all of these. However, it depends upon person to person which tax rates are beneficial to go ahead with.

    Let us understand this with the help of example:

    Salary 6 lakh: The one can invest 50 K in 80C, mediclaim, and others to get in 5 lakh range and hence have to pay no income tax. (50K will be deducted in Standard Deduction)

    Salary 7 lakh: Either pay 32.5 K with new slab or invest 1.5 lakh under 80C and others to save the tax (50K will be deducted in Standard Deduction)

    Salary 8 lakh: Either pay 40 K with new slab or invest 1.5 lakh under 80C and others, 50K in NPS to save the tax, (50K will be deducted in Standard Deduction). Still have to pay 22.5K for tax

    Salary 9 lakh: Either pay 60 K with new slab or invest 1.5 lakh under 80C and others, 50K in NPS, (50K will be deducted in Standard Deduction), and still pay 42.5 K

    Above calculations suggest that old tax rates with exemptions and deductions is a better option for those individuals having higher income bracket

    If someone has a home loan, education loan, mediclaim for family or parents, certain other deductions will be available in the later tax slab. Hence, from this year now one has to calculate their total income as well as deductions and have to decide whether they will invest money for a lock-in period or can get better returns after paying income tax through new slab.

    It is important to note that post the announcement of new tax rates, Individual will have more cash in hand at his/her disposal at the end of every month or year which was primarily the purpose of the government to boost the consumption thereby taking India into the $5trillion GDP goal.

    Benefits of New Tax Rates

    • Optional for Individuals for opting old or new rates.
    • Lower Income earners are benefitting from new tax rates
    • National Pension System (NPS) i.e. Deduction under 80CCD(2) will continue
    • DDT abolished

    Source: https://www.indiabudget.gov.in/

  • What is an IPO and how does it work?

    What is an IPO and how does it work?

    An initial public offering, or IPO, is the very first sale of stock issued by a company to the public. Prior to an IPO, the company is an unlisted company, with a relatively small number of shareholders made up primarily of early investors (such as founders, their families and friends) and professional investors (such as venture capitalists or angel investors). The public, on the other hand, consists of everybody else – any individual or institutional investor who wasn’t involved in the early days of the company and who is interested in buying shares of the company.

    The Initial Public Offering (IPO) Process

    The entire process of IPO India is regulated by the Securities and Exchange Board of India (SEBI) to prevent the possibility of fraud and safeguard investor interest.

    Step 1: Selection of Investment Bank

    The first thing that company management must do when they have taken a unanimous decision to go public is to find an investment bank or a conglomerate of investment banks that will act as underwriters on behalf of the company. Underwriters buy the shares of the company and resell them to the general public. The company must also hire lawyers that can guide them through the legal maze that an IPO setup can be. It must be ready with detailed financial records for intensive fiscal health scrutiny that SEBI would perform.

    Step 2: Preparation of Registration Statement

    The securities and exchange board of India (SEBI) regulates the entire process of investment via an IPO in India. A company intending to issue shares through IPOs first registers with SEBI. SEBI scrutinizes the documents submitted, and them only approves it. It must also see that registration statement fulfils all the mandatory requirements and satisfies all rules and regulations.

    Step 3: Getting the Prospectus Ready

    While awaiting the approval, the company prepares its prospectus, in which it mentions that SEBI’s approval is pending. This prospectus is meant for prospective investors who would be interested in buying the stock.

    Step 4: The Road Show

    Once the prospectus is ready, underwriters and company officials go on countrywide ‘road shows‘, visiting the major trade hubs and promote the company’s IPO among select few private buyers. They get a feel of investor response through these tours and try to woo big investors.

    Step 5: SEBI Approval & a Go Ahead

    Once SEBI is satisfied with the Registration Statement, it declares the statement to be effective, giving a go-ahead for the IPO to happen and a date to be fixed for the same. Sometimes it asks for amendments to be made before giving its approval.

    Step 6: Deciding on Price Band & Share Number

    Once approved, the company decides two things; it fixes the price of the share and the number of shares it plans to issue.

    There are two types of IPO issues: fixed price and book building. In the former, the company decides the price of the share in advance. In the latter, the company gives you a range of prices. You then need to bid for shares within this range.

    Step 7: Available to Public for Purchase

    After deciding on the type of issue, the company makes the shares available to the public. Investors then submit applications showcasing their interest in buying the shares. Once the company gets subscriptions from the public, it proceeds to allot the shares.

    Step 8: Listing

    It involves listing it on the stock market. After the shares are issued to investors in the primary market, they get listed in the secondary market. Trading in these shares happens daily.

    Conclusion

    In summary, an IPO is a crucial step for a company transitioning from private to public ownership, offering shares to the general public for the first time. The process, regulated by SEBI in India, involves careful preparation, from selecting underwriters and submitting detailed financial records to finalizing the price and number of shares. Once approved, the company’s shares are offered to the public, eventually being listed on the stock exchange. For investors, participating in an IPO can be an opportunity to buy into a company’s future growth right from its initial market debut.