GOLD is the proven, quality, long-term wealth store during a slide into deep crisis -the one which everyone else comes to in a bit of a panic. Even if, to begin with, the early buyers are buying gold purely to protect their wealth they still tend to multiply their money, because they are subconsciously anticipating future demand. The best investments do this."
Gold's Greatest Use
People always ask 'But what’s the use of gold?' which encourages some experts to pretend gold is vital for dentistry and electronics. It isn't. The fact is that gold is hardly useful at all in industry, but that certainly does not mean it is not useful at all.
So let's explain clearly why gold has repeatedly become one of the most fundamentally useful things there is in human society, and to do that let's first recognize its main quality - its reliably rare supply.
How Much Gold Is There?#
Even with modern technology gold is still incredibly difficult to find.
In total about 160,000 tonnes of gold have been taken out of the Earth.
That 160,000 tonnes is less than you might think. Formed into a single gold cube it wouldn’t quite cover a tennis court. In fact it would be 2 metres short. But that’s all the gold in the world.
Gold is being mined at about 2,600 tonnes a year, so the above ground supply is expanding at 1.6% per annum. This newly mined supply means the world's cube of gold - currently 20.2 metres across - is growing by just 11 cm per year.
All the world's gold will cover a tennis court when the above ground stock is 205,000 tonnes. This will be some time around 2025.
205,000 tonnes is approximately the sum of the current above ground stocks (approximately 160,000 tonnes) plus the aggregate un-mined known reserves of all the world's gold mining companies (approximately 45,000 tonnes).
That's all the world's gold - both above ground, and known about but still underground.
How Is That Gold Used?#
Gold is not consumed in any meaningful sense. A tiny amount finds some use as false teeth because of its inertness, and some is used in electronics because of its non-corrosive nature and excellent conductivity.
But currently well over 95% of the world's gold is held as a wealth store - either in bullion vaults or as jewelry, which is generally considered a private monetary reserve (particularly in India, the world's biggest gold customer).
This stock of gold isn't disappearing, and its supply is growing at a very slow rate (1.6% pa) compared to its overall stock. This feature of a nearly fixed above ground quantity, growing slowly, has been true for about 4,000 years.
So you can now see that there exists a large, but not too large, and almost fixed quantity of gold in the world, almost all of which is held by its owners as a tangible store of wealth. That is something which is true of nothing else.
By contrast to gold's restricted supply our money systems are currently expanding out of control. Modern loose monetary policies - designed to keep the factories busy - are expanding the supply of currency, under political direction, by at least 11% per annum; and that's for the Euro, the most hawkishly managed of the modern world's major currencies.
In such circumstances gold's reliable rarity is again noticed by savers. Its great use is as a money proxy when artificial forms of money (which are far more common) are not being properly restricted in supply. In such times gold's unexpandable supply causes it to be a much more reliable store of purchasing power than currency. Nothing does this job so reliably and so well as gold, because nothing matches the unimpeachable rarity and stability of gold's above ground supply.
Better still, as people come to remember and appreciate this unique quality their demand for gold causes not just a retention of purchasing power, but a multiplication of it.
Gold - A Tool of Trade#
Here's a 2,000 year old Roman explanation of a vital tool of trade.
"The origin of buying and selling began with exchange.
Anciently money was unknown, and there existed no terms by which merchandise could be precisely valued. Every one, according to the wants of the time and circumstances, exchanged things useless to him, against things which were useful; for it commonly happens that one is in need of what another has in excess.
But it seldom coincided in time that what one possessed the other wanted, or vice versa. So a device was chosen whose value remedied by its homogeneity the difficulties of barter."
Trade is right at the heart of human society, and it creates the need for this 'device' to store value for later exchange. The device needs homogeneity - constancy of form and quantity - which most governments attempt to deliver with paper money, and they are successful most of the time.
But when the going gets tough governments bend their own rules. They start to issue more and more money, and then nothing exists which matches the homogeneity of gold.
The Romans joined a long list of civilisations which chose gold as a reliable, apolitical, monetary medium. Before them there were the great classical civilisations of the Greeks, Persians, Ionians, and the Egyptians. After them there were many more, through the Spanish, French, Ottoman, British and American empires, all of them with gold based monetary systems.
Gold's Record As Money#
But every single one of those gold based currencies eventually failed - the gold stopped circulating as the money of normal transactions, as currency. So it’s best to avoid the misunderstanding of history which leads so-called “gold bugs” to regard gold as the world’s only true and permanent money, because the hard historical fact is that it has been tested - often - and it both disappears and re-appears, depending on the prevailing economic circumstances.
Yet what is different about gold and other forms of money is the way they disappear, and why. Because its natural qualities recommend it as a high quality form of money gold suffers from Gresham’s Law, a common sense law in economics which states that “bad money drives good money out of circulation”.
Think about it for a moment and you’ll see that given a choice of spending good money (gold) or bad money (inflating paper) you’d spend the paper and keep the gold as a store of value. So in an economy where economic and political considerations have combined to produce a paper currency running in parallel with gold, and where that currency is showing the early signs of being dangerously expanded in supply, then people will elect to hold on to gold and spend paper. Magnified millions of times by everyday transactions in a typical economy this eventually stops gold circulating as money.
For much the same reasons when their time is up paper currencies will pour into circulation as people look to buy hard assets, until eventually the best value you will get from the banknote is to use it as heating fuel.
This is the key difference. While paper money forms disappear permanently, and lose all their value, gold disappears temporarily, and retains its value over the very long term.
Every few years, and when circumstances are right, gold returns. It has a history of doing so which has lasted those 4,000 years.
Gold Can Multiply Your Wealth #
The trick with gold is to understand the causes for these rolling phases, to recognise them, and to act appropriately. If you own gold at the right time you will own a fast appreciating asset when normal business assets, and money itself, are tumbling in value.
Owning gold in good phase is very profitable. In the 5 years after the 1929 crash gold's investment purchasing power rose 17 times.
In the decade of the 1970s gold's investment purchasing power rose 15 times.
So far in gold's current re-emergence, with the economic situation looking every bit as as hostile as the 30s and the 70s, gold's price has multiplied by about 3 times. By comparison with those previous cycles it is still nearer the bottom than the top.
And Gold Can Destroy It Too#
But don't forget gold lost nearly seven eighths of its investment purchasing power between 1980 and 2000. That was during the best period for growing businesses in the twentieth century.
That price slide shows that smart investors should not grow too fond of their gold! Even though it's currently pretty grim the time will come when the outlook for business has improved, and most people either will not have realised it, or will still be too nervous to do anything about it.
Then it will be smart to sell your gold, and use its purchasing power to invest in people and businesses, and to participate once again in the dynamic creation of wealth.
The people who manage to do this will be the smartest of all gold buyers. They are not hoarding gold for its own sake. They are positioning themselves to be able to invest actively in a recovery which is a long way off. By doing this they will be both profiting themselves and serving their communities at the same time. Capital which has not been adequately protected right now will simply not be there to invest in the business opportunities of the future
Thursday, December 17, 2009
Bajaj Hindusthan
For Q4FY09, Bajaj Hindusthan reported numbers were in line with our estimates. Net sales dipped by 10.3% YoY on account of lower sugar sales volume while increased by 8.2% on sequential basis. However, on account of higher other operating income of Rs88 cr (up 543.6% YoY) from unwinding of swap transaction on long-term ECB loans, total income grew by 5.5% YoY and 26% QoQ. The company has closing stock of about 0.17 million tons as on Sep 30,2009. The company reported net profit of Rs69 crore (up 15% QoQ) as compared to a loss of Rs87 cr corresponding period last year.
Upturn in sugar cycles led to revival of Bajaj Hindusthan
For Q4FY09, Bajaj Hindusthan reported numbers were in line with our estimates. Net sales dipped by 10.3% YoY on account of lower sugar sales volume while increased by 8.2% on sequential basis. However, on account of higher other operating income of Rs88 cr (up 543.6% YoY) from unwinding of swap transaction on long-term ECB loans, total income grew by 5.5% YoY and 26% QoQ. The company has closing stock of about 0.17 million tons as on Sep 30,2009. The company reported net profit of Rs69 crore (up 15% QoQ) as compared to a loss of Rs87 cr corresponding period last year.
Margins improved on YoY basis
On sequential basis, EBITDA registered a de-growth of 23.3%, driven by higher employees cost (up 39.4%) and stock in trade and consequently EBITDA margins decreased by 1178 bps to 18.3% during the quarter. Led by significant reduction in interest outlays (down 47.7% QoQ) PAT margins improved marginally by 97 bps on QoQ basis. Foray into power will offset the sugar cyclicality To reduce dependence on the cyclical nature of the sugar industry, BHL had proposed expansion of its power generation capacity by 400 MW for Rs1,600 cr. The company plans to set up a 80 MW coal based power capacity each at five locations in Uttar Pradesh. The power plants are expected to be operational by the next 20 months, which would take the total power generation capacity of BHL to 830 MW. The company expect to sell half of the power to the UP government while the other half would be sold in the open market. The management has guided average power selling price at Rs5 per unit while the cost of power is likely to be around Rs2.5-2.8/unit. We have valued coal based power
generation units at Rs36/share based on DCF valuation with a cost of equity of 14.7%.
Incumbent FCCB redemption in Feb-2011 could pressurize balance sheet
BHL had issued US$120 mn zero coupon convertible bonds due 2011. Out of which, the company had repurchased FCCBs aggregating to face value of US$19.9 mn. The aggregate principal amount of bonds which remained outstanding after repurchase is US$99.6 mn. We estimate cash flow from operations at about Rs1,183 crore during FY10-11E. We estimate balance sheet would be little stretched if these bonds will be redeemed at 133.57% of its principal amount on the maturity date. BHL to raise Rs2,000 cr to fund its expansion plans Bajaj Hindusthan had announced for raising of additional long term funds up-to Rs2000 crores in line with our earlier projections, by further issue of equity shares and/or securities convertible into or exchangeable with equity shares, in domestic and/or international market in one or more tranches. Price settlement between UP mills and farmers in line with our estimates After month-long row between farmers and UP mills over cane price, the UP mills agrees to pay Rs190 per quintal for the common variety and Rs 195 for the early variety, which is in line with our earlier estimates of Rs200 per quintal. The impasse between farmers and mills has already delayed crushing season in the state by about a month.
FY09 Performance review
On consolidated basis, the company reported marginal dip of 2.1% YoY in its net sales. However, on account of 557% YoY growth in other operating income total income grew by 8.8%. Led by lower cane crushed (down 39.7% YoY) during the year raw material costs decreased 10.8% YoY. EBITDA registered impressive growth of 193% on account of lower raw material costs and other expenditure (down 15.5% YoY) and consequently margins improved 1386 bps YoY to 20.8% during FY09. The company reported net profit of Rs57.9 cr during FY09 as compared to a loss of Rs197.6 cr same period last year.
Upturn in sugar cycles led to revival of Bajaj Hindusthan
For Q4FY09, Bajaj Hindusthan reported numbers were in line with our estimates. Net sales dipped by 10.3% YoY on account of lower sugar sales volume while increased by 8.2% on sequential basis. However, on account of higher other operating income of Rs88 cr (up 543.6% YoY) from unwinding of swap transaction on long-term ECB loans, total income grew by 5.5% YoY and 26% QoQ. The company has closing stock of about 0.17 million tons as on Sep 30,2009. The company reported net profit of Rs69 crore (up 15% QoQ) as compared to a loss of Rs87 cr corresponding period last year.
Margins improved on YoY basis
On sequential basis, EBITDA registered a de-growth of 23.3%, driven by higher employees cost (up 39.4%) and stock in trade and consequently EBITDA margins decreased by 1178 bps to 18.3% during the quarter. Led by significant reduction in interest outlays (down 47.7% QoQ) PAT margins improved marginally by 97 bps on QoQ basis. Foray into power will offset the sugar cyclicality To reduce dependence on the cyclical nature of the sugar industry, BHL had proposed expansion of its power generation capacity by 400 MW for Rs1,600 cr. The company plans to set up a 80 MW coal based power capacity each at five locations in Uttar Pradesh. The power plants are expected to be operational by the next 20 months, which would take the total power generation capacity of BHL to 830 MW. The company expect to sell half of the power to the UP government while the other half would be sold in the open market. The management has guided average power selling price at Rs5 per unit while the cost of power is likely to be around Rs2.5-2.8/unit. We have valued coal based power
generation units at Rs36/share based on DCF valuation with a cost of equity of 14.7%.
Incumbent FCCB redemption in Feb-2011 could pressurize balance sheet
BHL had issued US$120 mn zero coupon convertible bonds due 2011. Out of which, the company had repurchased FCCBs aggregating to face value of US$19.9 mn. The aggregate principal amount of bonds which remained outstanding after repurchase is US$99.6 mn. We estimate cash flow from operations at about Rs1,183 crore during FY10-11E. We estimate balance sheet would be little stretched if these bonds will be redeemed at 133.57% of its principal amount on the maturity date. BHL to raise Rs2,000 cr to fund its expansion plans Bajaj Hindusthan had announced for raising of additional long term funds up-to Rs2000 crores in line with our earlier projections, by further issue of equity shares and/or securities convertible into or exchangeable with equity shares, in domestic and/or international market in one or more tranches. Price settlement between UP mills and farmers in line with our estimates After month-long row between farmers and UP mills over cane price, the UP mills agrees to pay Rs190 per quintal for the common variety and Rs 195 for the early variety, which is in line with our earlier estimates of Rs200 per quintal. The impasse between farmers and mills has already delayed crushing season in the state by about a month.
FY09 Performance review
On consolidated basis, the company reported marginal dip of 2.1% YoY in its net sales. However, on account of 557% YoY growth in other operating income total income grew by 8.8%. Led by lower cane crushed (down 39.7% YoY) during the year raw material costs decreased 10.8% YoY. EBITDA registered impressive growth of 193% on account of lower raw material costs and other expenditure (down 15.5% YoY) and consequently margins improved 1386 bps YoY to 20.8% during FY09. The company reported net profit of Rs57.9 cr during FY09 as compared to a loss of Rs197.6 cr same period last year.
14 tax-free incomes for FY 2009-10
The taxing season is going to start in next couple of months and following are few items of income which are fully exempt from Income tax.
1. Dividends on shares and units - Section 10(34) & (35)With effect from the Assessment Year 2004-05, the dividend income and income of units of
mutual funds received by the assessee completely exempt from income tax.
2. Long-term capital gains of transfer of securities - Section 10(38)With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax.Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains.This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.
3. Agricultural income:Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income, is explained in the following illustration:
For the assessment year 2010-2011 a male individual has a total income from trading in cloth amounting to Rs 162,000 besides, he has earned Rs 40,000 as income from agriculture.
The income tax payable by him will be computed as under:
On the first Rs 1,60,000 of taxable non-agricultural income - Nil
On the next Rs 40,000 of agricultural income (falling under 10% slab) - Nil
On the next Rs 2,000 of taxable non-agricultural income @ 10% - Rs 200
IT on aggregated income of Rs 202,000 (Rs 162,000 + Rs 40,000) - Rs 200
4. Receipts from Hindu undivided family (HUF)
Any sum received by an individual as a member of a Hindu undivided family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate
belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section
5. Allowance for foreign service
Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7).This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.
6. Gratuities Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax.
In respect of private sector employees, however, gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions. The maximum amount of exemption is Rs 3,50,000. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).
7. Commutation of pension :The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely -
(a) Where the employee received any gratuity, the commuted value of one-third
of the pension which he is normally entitled to receive; and
(b) In any other case, the commuted value of half of such pension.
It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.
8. Leave salary of central government employees:Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs 300,000.
9. Voluntary retirement or separation payment:Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax.The maximum amount of money received at such VR which is so exempt is Rs 500,000. As per Finance (No. 2) Act, 2009 an assessee cannot enjoy both the exemption in respect of VRS upto Rs 500,000 and also a deduction under Section 89.
10. Life insurance receipts:Under Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
11. Payment received from provident funds:Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.
12. Certain types of interest payment:There are certain types of interest payments which are fully exempt from income tax u/s 10 (15).
These are described below -
(1) Income by way of interest, premium on redemption or other payment on such securities,bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(2a) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7% Capital Investment Bonds);
2b) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e.,9% or 8.5% or 8% or 7% Relief Bonds); (iid) Interest on NRI bonds;
(3a) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(3b) Interest payable to any bank incorporated in a country outside India and authorised perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India or with any scheduled bank
(4) Certain interest payable by Government or a local authority on moneys borrowed by it,including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(5) Interest on Gold Deposit Bonds;
(6) Interest on certain deposits are: Bhopal Gas victims;
(7) Interest on bonds of local authorities as notified, and
(8) Interest on 6.5% Savings Bonds [Exempt] issued by RBI
(9) Stipulated new tax free bonds to be notified from time to time.
13. Amount received by way of gift, etc - Section 10(39):As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by individual or HUF in cash or by way of credit, etc. is being subjected to tax if the same is not received from relative,etc. However, Section 56(2) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of income tax.Similarly, amount received on the occasion of marriage from a non-relative, etc. would also be exempted. It may be noted that the gift from relatives. as mentioned in the Section can be received without any upper limit.
14. Tax exemption regarding reverse mortgage scheme - sections 2(47) and 47(x)Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax.
These amendments by the Finance Act, 2008 apply from FY 2007-08 onwards.10. Life insurance receiptsUnder Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
1. Dividends on shares and units - Section 10(34) & (35)With effect from the Assessment Year 2004-05, the dividend income and income of units of
mutual funds received by the assessee completely exempt from income tax.
2. Long-term capital gains of transfer of securities - Section 10(38)With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax.Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains.This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.
3. Agricultural income:Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income, is explained in the following illustration:
For the assessment year 2010-2011 a male individual has a total income from trading in cloth amounting to Rs 162,000 besides, he has earned Rs 40,000 as income from agriculture.
The income tax payable by him will be computed as under:
On the first Rs 1,60,000 of taxable non-agricultural income - Nil
On the next Rs 40,000 of agricultural income (falling under 10% slab) - Nil
On the next Rs 2,000 of taxable non-agricultural income @ 10% - Rs 200
IT on aggregated income of Rs 202,000 (Rs 162,000 + Rs 40,000) - Rs 200
4. Receipts from Hindu undivided family (HUF)
Any sum received by an individual as a member of a Hindu undivided family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate
belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section
5. Allowance for foreign service
Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7).This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.
6. Gratuities Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax.
In respect of private sector employees, however, gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions. The maximum amount of exemption is Rs 3,50,000. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).
7. Commutation of pension :The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely -
(a) Where the employee received any gratuity, the commuted value of one-third
of the pension which he is normally entitled to receive; and
(b) In any other case, the commuted value of half of such pension.
It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.
8. Leave salary of central government employees:Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs 300,000.
9. Voluntary retirement or separation payment:Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax.The maximum amount of money received at such VR which is so exempt is Rs 500,000. As per Finance (No. 2) Act, 2009 an assessee cannot enjoy both the exemption in respect of VRS upto Rs 500,000 and also a deduction under Section 89.
10. Life insurance receipts:Under Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
11. Payment received from provident funds:Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.
12. Certain types of interest payment:There are certain types of interest payments which are fully exempt from income tax u/s 10 (15).
These are described below -
(1) Income by way of interest, premium on redemption or other payment on such securities,bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(2a) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7% Capital Investment Bonds);
2b) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e.,9% or 8.5% or 8% or 7% Relief Bonds); (iid) Interest on NRI bonds;
(3a) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(3b) Interest payable to any bank incorporated in a country outside India and authorised perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India or with any scheduled bank
(4) Certain interest payable by Government or a local authority on moneys borrowed by it,including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(5) Interest on Gold Deposit Bonds;
(6) Interest on certain deposits are: Bhopal Gas victims;
(7) Interest on bonds of local authorities as notified, and
(8) Interest on 6.5% Savings Bonds [Exempt] issued by RBI
(9) Stipulated new tax free bonds to be notified from time to time.
13. Amount received by way of gift, etc - Section 10(39):As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by individual or HUF in cash or by way of credit, etc. is being subjected to tax if the same is not received from relative,etc. However, Section 56(2) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of income tax.Similarly, amount received on the occasion of marriage from a non-relative, etc. would also be exempted. It may be noted that the gift from relatives. as mentioned in the Section can be received without any upper limit.
14. Tax exemption regarding reverse mortgage scheme - sections 2(47) and 47(x)Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax.
These amendments by the Finance Act, 2008 apply from FY 2007-08 onwards.10. Life insurance receiptsUnder Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
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