Due Dates for Income tax
Where the assessee is a Company - October 31
Where the assessee is a person other than a Company
a) Where the accounts of the assessee are required
to be audited under any other law - October 31
b) Where the assessee is a 'working partner' in a firm
whose accounts are required to be audited under any law - October 31
c) Where the assessee is covered by the first
Section 139 (1) - October 31
d) In any other case - July 31
Compulsory quoting of Permanent
Account Number (PAN) / Tax Deduction Account Number (TAN) on Challans
For ensuring correct and prompt credit to taxpayers,
Central Board of Direct Taxes (CBDT), Government of India have decided
to implement the provisions for mandatory quoting of PAN / TAN on challans
from January 1, 2005. Accordingly, no payment of taxes will be accepted
by bank branches unless the PAN of the taxpayers and TAN of the deductor
are quoted on the respective challans.
TDS Vs TCS
Tax deduction at Source (TDS)
Persons responsible for making payment of Income
covered by the scheme of tax deduction is are required to deduct tax
at source at the prescribed rates. Tax so deducted should be deposited
within the prescribed time. Returns on TDS should be submitted within
the specified time.
The income tax is deducted at source on
- Interest on Securities
- Rent payments
- Payments to Contractors and sub contractors
- Payment of Commission or brokerage
- Payment of fees for Professional/Technical Services
- Payment of any income to Non Resident
Tax Collection at Source (TCS)
Tax Collection at Source arises on the part of
the seller. The following goods when sold must be subjected to TCS and
the taxes collected thereon must be remitted into department's accounts
as done in the case of TDS
- Alcoholic liquor for human consumption and
- Timber obtained under a Forest Lease
- Timber obtained by any mode other than under
a Forest Lease
- Any other Forest produce not being Timber
or Tendu Leaves
- Scrap (waste and scrap from the manufacture
or mechanical working of materials which is definitely not usable
as such because of breakage, cutting up, wear and other reasons
of Service Tax Effective from date of enacting Finance Bill
- Increased from 10 % to 12% from date of enacting
the finance bill
- Effective rate 12.24% as against 10.2%
- Effective date 18th April, 2006
Consolidated Notification providing abatement /Partial
Exemption w.e.f 1.3.2006
Notn. 1/2006 ST dated 1.3.2006
- Consolidated notification granting abatement for
various categories of services
- Previously 13 notifications had been issued in this
||Description of Services
||Taxable Value %
||Mandap Keeper providing catering -
||Hotel as mandap keeper providing catering
||Tour Operator Package Tour
||Tour Operator Other than Package
||Tour operator also arranges /books
accomadation only 2/2004
||Renting of cab 9/2004
||Convention including catering
||Erection, Commissioning of Installation
under a contract for supply and erection, commissioning or installation
of plant, machinery or equipment 19/2003
||Transport of Goods by road
||Commercial or Industrial Construction
||Outdoor Catering 20/2004
||Pandal or shamiana including
||Construction of Complex 18/2005
- No CENVAT credit taken under the Cenvat Credit Rules
2004 on duty in inputs or capital goods and service tax on input services
- Benefit of Notification 12/2003 ST dated
20.6.2003 not availed
Existing Exemption Notification rescinded
Notification 2/2006 ST dated 1.3.2006
||Other than accounting, auditing and statutory
All services provided in professional capacity is now taxable
|Call Centre or a Medical transcription Centre
||8/2003 ST dated 20.6.2003
|Maintenance or repair services
||Service provided under maintenance contract or
agreement entered into prior to 1.7.03
|11/2003-ST dated 20.6.2003
||Services related to ERP software system provided
by a management consultant
|16/2004-ST dated 10.9.2004
||Services provided on a railway train by an outdoor
||19/2004-ST dated 10.9.2004
||Services provided within the premises of an academic
institution or medical establishment
||21/2004 ST dated 10.9.2004
New Exemption w.e.f 1.3.2006
|Banking & other Financial Services
65(105)zm Financial leasing services including equipment leasing
||So much of service tax leviable as is equivalent
service tax calculated on 90% of amount representing interest i.e
Installments paid towards repayment minus principal amounts repaid
Lease management fee, processing fee, documentation charges and
administration fee are not entitled to the exemption
|4/2006-ST dated 1.3.2006
|Testing and analysis
||Exempt from whole of service tax Services
provided in relation to water quality testing by Government owned
State and District level laboratories
||6/2006 ST dated 1.3.2006
|Services provided by RBI
|Exempt from whole of service tax Taxable
services provided or to be provided to any person by the RBI
||7/2006 ST dated 1.3.2006
15 New Services Effective from date of enacting
- Registrar to an Issue.
- Share Transfer Agent.
- Automated Teller Machine (ATM) operations, maintenance
- Recovery agents.
- Sale of space or time for advertisement, excluding
print media and sale of time slots by a broadcasting agency or organization.
- Sponsorship services provided to any body corporate
or firm, excluding sponsorship in relation to sports events.
- Air transport service for international journey,
in any class other than economy class.
- Transport of goods in containers by rail, other
than Government railway.
- Business support services.
- Auctioneers service.
- Public relations service.
- Ship management service.
- Internet telephony service.
- Transport by cruise ship.
- Credit card, debit card, charge card or other payment
cards related service.
Extension of Scope of existing taxable services
W.e.f. passing of Bill
- Commercial Concern substituted with
person for 17 services.
- Definition of Aircraft operator to include services
rendered by any person and transport of passengers.
Existing services proposed to be amended
W.e.f. Passing of Bill
||Purpose of amendment
||Banking and other financial services
||To Include services such as;
i.Transfer of money through different modes, such as telegraphic
transfer, mail transfer and electronic transfer, by any person,
ii.Services provided as banker to an issue.
||To specifically mention, consultancy in different
areas of management such as financial management, human resources
management, marketing management, production management, logistics
management, procurement and management of information technology
resources, or other similar areas of management.
||General insurance & Life insurance services
||To include, services provided to a policy holder
or any person by an insurer, including a re-insurer
||Insurance auxiliary services concerning general
insurance & life Insurance business
|To include services provided to a policy holder
or any person or an insurer, including a re-insurer
||Maintenance or repair
||To rename as management, maintenance or
repair service and to include management of movable property.
||Erection, commissioning or installation service
|To include erection, commissioning or installation
of structures, whether pre-fabricated or otherwise.
||Consulting engineers service
||To include engineering consultancy services provided
by any firm or body corporate.
||Business auxiliary service
||To include computerized data processing Software
||Technical Testing & Analysis
||Clarify that it includes testing and analysis
undertaken for the purpose of clinical testing of drugs and formulations
but does not include testing or analysis for the purpose of determination
of the nature of diseased condition, identification of a disease,
prevention of any disease or disorder in human beings or animals.
Amendments to Service Tax Rules 1994 w.e.f
Notification No.5/2006 ST dated 01.03.06
Rule 4 Registration
- Intimate any change in information furnished in
Form ST-1 within 30 Days.
- Surrender RC to Superintendent on ceasing to provide
the taxable service.
- Superintendent shall cancel RC after ensuring that
assessee has paid all monies due.
Rule 5 Records
- Preserve records for a period of at least 5 years.
- Records to be made available at the registered premises
for inspection and examination by a Central Excise Officer authorized
by AC / DC.
- Registered premises include all premises or offices
from taxable service are provided.
Amendments to Finance Act Effective from
date of enacting Finance Bill
rendered by Club or Association to members proposed to be included.
66 Rate increase
to 12% and new services specified
66A Charge for
services received from outside India
67 - Valuation of Taxable
Service Entire Section substituted to enable determination of
value and prescription of manner of such determination.
73 Recovery of Service Tax
Provides for voluntary payment of tax, interest and 25% of penalty and
demand conclusion of proceeding in such cases.
tax collected to be deposited with Government Voluntary and also
issue of notice and order.
to be notified ranging between 10% to 24% p.a. on 73A demand.
Attachment to protect revenue Notice served u / s 73(1) or 73A(3).
of information in respect of persons in certain cases.
76 Penalty for
failure to pay service Tax Rs.200 per day or @ 2% of such tax,
per month, whichever is higher, subject to maximum of service tax.
of any amount due to Central Government.
94 Power to
make rules in regard to the following:
- the determination of amount and value of taxable
service under section 67
- the manner of provisional attachment of property
u /s 73C(1)
- Publication of the name of any person and any other
particulars in relation to any proceedings u / s 73D (1).
- Manner of recovery of any amount due to the Central
Government u / s 87.
96C AAR can
consider question of determination of liability to pay service tax.
Customs & Central Excise
|CVD @ 4% on all imported goods ( with some exceptions
) but Cenvattable
Peak rate of duty reduced from 15% to 12.5%
|Metals & Inputs
||10 to 7.5
||15 to 5
|Refractories & their inputs
||10 to 7.5
Chemicals & Petroleum
|10 to 5
|Textiles yarn / machinery
||15 to 10
||Set top box Nil BCD but 16%
CVD (+) 4% SAD
||CVD withdrawn on computers but 12%
||30 to 60
|Vanaspathi, bakery shortening
||30 to 80
|Health Life saving drugs
||Reduced to 5% (+) Nil CVD.
||24 to 16
|Petrol car < 4 mtrs 1200cc
||24 to 16
|Diesel Car < 4 mtrs 1500cc
||24 to 16
|Footwear ( RSP 250 to 750 )
||16 to 8
|All man made ( like polyester, nylon, viscose and
acrylic ) fibres and filament yarns has been reduced from 16% to
|Packaged Software on electronic media
|Set top boxes not covered under ITA
||16 to Nil
|MP3 Players and MPEG4 Players
||16 to 8
|Clearance to DTA by EOU / STP / EHTP
||50% of Aggregate customs duties to
25% of BCD 9 (+) ED payable on like goods.
RSP based assessment for parts, components and assemblies
for automobiles, plant growth regulators & Tooth brushes.
Exemption to goods manufactured without the aid of
Essential oils, perfumes, bricks, Ceramic tiles, previous metals, biscuits,
Exemption to goods sold without a brand name withdrawn
Food items, mineral water, sugar syrups, beverages containing milk etc.
All the budgetary changes, will come into effect from
midnight of 28.2.2006/1.3.2006.
Clearances after this period will attract the new rates of duty.
Pre-budget stocks Duty prevailing on the date of their removal
. CCE vs. Vazir Sultan Tobacco Ltd 1996(83) ELT 3 (SC)
Deemed manufacture Immediate effect
||Process of cutting or sawing or sizing or polishing
of blocks or any other
Process of converting stone blocks into slabs or tiles.
||Labelling or relabelling of containers and repacking
from bulk packs to
Retail packs or the adoption of any other treatment to render the
Marketable to the consumer.
|Process of metallization
Iron & Steel
Process of drawing or redrawing, a bar, rod, wire rod, round
bar or any other
similar article, into bright bar.
Articles of Iron & Steel
Process of coating with cement or polyethylene or other plastic
materials of pipes and tubes
Budget 2006-07 Fringe
Benefit Tax Amendments
- Contributions by the employer to an approved superannuation
fund of upto Rs.1,00,000 per employee will be exempt from levy of
- Fringe benefit on account of travelling expenditure
will now be valued at the rate of 5% for all industries
- Fringe benefit for hospitality will now be valued
at the rate of 5% for airline and shipping companies (presently applicable
to employers engaged in the hotel business)
- Fringe benefit for use of hotel, boarding and lodging
facilities will now be valued at the rate of 5% for airline and shipping
companies (presently applicable to employers engaged in the production
/ manufacture of pharmaceuticals and computer software)
- The following expenses will now be excluded from
sales promotion and publicity and will not be subject
- Expenditure on distribution of free samples of medicines or
of medical equipment to doctors and
- Payments to any person of repute for promoting the business
of the employer
- Presently, perquisites on which tax is paid or payable
by an employee are excluded from levy of FBT. The exclusion will now
be extended to free or subsidised transport or any allowance provided
by the employer for journeys by the employees from their residence
to the place of work or vice versa.
An Understanding of Financial
A derivative is an instrument whose payoffs depend
on a more primitive or fundamental good. It is a contractual relationship
between parties where payoffs are derived from some agreed upon benchmark.
These do not have independent existence without underlying product or
commodity. Even, derivatives do not have their own value and rather
they derive their value from some underlying product or commodity. A
financial derivative is a financial instrument, whose payoffs depend
on another financial instrument or we can say a financial derivative
is a financial instrument, whose value is linked in some way to the
value of another instrument, underlying the transaction. The underlying
instrument could be securities, currencies or indices. For example an
option on a share of stock depends on the value of the underlying share.
These are the simplest form of derivative contracts.
A forward contract is an agreement between parties to buy/sell a specified
quantity of an asset at a certain future date for a certain price. One
of the parties to a forward contract assumes a long position and agrees
to buy the underlying asset at a certain future date for a certain price.
The other party to the contract assumes a short position and agrees
to sell the asset on the same date for the same price. The specified
price is referred to as the delivery price. The contract terms like
delivery price and quantity are mutually agreed upon by the parties
to the contract. No margins are generally payable by any of the parties
to the other.
- Salient features of forward contracts may be enumerated
- Each contract is custom designed, and hence is unique
in terms of contract size, maturity date and the asset type and quality,
- On the expiration date, the contract is normally
settled by the delivery of the asset,
- Forward contracts being bilateral contracts are
exposed to counter party risk, and
- If the party wishes to cancel the contract or change
any of its terms, it has necessarily to go to the same counter party.
A futures contract is one by which one party agrees
to buy from / sell to the other party at a specified future time, a
specified asset at a price agreed at the time of the contract and payable
on maturity date. The agreed price is known as the strike price. The
underlying asset can be a commodity, currency, debt or equity security
etc. Unlike forward contracts, futures are usually performed by the
payment of difference between the strike price and the market price
on the fixed future date, and not by the physical delivery and the payment
in full on that date.
Futures contracts can be characterised by:
- An organised exchange,
- Standardised contract terms viz. the underlying
asset, the time of maturity and the manner of maturity etc.,
- Associated clearinghouse to ensure smooth functioning
of the market,
- Margin requirements and daily settlement to act
as further safeguard, and
- Existence of a regulatory authority. Futures contracts
being traded on organized exchanges impart liquidity to a transaction.
The clearinghouse, being the counter party to both sides of a transaction,
provides a mechanism that guarantees the honouring of the contract
and ensuring very low level of default.
Types of Futures
Few types of financial futures are:
- Currency futures
- Interest futures
- Stock index futures
The literal meaning of the word option
is choice or we can say an alternative for choice.
In derivatives market also, the idea remains the same. An option contract
gives the buyer of the option a right (but not the obligation) to buy
/ sell the underlying asset at a specified price on or before a specified
future date. As compared to forwards and futures, the option holder
is not under an obligation to exercise the right. Another distinguishing
feature is that, while it does not
cost anything to enter into a forward contract or a futures contract,
an investor must pay to the option writer to purchase an option contract.
The amount paid by the buyer of the option to the seller of the option
is referred to as the premium. For this reward i.e. the option premium,
the option seller is under an obligation to sell / buy the underlying
asset at the specified price whenever the buyer of the option chooses
to exercise the right.
Option contracts having simple standard features are
usually called plain vanilla contracts. Contracts having non-standard
features are also available that have been created by financial engineers.
These are called exotic derivative contracts. These are generally not
traded on exchanges and are structured between parties on their own.
The relevance of exotic options can be understood from these lines:
Exotic products come about for a number of reasons.
Sometimes they meet a genuine hedging need in the market; sometimes
there are tax, accounting, legal, or regulatory reasons why corporate
treasures find exotic products attractive; sometimes the products are
designed to reflect a corporate treasurers view on potential future
movements in particular market variables; occasionally an exotic product
is designed by an investment bank to appear more attractive than it
is to an unwary corporate treasurer. John C. Hull
AMERICAN OPTION AND EUROPEAN OPTION
It is essential to be aware of the distinction between
an American Option and a European Option.
An american option can be exercised at any time upto the expiration
date, a european option can be exercised only on the expiration date
itself. Most of the option contracts traded on exchanges are of the
type of american option.
CALL OPTION AND PUT OPTION
Basically there are two types of options viz. Call
Option and Put Option. A call option gives the buyer of the option the
right (but not the obligation) to buy the underlying asset on or before
a certain future date for a specified price whereas a put option gives
the buyer of the option the right (but not the obligation) to sell the
underlying asset on or before a certain future date for a specified
price. As stated earlier, the option writer is under an obligation to
sell / buy the underlying asset at the specified price whenever the
buyer of the option chooses to exercise the right. The specified price
is known as the strike price or the exercise price and the specified
date is known as the exercise date, maturity date or the expiration
MONEYNESS OF AN OPTION
Options can also be characterised in terms of
their moneyness. Using notations, the moneyness of an option for the
buyer of the option can be summarized as:
Where M is the prevalent market price for the option
contract, and E is the exercise price of the option contract. For a
seller / writer of the option the >, < signs will reverse. In
words, the moneyness of the option for the buyer of the option can be
- An in-the-money option is one that would lead to
a positive cash flow to the buyer of the option if the buyer of the
option exercises the option at the current market price.
- An at-the-money option is one that would lead to
a zero cash flow to the buyer of the option if the buyer of the option
exercises the option at the current market price.
- An out-of-the-money option is one that would lead
to a negative cash flow to the buyer of the option if the buyer of
the option exercises the option at the current market price.
CAP, FLOOR AND COLLAR
Limits can be set on the strike price for an option
contract. If an upper limit on the strike price is set, it is called
a cap. If a lower limit on the strike price is fixed, it
is called a floor. If a combination of both i.e. cap
and floor is used i.e. a range is fixed for the strike price,
it is called a collar. If the market price as on maturity
date is higher than the cap price, then the cap price will be the strike
price, otherwise the market price will be the strike price. Similarly,
if the market price as on maturity date is lower than the floor price,
then the floor price will be the strike price otherwise the market price
will be the strike price. In other words we can conclude that in case
of a collar, the strike price cant be higher than the cap price
and lower than the floor price. Similar to a futures contract, the exercise
of the option, normally, results in a contract to pay the difference
between the strike price and the market price on the date of exercise
of the option. As mentioned earlier, the buyer of the option has to
pay a premium for purchasing the option. Hence on the maturity date
the maximum loss that the buyer may suffer is the amount of the premium
paid and the gain depends on the difference between the strike price
and the market price as on maturity date. On the other hand, the gain
to the seller of the option is limited to the amount of the premium
received but the risk of loss is unlimited, depending upon the strike
price and the market price as on maturity date.