What is GST?

Goods and Service Tax is an indirect, value-added tax imposed on trading od domestic services and goods. It came into effect from 1 July 2017, through the execution of the One Hundred and First Amendment of the Constitution of India by the Indian government. It is an ‘all-embracing’ taxation system as it just about covers all other indirect taxes (eg., excise duty, service tax, etc.,). Like previous taxes, it is multistaged (charged at all stages from production to consumption) as well as destination-based (collected from the point of consumption not origin, unlike previous taxes). Its rules and regulations, as well as rates, are governed by GST Council. A GST Council comprises of the finance ministers of the central government and all states. Currently, it is divided into five blocks – 0%, 5%, 12%, 18% and 28%.

It was first endorsed by France as its taxation system in the year 1954, emulated by 160 countries. Some of them are Australia, Brazil, Canada, Italy, Spain, and South Korea. Albeit its implementation faced severe criticism by the nation as well as the opposition. 

Types Of GST

There are four types of GST. 

• The Central Goods and Services Tax (CGST)
• The State Goods and Services Tax (SGST)
• The Union Territory Goods and Services Tax (UTGST)
• The Integrated Goods and Services Tax (IGST)

The Central Goods and Services Tax (CGST)

The Central Goods and Services Tax comes under Central Goods and Service Act 2016. The tax collected under CGST is the revenue for the central government. Prices for goods and service under CGST is charged according to the basic market price, albeit its rate should not be exceeded than 14%, as mentioned in Section 8 of the GST Act. It covers all the Central Taxes like Central Excise Duty, Central Sales Tax, etc.

The State Goods and Services Tax (SGST)

The State Goods and Service Tax comes under State Goods and Service Act 2016. The tax collected under SGST is the revenue for the state government. Besides SGST, CGST will also be imposed on the goods and/or services provided.

The Union Territory Goods and Services Tax (UTGST)

The Union Territory Goods and Services Tax comes under the Union Territory Goods and Service Act 2016. It will only be imposed if the goods and/or services are sold in all five UT, i.e., Andaman and Nicobar Islands, Dadra & Nagar Haveli, Chandigarh, Lakshadweep, and Daman & Diu. Along with UTGST, CGST will also be imposed on the product or service.

The Integrated Goods and Services Tax (IGST)

The Integrated Goods and Services Tax is governed by the IGST Act 2016. IGST unlike CGST, SGST, and UTGST applies to inter-state transactions (be it the import into India or Export from India) of goods and/or services. CGST will not be applicable in this case. 

Advantages Of GST

Implementation of GST was one of the decisions that faced severe criticism by the nation as well as opposition. People neglected its long term benefits and focused on the harm caused at the moment. Therefore, the following are some advantages of GST.

• Before its implementation, there was a load of different taxes that were supposed to be paid for a good and/or service sold. Now there is a single tax.
• When someone is made to pay tax on a single product, again and again, they are more likely to not pay it, thus giving roots to corruption.
• It has also reduced sales without a receipt.
• When the tax is imposed on the added value, be it at all levels, the final cost is less, in comparison to the cost when tax is charged on the full value at all levels.
• Due to its cascading effect, experts believe that in the longterm the cost of the products and services will be reduced.

Disadvantages Of GST

Along with its advantages, GST has certain drawbacks or disadvantages which were one of the reasons that it faced criticism in India. Some of them are given below.

• Petrol, liquor (alcoholic beverages), and electricity are a few commodities that are not taxed under GST, therefore it disrupts its ‘all-embracing’ nature.
• It has caused an 8% increase in the price of real-estate, therefore resulting in a 12% fall in its demand.
• An increase in the cost of insurance premium, as well as the cost of software, is a result of GST.
• The main reason for its criticism is that it is also imposed on articles such as hearing aids, wheelchairs, etc..

This was all about Goods and Service Tax (GST). At certain points, it was criticized while the rest was positively a great resolution. The main points that are to be kept in mind are its benefits in the long run.

What is P/E Ratio | How to analyse P/E Ratio | Price to Earning Ratio

P/E Ratio or Price to Earning Ratio is one of the most important valuation ratios. It is the ratio of the Company’s share price to the company’s earnings per share.

P/E Ratio tells us that if you invest in a company, then how much time it would take for you to recover that amount from the company assuming that the company distributes its entire profit amongst its shareholders and shows the same performance in the coming years.

For example, you invest Rs. 1 Lakhs in a company XYZ Ltd. Whose P/E ratio is 5, which means that you’ll be able to recover your investment of Rs. 1 lakh in next 5 years.

The formula to calculate Price to Earning Ratio is:

P/E Ratio = Share Price / EPS

EPS denotes Earning per Share which means amount earned by shareholders on each share.

EPS = Earnings/ No. of Outstanding Shares

Low Price-Earning Ratio

If P/E Ratio is low then it means that either the stock is undervalued or the investors doesn’t have trust on the company’s future performance.

Usually people believe that if the P/E Ratio of any company is low then it is only because its share price is undervalued. But it is not true.

There could be another reason as well. One such reason could be that the stock is not performing well in the market or the investors are not finding its future prospects to be strong.

There are some cases where people buy shares only because its P/E Ratio is less.

But the fact is that there could be some companies whose P/E ratio is less only because of the fact that they are on the verge of getting insolvent.

So, to fully understand the P/E Ratio you must also find the reason behind its fluctuation.

High Price-Earning Ratio

If the P/E ratio of any stock is higher then it shows that the stock is either overvalued or the investors believe that the future performance of the company will be very good.

The best way to check whether the P/E ratio is high or low is to compare the P/E ratio of the company with other companies which fall under the same industry.

Or you can simply compare the company’s P/E with the industry P/E Ratio.

Industry P/E means the P/E Ratio of that whole industry. For example, the P/E Ratio of IT industry would be the average of all the IT companies.

Only checking the P/E ratio before purchasing the shares of a company is not enough. One should also evaluate that P/E Ratio properly.

You should also check that whether the recent profit earned by the company is temporary or it will show the similar results in the coming years.

Though P/E ratio is one of the most important valuation ratios but you should also keep a track of EV/EBITDA, Price Earning Growth and Price Cash Flow Ratio.

NRI TAX BENEFITS | Income Tax for NRIs in India

Definition

The first question that comes in our mind is that, who are NRI?

NRI is an Indian Citizen who stays abroad for employment or gone outside India or stays abroad under circumstances indicating an intention for an uncertain duration of staying abroad.

Now the question arises in our mind that what is a Tax?

A Tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures.

Hence in some words Tax is a money that people have to pay for people who work for the government.

Introduction

The term tax benefits generally refer to any tax law that provides you with an opportunity to reduce your tax bill when you satisfy certain eligibility requirements. A tax benefits comes in different forms, such as a deduction, exclusion or credit. The amount of tax you can save also depends on the type of tax benefits you claim because they each offer a different form of savings.

There are so many tax benefits such as:

1. Saving tax with deductions: The most common type of tax benefits comes in the form of a tax benefits. For example, when you claim a tax deduction, it reduces the amount of your income that is subject to tax. Therefore, the amount of the deduction you are eligible to claim is precisely the amount of the reduction to your taxable income.
2. Calming tax credits:A tax credit generally has more tax-savings than a deduction as it provides a dollar for dollar reduction in the amount of income tax you owe rather than merely reducing the amount of income subject to tax.

Now the question that comes in our mind is – Do NRI have to pay Advance Tax?

If NRI tax liability exceeds Rs 10,000 in a financial year, then they are required to pay advance tax. Interest under Section 234B and Section 234C is applicable when they don’t pay their advance tax.

The following are the Taxable Income for an NRI:

• Income from Salary
• Income from House Property
• Rental Payments to an NRI
• Income from Other Sources
• Income from Business and Profession
• Income from Capital Gains

Conclusion: Hence an NRI has the same tax benefits as same as the resident of India and comes under the same tax slab as per the rules and regulations set up by the income tax of India.

What Are Mutual Funds?

Mutual funds is kind of an investment option available in the market where the amount invested by the investors is pooled in so as to earn returns on their capital over a period of time.

Mutual fund is a special kind of investment through which you can invest in various types of investments together, i.e. you can do diversified investment by investing at one place.

The company which opens mutual funds is known as the Asset Management company. So basically what happens is , the prospective investors give their money to asset management company and that company invest all the money collectively at different places like bonds , cryptocurrency, bitcoins, etc. under the guidance of the experts appointed by them and they collectively get a return rate  from these different places out of which a small percent of around 1% to 2% is kept as a profit by the asset management company and the rest is given back to the investors as per the return rate.

HDFC, HSBC, ICICI , Aditya Birla, Reliance, TATA , these are the few examples of the companies and Banks who have started their own asset management company.

All the companies start different kind of mutual funds in large numbers. For example ICICI has started more than 1200 mutual funds.

So how risky is your mutual fund and how much return you’ll get out of that depends on the mutual fund that you have invested in. Mutual funds can give the return of 4% and can give more than 30% too and it can be available at both zero risk as well as high risk  because all of this depends on where the asset management company is investing your money. If that company is investing your money in stocks then it will be more risky but you can expect higher returns but if the company is investing your money in government bonds then it will be less risky.

Types of Mutual Funds

1. Equity mutual funds:

In equity mutual funds your money will be invested in the stock market. So naturally in this category of mutual funds both risk and return are high. Now in which type of a company you are investing in the stock market , if it’s a big company then it’s called Large Cap Equity Funds, if it’s a small company then it is called as Small Cap and in the same way Mid Cap Equity fund.

Big company doesn’t have much risk as compared to the smaller ones but big companies won’t have growth rate as high as it can be for the smaller companies. So both risk and return are less in big companies.

ICICI prudential blue chip fund is an example of a large cap equity fund. If you invest here for a year after a year your expected return is of 11.7% but if invest for 5 years then your expected return can be of 19.7%

Diversified Equity Fund:

Here the investment is done in large , medium and small cap or it is done in different companies.

Equity Linked Savings Scheme :

ELSS is a special type of equity fund where you can save the tax on it’s profit. In this case , the fund manager purposely invest in those options where there is a high return as well as high risk.

IDFC tax advantage is the an example of ELSS funds with the expected return of 11.3% in a year.

 Sector Mutual Fund:

Here the investment is made specifically in such companies which belongs to a big sector like Agriculture sector or for say Logistics or Transport sector.

One of the example for this is UTI transportation and Logistics funds.

Since all the investment is done in one sector , these funds are more risky because if the sector goes down everything depends on that.

Index Funds :

These are passively managed funds that is no agent of AMC is looking at where to invest money. They are passively managed according to the fluctuation in the market rate. These are completely dependent on SENSEX / NIFTY.

2. Debt Mutual Funds:

These are those mutual funds that are invested in the debt investment. Debt instruments are bonds, debentures, certificates of deposits.

Liquid funds:

Liquid funds are those funds that can be easily converted into cash. it has a very low risk and can also be considered as an alternative for a savings account.

Asset liquid fund is one of the examples here where you will get the return of approx. 7.1% in a year.

Guilt Funds:

These are those funds where investment is done on the government-issued bonds. Since the government borrows money in this case, so there is a zero risk.

Fixed Maturity Plan:

This can also be considered as fixed deposits because it has very low risk similar to FD and it is done for a fixed period of time.

3. Hybrid  Mutual Funds:

Basically it is a mixture of Debt and equity mutual funds. Some people want to invest in stock market and at the same time want to invest some amount in  the Debt instruments so in that case they can invest in Hybrid Mutual funds.

Balanced Savings Fund:

If most of the money is invested in a debt fund then it will be called balanced savings funds. The approximate ratio is 70:30, i.e., 70% of your money is invested in a low-risk debt fund and 30% is in the equity funds.

What is SIP? | How Systematic Investment Plan Works

A systematic investment plan which is popularly known as SIP, is a financial product offered by mutual fund houses wherein you invest a fixed amount on a monthly or quarterly basis in the mutual fund of your choice.

In most of the cases, this fixed amount could be minimum Rs. 500 and you can invest this amount either every week or every month or every three months.

When you commence your SIP, you have to inform your mutual fund house that this SIP is for a fixed duration or this is a Perpetual SIP. Fixed duration can be a period of 6 months, 1 year, 2 year , 3year ,  5 year or more than that.

And in case of perpetual SIP, whenever you feel like abolishing it you can do so by merely informing your mutual fund house.

Now when we talk about SIP, we invest a fixed amount on a regular basis that is on a monthly or quarterly basis and this is for a long term goals which are more than 5 year away like a child’s higher education, our retirement planning, etc

SIP allows an investor to invest amount regularly in a mutual fund scheme, typically an equity mutual fund scheme.

Benefits of SIP

• It impacts the financial discipline in your life.
• It helps you to invest regularly irrespective of market fluctuations.
• Benefits from the power of compounding.
• Enables Rupee – cost averaging.
• Affordability – starts with as low as RS. 500
• Less risk
• You also have an option to increase its amount with an increase in your income.

All about Private Limited Company

A private limited company is a company that is privately owned by a small number of people and the liability of the owners is limited to the number of shares held by them. The shares of private limited companies are prohibited from being traded publicly. The owners of such companies are known as the shareholder and they invest money in the company.

Characteristics of Private limited company

Private Limited Company

Limited liability : The liability of the shareholders is limited up to the shares held by them. In case of insolvency of company or any other circumstances of loss, the shareholders are not liable to sell their own assets to pay the debts of the company .

Members : As per the provision of Companies Act 2013 , minimum 2 members are required to start a PVT LTD Company and the maximum limit is 200 members

Name : It is mandatory for all the private limited company to use private limited as a suffix in the name of the company.

Perpetual succession : Unlike a natural person a company never dies. Even in the case of death , lunacy or insolvency of its members or transfer of shares to new entity , the existence of the company is unaffected.

It is created by law and can be put to an end only by law.

Separate legal entity : Unlike sole proprietorship and partnership firm , a Pvt Ltd Company enjoys separate legal entity from its shareholders.

Number of directors: As per the companies act 2013, a company needs to have a minimum of 2 directors.

So here are some characteristics and feature of a Private Limited Firm. Here is the list of advantage and disadvantages of a Private Limited Company.

Income Tax Slab for FY 2022-23, FY 2021-22

The finance minister has introduced new tax regime in the Union Budget 2022 with reduced tax rates for those who are ready to forgot 70 tax – exemptions and deductions under a simplified tax regime.

The new tax system introduced by the government is optional and cannot be enforced on anyone in anyway. It co-exists with the old tax system with the three slabs and various exemptions and deductions.

The new tax system has come into effect from April 1, 2022.

The new tax system is as follows tax slabs in India

Difference of Tax Slab Rates between New Tax Regime and Old Tax Regime for FY 21-22 & AY 22-23

A tax rebate of Rs. 12,500 is available to individuals with a net taxable income up to Rs. 5 lakhs under section 87A in both, the new and the old tax regime, which means that the individuals with the net taxable income of up to Rs. 5 lakhs will continue to pay zero tax in both tax system.

The tax calculated under the new tax system will be subject to Health and education cess of 4%.

Individuals who choose to opt for the new tax system have to give up certain exemptions and deductions.

The exemptions and deductions are as follows that are allowed in Tax Slabs in India

• House and rent allowance (HRA)
• Leave and travel allowance (LTA)
• Daily expenses in the course of employment
• Conveyance
• Relocation allowance
• Helper allowance
• Children education allowance
• Other special allowance [ section 10(14)]
• Standard deduction
• Professional tax
• Interest on housing loan (section 24)
• Chapter VI – A deduction