Stock Investing – Short Term Strategies

There was a research conducted in United States on the average number of days investors hold the stock. The number was 187 (about 6 months) in 1991-1996 period. The median was worse with just 90 days. With internet boom era and overpriced IPOs in 2000s, this came down to about 3 months. There is no data available for Indian market but looking at the volatility of our stock market, the numbers will be very close or even less.

This tells us there are mostly short term traders in the market. Is there anything wrong with short term trading? Absolutely not, but investors should know the rules of the game before they trade short term. Apart from knowing the rules, investors should also understand that short term trading mostly relies on luck and on study, which at best can be termed speculative.
In the current volatile market scenario, you could be tempted to try your luck in some short term investment strategies to make the best out of a bad situation. Here is an understanding of some short term trading strategies usually followed by short term traders. Knowing these strategies will make you aware of your own actions. However, do proceed with caution.
Day-trade in stocks
In this trading style, traders buy and sell the stocks on the same day or in a very short period of time. The traders take advantage of daily market volatility to profit. They buy when the stock prices go down hoping the prices to appreciate in the day. They square-off by the end of the day. This can result in profit or loss depending on whether the price they sold at was higher or lower than their buy price. This is a very popular way to trade. The popularity stems from the fact that this looks exciting. Even if traders lose money, the loss doesn't seem big as daily variation is not very volatile.
Day-trading, however, is the most popular way to lose money. Majority of day-traders either lose money or do not make better than a long term investor. Investors look at daily loss and assume that this is not a big loss but accumulate the losses for the year and they can see the big picture.
Take an example. If I have 1 lakh and I gamble, I will be happy to earn Rs 2000 from my gamble. However, I will not be too worried if I lose Rs 2000. This psychology works against traders. The happiness to get marginal profit is more than the sorrow of suffering a marginal loss. Take another example. A buyer goes to a showroom and to buy a car worth 3 lakh. At the last moment, he comes to know that the seller is giving Rs 6000 coupon free to be spent in lifestyle. At the same time, another buyer goes to another shop and buys the car at 2 lakh and 94000 rupees. Both come out of the shop. Whom do you think will have bigger smile?
Risk mitigation
Investors should not put all their money in day-trading. If you are too excited by daily price volatility and want to try your hands in day-trading, put at most 10% of your total investment for this and play with this. Do not gamble more.
Trading on margin
In margin trading, the investor spends some part from his or her pocket and borrows the rest from the broker at an interest. In this context, investors have to understand the concept of initial and maintenance margin. Initial margin is the % of total investment that investors have to put. When the prices go down, your contribution in terms of percentage will go down. After it goes below a certain percentage, the broker will ask you to put more money to take it to the initial margin. This "certain percentage" is called maintenance margin.
Take an example. Let's say an investor, Rakesh buys 100 stock of Airtel at Rs 400 a share. The initial margin is 25% and maintenance margin is 10%. This means Rakesh has to put 10,000 (25% of total investment of 40,000). The rest 30,000 is borrowed by broker. Suppose the prices start going down and goes to Rs 330 a share. In this case, the total value is 330*100 = Rs 33,000. Let's calculate what the contribution by investor at this point is. The investor contribution is (33000-30000)/33000. This is less than 10%. Hence investor will get a call to put more money so that his or her contribution is 25% of Rs 33000 which is Rs 8250. Since his amount is 3000, he will have to deposit another 5250.
This is high risk high return strategy. The advantage is that if the prices go up, you earn all the profit minus the interest you pay to the broker on his contribution. However, the loss is equally yours because the broker will anyway charge the interest. This is a double whammy.
Risk Mitigation
The only risk mitigation strategy is that the investors should never put more money when margin call is given by the broker. The investor, instead, should ask the broker to square off the position with whatever loss has happened. Avoid the temptation to put more money after the margin call.
Selling short
In this short term strategy, investors borrow and sell the shares and later they have to buy this from open market and give it back to the lender. The idea is to benefit from decreasing prices. Investors short-sell stocks because they assume that prices will go down and when it goes down they buy it cheaper and give it back. The difference is the profit to investors.
Take an example. An investor Rakesh expects the price of Airtel with current market price @400 to go down. Since he has no stocks, he borrows 100 Airtel stocks from the market and sells it immediately earning 40,000. After sometime, as he expected, the Airtel price went down to 350. He buys 100 stocks back at 35,000 and gives it back. He earns Rs 5000 from this transaction. We are ignoring transaction costs and other charges for the sake of simplicity.
Short term is tempting to investors. Short term trading offers excitement, action, and instant gratification. Compared to this, long term is boring, tedious, and requires extreme patience. However, there is no way to build wealth but by using long term strategies. This is true for most of the investors. There are short term investors who have done tremendously well but they are few and far between. Hence investors should put their major portion of investment corpus for long term wealth building assets and segregate a minor portion for short term speculation.

Currency fluctuation and your investment!

Rupee falls at Rs 48 a dollar. Do we even care for such news? We leave it to NRIs to worry about the exchange rate. For domestic investors, does rupee fluctuation hardly make any difference? Most investors do not read between the lines regarding how rupee fluctuation impacts their investments. Moreover, the exchange rate phenomenon seems esoteric for most of the common investors. In this article we will discuss some aspects of rupee fluctuation on our investment.

Currency fluctuation
There are mainly two ways by which currency rates are managed. Firstly, countries fix their currency against dollar. Hence the exchange rate doesn't change. Government takes action to manage any fluctuation that may happen. Secondly, countries leave it to the market to decide their exchange rate. In such a system, countries follow policy of non-interference.
India doesn't have a fixed value of rupee against dollar but it also doesn't keep its currency completely floating against dollar. We have a system where the central bank allows rupee to fluctuate within a specified range.
Usually, rupee appreciation is taken as economy gaining strength while depreciation is taken as Indian economy losing strength.
How it impacts investors
Let's look at how rupee fluctuation impacts investors' decisions. Let's look at appreciation first.
Rupee appreciation -
Rupee appreciation is considered bad for companies where major part of their revenue comes from export. Appreciation of rupee makes products more expensive for export. When the products become expensive, importing nations either reduce the import or look out for other nations that can produce the same product at cheaper prices. Hence, any appreciation in rupee is often accompanied with clamour by export companies to devalue the currency.
Rupee appreciation is good for companies that depend on import from other countries. For example, oil companies, Parma, Engineering, and medical device companies will be fine with rupee appreciation. The machinery, oil, and engine used in such industries will be cheaper to buy. Investors can consider investing in such companies when rupees appreciate.
Let's take an example. Suppose the rupee dollar exchange rate is 50 (i.e. Rs 50 - $1). A company in export sector earns a profit margin of 15% from export. If the rupee appreciates and the new exchange rate is Rs 40 = $1. In this case, the company has lost 20% of the income.
This impacts investors in sectors that depend on export for their income. The typical examples are software industry and textile. Their dependence on export is heavy. Any rupee appreciation will hit software and textile industries hard. We have seen what happened in 2008 when America went into recession, dollar lost value and rupee appreciated against dollar. There were lay-offs, increased hours, flat revenues, and reducing profit. Investors in export oriented sector will be hit by any appreciation in rupee.
Rupee depreciation -
Rupee depreciation is when it loses value against dollar. For a nation like India where import is more than export, rupee depreciation makes things worse because imports get expensive. This increases the deficit. Rupee depreciation is not a good signal except for export driven companies.
For Indian economy, which depends on oil import, any fall in rupee will impact its oil bill. This will increased inflation because of increased oil bill. Increased inflation eats into the returns of investors. Moreover, a high inflation reduces the economic activity and consumption.
Software companies, textile companies, and many other export driven sectors such as tourism are the ones where investors can think of investing. Their export becomes cheaper and hence they can sell more to the overseas clients. These companies will do well.
Important points to keep in mind
Since the global crisis is yet to stabilize, there will be extreme fluctuation of currency or rupee. Greek crisis, Eurozone, America's growth, and many other factors will impact the currency rate. The most recent example is rupee's fall from Rs 44 a dollar to Rs 48 a dollar within a month. This happened because Euro went down against dollar as a result of Greek crisis. As a consequence dollar improved not only against euro but against many currencies. Investors are requested to trade based on currency fluctuation only when they have some expertise in this.
There will be times when rupee fluctuation may not impact individual companies or sectors because of other factors present. For example, if rupee depreciates against dollar further, there is not much chance that software industry will improve its income as they did in the past. They have become quite matured and going from here to the next level will require different ways to develop software.
Finally, the rupee dollar exchange rate will remain volatile till the crisis persists. Hence investors should practice caution when investing in exchange rate sensitive sectors.

Understanding your true net worth!

An accurate understanding of one's financial well being is of utmost importance at every stage of life. So, whether you are a student, fresher into the job market or a veteran - assessment of personal financial health is important in order to make good financial decisions. For example, even if are purchasing a car, purchasing a home, taking a student loan, liquidating an investment or making a risky investment  - all these decisions can be made only if you know your financial status well.

An individual's financial health is computed by means of his personal net worth. In simple terms, personal net worth is the net asset value of an individual. Personal net worth is calculated as follows:
[Total Assets] less [Total Liabilities]
One must assess his / her net personal worth on a regular basis. This is because corrective measures can be taken in time if the net personal worth starts declining. It is much easier to recover at early stages than once you find yourself in deep financial crisis. Your net personal worth will also give you an idea about how financial institutions perceive you as a borrower.  For example, Deepak, an IT consultant with a software company wants to purchase a car. He has set his eyes on the Toyota Corolla. The car dealer informs him that the on road price of the car will come to Rs.11.25 L.  If he takes a car loan, he will have to pay a monthly EMI of Rs. 15,000 towards repayment of the car loan and pay an amount of Rs. 1.0 L as down payment. Deepak's monthly salary is Rs.0.9L and the EMI as well as the down payment seems easily affordable. However, Deepak should assess whether he can afford to buy this car at present by considering all his liabilities and assets. His personal net worth should give him a fair idea of his current financial status and whether he can afford to buy the car.
Computation of Deepak's personal net worth

Assets	Rupees in '000
Current Market Value of his apartment	5000
Market Value of his TVS Scooty (two - wheeler)	10
Value of Fixed Deposits	500
Market Value of shares held by him	200
Market Value of Mutual Funds owned by him	500
Market Value of Jewellery	300
Value of NSCs	5
Amount in PPF	10
Cash in bank and in hand	100
Total Assets (A)	6625
Liabilities
Outstanding home loan	4500
Outstanding loan on TVS Scooty	2
Outstanding student loan	200
Outstanding credit card bills	50
Total Liabilities (B)	4752
Personal Net worth (A-B)	1873

Assuming that Deepak's monthly outflow towards EMIs of outstanding loans is Rs. 35,000/- and looking at his personal net worth, a corolla is a viable option. This is because he has a positive net worth of Rs.18.73 L. Further he is able to make payments of EMIs with ease considering his current income and should also be able to pay the EMI on the new car loan.
Note that knowledge of current personal net worth is essential to make financial decisions. It is important to reevaluate personal net worth while making any important financial decision as the value of assets and liabilities is likely to change. Also, net worth should not be considered in isolation. It is a good idea to consider factors like current and future income levels, future liabilities etc. For example, if Deepak has to bear the expenses of his sister's wedding which costs him approximately Rs. 9 L and he has to sell off some of his investment to meet the wedding expenses, his personal net worth will look different. Further, if the market value of assets declines, his personal net worth will also take a hit. Let us take a look:
Deepak's Personal Net worth if he has to bear his sister's wedding expenses and if the economy takes a down turn:

Assets	Rupees in '000
Current Market Value of his apartment	3000
Market Value of his TVS Scooty (two - wheeler)	10
Value of Fixed Deposits	0
Market Value of shares held by him	100
Market Value of Mutual Funds owned by him	200
Market Value of Jewellery	100
Value of NSCs	5
Amount in PPF	10
Cash in bank and in hand	0
Total Assets (A)	3425
Liabilities
Outstanding home loan	4500
Outstanding loan on TVS Scooty	2
Outstanding student loan	200
Outstanding credit card bills	50
Total Liabilities (B)	4752
Personal Net worth (A-B)	(1327)

Clearly, in the above situation, Deepak should not purchase a car at present and should concentrate on improving his personal net worth.

Understanding how HRA works!

The end of another financial year is drawing close and is a couple of months away. The words "income tax" start ringing a frantic bell towards the end of every financial year, and many questions arise. Please do note that it is best to be prepared in the beginning rather than the end of a financial year!

There are many tax components you need to be clear about and also figure out how to plan your investments to gain maximum returns as well as maximum tax benefits. One such tax component is the tax benefit you can claim from your house rent allowance. This article helps you understand how this works!
HRA (house rent allowance) is provided to salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. Self employed professionals are eligible for tax deductions under section 80GG of Income Tax Act, 1961.
Dependent factors
When you are calculating HRA for tax exemption you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e. if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike or shift in residence etc. then it is calculated on a monthly basis.
The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary.
On paying rent
It is not essential that you should pay rent only to a landlord to avail your HRA benefits. You can pay rent to your parents to claim tax benefits. However, they need to account for the same under `Income from house/property' and will be entitled to pay tax for the same.
Remember you cannot try the same with your spouse, as it is not permissible under income tax law, as you are expected to reside together for all practical purposes.
You need to submit proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent,  along with other details such as the rented residence address, rent paid, name of the person who rents it etc.
How is HRA calculated
To figure out how much HRA exemption you are eligible for, consider these three values which includes a. The actual rent allowance the employer provides you as part of your salary, b. the actual rent you pay for your house from which 10% of your basic pay is deducted, c. 50% of your basic salary when you reside in a metro or 40% if you reside in a non-metro.
The least value of these three values is allowed as tax exemption on your HRA. You can discuss restructuring your pay structure with your employer in order to avail the most of your HRA tax benefit.
Here is a sample illustration for your understanding:
Sheetal earns a basic salary of Rs. 40,000 per month and rents an apartment in Delhi for Rs. 20,000 per month (hence eligible for a 50% of the basic pay for HRA exemption). The actual HRA she receives is Rs. 25,000.
These values are considered to find out her HRA tax exemption:
a. Actual HRA received, i.e. Rs. 25,000,
b. 50% of the basic salary, i.e. Rs. 20,000, and
c. Excess of rent paid over 10% of salary, i.e. Rs. 20,000 — Ra 4,000 = Rs. 16,000
The value considered for her actual HRA exemption will be the least value of the above figures. Hence, the net taxable HRA for Sheetal will be Rs. 25,000 — 16,000 (available HRA deduction) = Rs. 9,000.
Availing tax benefits on your home loan and HRA
As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own.

Are You Looking To Buy A Home?

The year 2011 witnessed a high interest rate scenario, shrinking profit margins and soaring input costs for property developers in India. The economic slowdown added problems for property dealers, as the number of customers dwindled in 2011. Most of the developers had to put their expansion plans on hold, and their existing projects also faced a setback due to slow sales, resulting in a piling inventory. In 2012 the realty market is expected to consolidate, and most of the developers are likely to focus on generating liquidity for better cash flow by selling their existing projects at a lower rate to tackle the stagnation in sales. The first priority for every developer would be to complete their existing projects to cut the capital involved for projects in progress. This situation would wash out players who just exist in a market to create competition against the genuine developers.

Now the question is what step a home buyer should take under such market conditions?
A person would be interested to purchase a property to either reside in it or to invest or both. In this article, we will focus on the various issues related to purchasing property for residential purpose. The current market condition has categorized residential property buyers into two categories, which are:
-          Existing Buyers: Those who have already put their money for buying a home but the possession is not received.
-          New Buyers: Those who are contemplating buying a home.
The state of existing buyers:
Due to the economic slowdown, there are lots of property buyers who have already paid for their homes, but the developers have delayed proving them possession. Due to lack of funds and rising input costs, developers have either stopped the project or restructured the plan by adding more homes under a project to bring liquidity and cost averaging.  If the buyer has included the penalty clause in the purchase agreement for delay in possession, then they can claim it immediately from the developers. The delay penalty safeguards a buyer by binding a developer to pay interest on the amount invested, if the possession is delayed for some reason.
However, it must be noted that the delay penalty may not depend on the prevailing interest rate in the market. This means that the existing customers who have not received the possession, have to pay home loan EMIs at current interest rate, which is at peak, whereas the delay penalties they obtain from the developers are at a lower interest rate as it has been agreed upon at an older interest rate when loans were cheaper. Existing buyers could be quite disappointed in such a scenario as they are losing possession as well as money!
What the new buyers can expect:
The new buyers have all their options open before they decide to buy a home. Though the market may not seem very attractive for an existing buyer for a new buyer it is a different story. This is a very good time to buy a home. Here is why:
-          The interest rate for home loans is at peak, and RBI has recently hinted a fall in coming days; so new buyers are likely to pay their EMIs in a falling interest rate scenario! Hence, the interest burden will be reduced significantly in such a situation.
-          Many buyers anticipate an interest rate drop and postpone their purchase decision, but it should be noted that, at present the developers are offering very attractive discounts as they need liquidity and are left with a huge inventory. If the interest rate falls, then this offer would not be available as the liquidity position would improve in the market.
-          As there is considerably less investor rush in the current market due to high borrowing cost, choices are aplenty!The buyer can customize his purchase of the home for its location, size, price and other important aspects due to sluggish market conditions.
-          Also, new buyers have the option of purchasing both from a developer and an existing buyer in the current market situation and better bargains can be struck.
Points to remember for the potential buyers
The new buyer should take a cautious approach while finalizing a home purchase bearing the following aspects in mind.
-          If the new buyer decides to buy a home in an ongoing project, then chances of delay in possession is always possibility so due diligence is very necessary.
-          To rule out the loss due to possession delay, the delay penalty must be incorporated in the agreement with the developer. Though the interest rate is expected to fall in coming days, the penalty should be based on a floating basis because in case the interest rate increases due to any unexpected event, then the delay penalty would also increase and protect the buyer from loss.
Let's understand this with the help of an example:
Suppose a person "B" has decided to buy a home and raised a home loan at 10% p.a. The developer "S" promises to handover the possession of the house within two years or else agrees to pay a penalty at 1% lesser then the bank's interest rate, i.e. penalty at 9%. B has two options, either to fix the penalty interest at 9% or keep it floating at 1 % lesser than the bank's interest rate. If S defaults in giving possession after two years and delays for one extra year, then the following situations would arise:
Case I: Penalty fixed at some rate say at 9% p.a.
Suppose if the bank's interest rate falls to 8% p.a., then S would pay penalty at 9% for a one year delay. Hence B would get the benefit of extra penalty over bank's interest rate. However, if the bank's interest increases to 12%, then also S would pay penalty at 9%, hence B would lose more against the bank's interest rate. Hence, buyer has chances to gain as well as incurs the risk of loss in this situation.
Case II: Floating Penalty
Since S agreed to pay a penalty at a floating rate system it does not matter whether bank's interest falls or increases because the penalty rate would be 1 % lesser in every scenario. Hence buyer would hedge his position against increase or decrease in interest rate.
-          If the buyer decides to buy a house from an existing buyer who owns a ready flat, then it is very important to check the encumbrances thoroughly. The other basic aspects such as electricity bill, telephone bill, and building society bill along with developers' agreement should be checked properly before finalizing the deal.
-          The new buyer should select a floating rate system while applying for a loan and also negotiate with banks to waive the prepayment penalty charges for future. According to the RBI mandate prepayment penalty is expected to be done away with but do ensure if this is indeed the case as some banks might still be imposing it. Prepayment can be done either as a one-time payment or switching the loan to another bank with a lesser interest rate or even a partial prepayments over a period of time. The prepayment decision should be taken based on the remaining loan amount, term and the ease with which the funds can be arranged.
-          Many developers are compromising with the quality of construction materials due to high input costs, so the new buyers must check to verify such aspects before buying the house.
-          In the recent past, lots of hue and cry was made by developers and buyers in Delhi NCR due to court orders to stop construction on account of multiple land disputes. The new buyers must verify all the legal aspects before finalizing the deal. The contract with a developer should be verified properly to avoid fraudulent intentions. The buyer should always insist on the developers including the time binding clause to avoid excess delay in the project. If the project is delayed much beyond the promised time, then the buyer should not hesitate to knock the doors of the court. Recently, lots of cases have come into the picture where courts have provided relief to the buyers by ordering complete refund along with penalty against the developer.
Keeping in mind the various points discussed above in this article, an existing buyer should strive to make an early repayment of the loan, as many banks have waived the prepayment penalty. If the flat is under construction stages, then they can also opt for exiting the deal by reselling or canceling the agreement if possible to avoid loss due to uncertainty of project completion.  The new buyer has a good opportunity to buy a house at a discounted price and desired location. Proper due diligence and price negotiation are key aspects for the new buyer.

Infra bonds and other alternatives

Government of India has outlined a plan to spend $1 trillion in next 10 years on infrastructure development. This development is needed because infrastructure needs to support and sustain the projected growth rate of Indian economy for next few decades. To fund this initiative, the Government is trying to tap the various sources at its disposal. Infrastructure bond is just one source where Government has given tax breaks for up to Rs 20,000 for individuals. This is to attract retail investment.

Infrastructure bond vis-à-vis other debt instruments
Infrastructure bond is widely welcomed by salaried individuals who have been demanding to increase the tax break from 1 lakh. It has given them another avenue to invest for tax saving purpose. Let's take a look at other investments that are available and provide a fixed income.
Debt oriented mutual funds
The other debt instruments available for investment are debt oriented mutual funds. These funds allocate major part of the fund in Government securities, corporate bonds and debentures, and sometimes in fixed deposit. They can be a good alternative. However, even though they are debt oriented funds, a small part (up to 30%) goes towards equity. Hence investors do see fluctuation in returns. The average returns from debt oriented funds over a period of time can be about 12% depending upon the market condition and proportion of fund invested in equity.
Bank fixed deposit
The other option is banks where the rates of interest have gone up. Few banks are giving good returns on fixed deposits. For example, bank of Baroda is giving 10% returns on fixed deposit. This is certainly better returns in absolute term. The post-tax returns will be about 7%. There are other banks which are offering similar rates on fixed deposits.
Corporate fixed deposit
Then there are fixed deposits offered by blue chip companies. These are highly rated debt instruments. For example, Mahindra Finance or Tata Motors deposits are two prominent offers that offer 10.25% returns. Mahindra fixed deposit scheme is rated FAAA, the highest rating. The payment is done quarterly. There are other firms which offer even better returns but those firms rated lower. Investors should consider these alternatives too.
Fixed maturity plan
There are mutual funds, also known as, fixed maturity plans (FMP). They are as good as fixed deposits and offer an "expected" return of 9% to 10% . We use "expected" because there is always the risk of corporate default (though it rarely happens).
Hence all the options look better till you consider the tax advantage that the infrastructure fund provides you. Tax advantage is the biggest advantage that infra bonds provide. The interest received on infra bond is taxable though.
Investors' response
Infrastructure bond has seen tremendous response from retail investors for tax saving purpose. The demand goes up before the end of the financial year. Even though it is a big hit among salaried individuals and retail investors, it did not impress big ticket investors in India and abroad much because they are more focused on getting better returns than saving tax.
To encourage response from FII, Government is planning to reduce the lock in period of infra bonds. The lock in period currently is 5 years. In all probability, this may come down to 1 year. The reduced lock in period may be able to bring foreign capital for infrastructure projects which are delayed because of lack of funds.
Ideally, reducing the lock in period should bring more investors, both domestic and multinational. This seems to be a good way to increase participation and transaction. However, the downside of this is that it will increase speculative investment.
Retail investors anyway invest in infra bonds to save taxes and hence there isn't much scope left in retail segment.
Important points to keep in mind
First, you must invest in infra bonds because you will save taxes. There is no other way you can save taxes on Rs 20,000 extra. Do not invest more than Rs 20,000 as the tax benefit is limited to just Rs 20,000. Any investment beyond this will be taxed as usual. The disadvantage of infra bonds is the lock in period and the taxable interest.
Second, look at the rating assigned by rating agencies before investing in infra bonds. All bond issuers have to go through rating process before they can raise debt. A high rating such as AAA or even AA is good and implies the capability of the company to pay the interest and principal.
Finally, understand the risk associated with bond investment. While the nature of fixed return looks risk free, it exposes the investors to interest rate risk and inflation risk. Inflation at the rate of 10% will essentially give you negative returns on a bond that offers 9% returns.

To claim or not to claim – The HRA and Home loan dilemma!

Ajit, currently employed with Company A, is staying in a rented apartment in Mumbai and has bought himself a property in Chennai for which he has taken a home loan. He finds himself in a dilemma while filing tax returns — "Can I claim both HRA and home loan benefits?" This seems to be a confusing factor for most tax payers.  When Ajit pays rent, under the Income tax act, he is definitely allowed to claim both HRA and home loan benefits (interest payment and principal repayment).

Let us evaluate various possible situations an individual can find himself in and understand what the income tax act permits him to do.
1: You live in your own house
You have taken a home loan and residing in the house purchased with it. Since you are residing in your own house, you will not be able to claim HRA. However, you will be able to claim tax benefits on both, the principal and interest repaid on the home loan.
2:  You own a house in another city
This situation was the one faced by Ajit. He resided in Mumbai but had bought an apartment in Chennai taking a home loan. Ajit will be entitled to HRA exemption and tax benefits on both, the principal and interest repaid on the home loan.
3: Your house cannot be occupied at this point (e.g. under construction)
You have bought a house in Mumbai taking a home loan and you're currently living in Mumbai in a rented apartment because the house is under construction. In such a case, you are eligible to claim HRA.
In the case of tax breaks on the home loan, you can claim tax benefits only for your principal before the completion of your house. Once your house is completed, you can claim tax benefits on the total interest paid up to the date of completion in five equal installments in five years beginning from the year of completion.
4:  You have a house which is ready for occupation but you cannot reside in it
You have bought a house in Delhi taking a home loan and now you aren't residing in it but are living in a rented apartment in Delhi itself for genuine reasons e.g. the house that you have bought is far away from your office. In such cases, the Income tax act permits the individual to claim HRA and home loan benefits which includes both principal and interest repaid on the home loan.
Also, please note that if your house remains vacant, then you will still need to pay tax on a notional rent income.
5:  You have rented your own house and currently residing in a rented house
You took a home loan and your house is now ready for occupation. You have rented the same out while you reside in a rented house. The Income tax act allows you to claim both HRA and home loan benefits. However, in such a case, since you are the recipient of rent because you have let out your own house, that income is taxable at your hands.
The Income Tax Act treats HRA and home loan deductions under separate sections independently. The two are not interconnected to each other. HRA is dealt with in section 10(13A) Rule 2A while home loans are entitled for tax benefits under section 80C (tax benefit on principal repayment) and Section 24 (tax benefit on interest payment) of the Income Tax Act. Hence, figure out where you stand to avail both tax benefits accordingly.

Which Credit Card Personality Are You?

When we talk about credit card usage we find different people managing it in a different way. Some people are highly disciplined and never default on their monthly installments and others are so messy that they are always on the top of the defaulter list. Managing finance is a complex task and it's very easy to fall into a debt trap if you misuse the power of free credit. Credit card provides you the power but it never suggests that this power is unlimited. You have to pay the dues back at the end of the free credit period but somehow the human mind doesn't listen. To avoid getting into trouble in future it's advisable to understand your credit personality and choose the credit card which suits you the best. Credit card companies provide credit cards with different features like different interest rate, different reward structure, different credit limits etc. If you understand the way you deal with credit it gets easier to choose the best combination for you. Let's see what kinds of credit personalities exist and what card they should opt for.

The Beginner
You are just out of college enjoying your first job. You never had surplus money and hence no financial planning was required. You have never used credit previously and find the concept amazing. As expected, you are in a hurry to apply for one.
For beginners it's advisable not to go for cards with high credit limits. You still do not know how you are going to use your card. Your financial wit has never been tested so better be cautious. This is just the beginning and once you are sure that you can manage your finances well, you can opt for credit cards with a higher limit.

The Disciplined
You have been there and done it all. You are great at financial planning and almost everything is in perfect shape. You never default on your monthly payments and never spend beyond your means. Reward offers don't alter your spending pattern and you plan every move before executing.
For the disciplined the best suited card is one with cash back facility and good reward structure. The reward points should accrue irrespective of the type of purchasing done and can be redeemed at one go. Interest rate on your card doesn't matter much as you always pay on time.

The Carefree
You love spending and believe that spending is the motivation for earning. You plan things beforehand but don't mind going overboard at times. You cross your spending limit at times so you don't make full payments on your credit card.
The most important feature which the carefree should look for in a credit card is the interest rate. As you carry forward the balance your interest expense is going to be high. It's advisable to choose the card which offers the lowest interest rate. You should also make sure that your card does not have any annual maintenance charges attached to it.
The complete mess
You don't understand financial management. Almost every time you do not even pay the minimum amount due on your credit card. All the customer care executives of the bank know you by name and are in constant touch with you. You always end up paying heavy interest and late payment charges.
For the messy it is better to use prepaid cards as it will save a great deal of money which you pay in the form of interest and various charges. This will prevent you from spending beyond your means.
The Credit Fearing
You never wanted a credit card in the first place. According to you being in debt is a crime. You applied for the card just because it made your life easy in some scenarios like booking air tickets and overseas purchases. You only swipe it in some kind of emergency and it goes unused at times for months.
The best card which will suit your needs is the one with no annual maintenance charge. You never make late payments and you are not a frequent user so interest rate and reward structure of the card doesn't matter much for you.

Conclusion
There are a wide variety of credit cards available in the market and it's not possible to research all of them. The better approach in such a scenario is to research your personality and then research the cards available. While you define your personality you get to know the basic traits your card should have. Once you are sure about the traits the list of cards automatically gets shorter. The best approach is to talk to the bank and discuss with the executive regarding your needs and spending behavior. They will definitely guide you with better options as banks are getting more and more cautious about their relationship with the customer. The existing competition in the market compels them to give better services to their clients. Rather than doing the entire math yourself, put forth some direct questions to them, which will help you make the best decision.

Impact of budget on common man

Union budget 2012 will be unveiled in another three days from now and as is the case with every budget season there are a lot of expectations, aspirations as well as doubts. However, most people have several questions in mind like 'how is it going to affect me and my lifestyle?' Here we analyze the budget impact on the common man in our daily life.

Impact on individuals
The most direct way by which the union budget affects the common man is through   changes in taxations- both direct and indirect. Direct taxation impact involves changes in income tax exemption and deduction. For instance, in this year's budget the finance minister may raise the income tax exemption limit to Rs. 3 lakh from the existing Rs.1.8 lakh. This could have a long term impact on the spending and saving patterns of individuals.
Another proposal that is expected is an increased tax deduction on housing loans. This is eagerly expected by both the builder community as well as people looking to purchase their homes as this would be an added incentive to look forward to!
Apart from such direct benefits, there are many indirect ways in which the budget affects the common man. A hike in duties of consumer goods can affect the budget planning of every middle class household. Similarly changes in subsidies of cooking gas and other fuels will decrease the disposable income of middle class families. An increase in service tax and sales tax would increase a plethora of expenses ranging from mobile bills, insurance premium, property purchase, courier expenses, credit card bills etc. These are awaited with a certain degree of anticipation as the budget draws closer.
Changes in excise duties and sales tax can make a product dearer or cheaper. The budget forecast suggests that duties on diesel cars as well as gadgets like laptop will increase which can eventually lead to impact in purchase decisions.
Impact on business
The business classes in the society are the top groups who have much to look forward in the budget. It is a practice among top business houses to release a 'wish list' in the pre-budget weeks stating the things they want to see in the forthcoming budget proposals. The list may revolve around a variety of duty cuts, which they believe will boost their investment and demand.
As of now, high on the wish list are various boosters to investment and the implementation of direct tax code, goods and services tax. The biggest fear is an expected increase in the rate of corporate tax or surcharges. An easing in direct taxation slabs will create surplus in the hands of businessmen, which may encourage them in further investments and thereby leading to more employment and betterment of the society.
As governments increase or decrease allocations for certain sectors, businesses in those sectors will be affected. For instance, an increased spending in infrastructure is expected, which will be a gain for the companies in that segment.
Budget is eagerly looked upon by investors as well to review the tax rates on trading transactions in the stock market as well as foreign investments. Investor's budget expectation is the cutting down of security transaction tax- i.e., the tax applied to all transactions in the cash segment of the market which would make trading less expensive and there by boost the market.
Last year's budget proposal to allow foreign investors to invest in equity mutual funds was warmly welcomed in the markets as more foreign investments will make the market buoyant. But unfortunately the buoyancy did not last long due to the global economic slowdown. Many foreign investors became net sellers in the market.
Direct Tax code
A direct tax code is expected to be finalized to come into effect by this year's budget which would have a direct impact on the salaried individual. There could be a reduction in the tax exemptions from Rs. 1,00,000 to Rs. 50,000 which will de-incentivize the salaried to invest more, though tax saving is not the only  target while planning an investment.
Whatever the outcome, we have to deal with it with a proper plan in place and as of now prepare our wish lists and wait for the budget to unfold!

Education sector waiting for the big push

There are many innovative and helpful developments in the Indian education sector since the past 4-5 years. Government of India has been putting consistent efforts to strengthen the sector as a whole and to improve the quality by private—public partnerships and through IT based education. In the union budget 2011-2012, Finance Minister Pranab Mukherjee allocated Rs 52,057 crore for this sector alone.

A favourable budget allocation is expected this year also as it is very important in meeting the challenges that the sector faces in dealing with raising standards, developing education work force, improving the learning environment and delivering services to the institutions.
This year, members of this sector  expect a big push in expenditure especially in connection with the effective implementation of The Right of Children to Free and Compulsory Education Act (RTE Act). As there are many issues in connection with the RTE Act, like setting up a neighbourhood school in every locality, providing essential infrastructure for the existing and new schools etc, which require a considerable allocation of resources for this sector. This is a major challenge for the government. Steps have to be taken to increase enrollment rates and reduce dropout rates, reduce gender inequality among girls and to recruit more teachers and train them to impart education more effectively.
The wish-list of the education sector in the upcoming budget includes an accelerated tax break of 150 percent to companies for their investment in education infrastructure. This will definitely call for more investment in education sector.  Many others agree  on the need to set up a regulator for quality and compliance in education sector.
Budget is also expected to address rationalisation in higher education regulatory framework through passing key pending legislations like Prohibition of Unfair Practices Bill, Foreign University Bill  and Education Tribunals Bill, as well as ensuring a an effective centralised regulator for higher education like the NCHER.
Another major expectation from Union Budget 2012 is the extension of interest subsidy to all courses and more allocation towards interest free education. The Ministry of Human Resource Development during the 2009-10 fiscal had launched a new scheme to provide full interest subsidy on educational loans for students belonging to families whose annual income is less than Rs.4.5 lakhs under the Educational Loan Scheme of the Indian Bank's Association (IBA).
According to the scheme, a student hailing from a family that has an annual income of less than Rs 4.5 lakh, on procuring income certificate from the concerned local authority, will be required to repay only the principal, and the interest will be borne by the central government.
It was a great initiative to make higher-education loans more attractive to students from financially weaker families. But during the current financial year, many students claimed that the education loan subsidy is still kept under the wraps by most banks.  Banks also indicated that they had several reasons for their caution, like the lack of proper directions from the nodal agencies for processing subsidy claims. There were also a lack of coordination between banks, state governments and HRD ministry and shortage of funds allocated. Many states are still not notified a designate authority for issuing income certificates. So, greater hopes are there this year to see a better result by more allocation and proper coordination, as India wants to increase its higher education enrollment by nearly 30 million in a decade.
India's education sector at present has a good percentage of private partnership which would help a rapid expansion in the sector. Still an increased emphasis on public private partnership (PPP) model to compensate the shortfall in existing resources is expected through specific budgetary allocations for public—private partnerships and fiscal benefits for PPP projects.
A way to attract private investment in higher education, is to promote Foreign Direct Investment (FDI), by making certain changes in the Foreign Currency Regulation Act (FCRA).
Even though the current law allows 100 per cent FDI in education, for-profit entities are not allowed to get licences from the University Grants Commission and the All India Council for Technical Education (AICTE). They function as private universities under acts of various state governments.
Indian education sector is one of world's largest, comprising 1.3 million schools, 30,000 colleges and 542 universities. It is estimated that the size of the public education sector in India is $40 billion and the private sector amounted to $60 billion in 2011. So, lets hope the Union Budget 2012-13 would effectively level out some of the key issues pertaining to the education sector.

What the budget means for Business and Industry

The finance minister quoted Shakespeare's Hamlet before starting the second part of his Budget speech. A long monotonous speech had a humorous pause albeit a very small one. To quote him "The life of a Finance Minister is not easy. Various players, including policy makers, politicians, agriculturists and business houses, participate in the making of the economy. When everything goes well with the economy, we all share in the joy. However, when things go wrong, it is the Finance Minister who is called upon to administer the medicine. Economic policy, as in medical treatment, often requires us to do something, which, in the short run, may be painful, but is good for us in the long run"

The literary pinch was probably to veil the fact that what was coming was more cruel and less kind! Let's look at what the FM had in store for Businesses and Industry.
The FM started off by saying that he is not touching the corporate tax rates and also gave positive input indicating measures for corporate to access funds at lower cost as well as incentives for higher level of investments in multiple sectors.
The sectors which have been given a breath of really fresh air are Power, Airlines, Roads and Bridges, Ports and Shipyards, Affordable housing, Fertilizer and Dams which have been given a relief by reducing the rate of withholding tax on interest payments of external commercial borrowings from 20% to 5%. What this means is that these sectors can now borrow from outside India with lower cost of servicing the borrowed sums.

Multi tier corporates like Reliance, Tata group, Birlas etc have been helped by removing the cascading effect of Dividend Distribution Tax. What this means is that unlike the present where a company is forced to pay DDT at multiple levels of declaring dividend, parent company level, subsidiary level etc, now they will pay at one level only. For example if TCS declares a dividend and pays to its shareholding companies Tata motors or Tata sons, it has to pay DDT, again when Tata Sons declares a dividend, it is also bound to pay DDT. A bit like dual taxation again and again and again!!!
Foreign subsidiaries of Indian companies can now repatriate dividends at 15% tax rate for one more year.
Industries like Cold chain, Warehouses for storing food grains, Fertilizers, Hospitals and Affordable housing have been given the benefit of a higher rate of 150% for investment linked deduction of capital expenditure. This has been done with the intention of improving investments in Agriculture supply chain related industries.

High  importance has been given to Agriculture and allied businesses and also the power sector.
Securities Transaction tax has been reduce by 20% to 0.1%
The cruel part begins…
Service tax will attain adulthood this fiscal year, (it has been in existence since 17.5 years as of today), and has been made to grow. The Finance Minister has done a "Honey, I grew up the kids" by widening the tax base. He has also increased the rate of service tax rates to 12% from the existing 10%.
The concept of negative list seems to have been fully accepted and 17 sectors have been added to this list. This includes Education, Government services, Public transport, Renting of residential dwellings etc.
Apart from the hike in the standard rate, Mr. FM has also increased the merit rate from 5% to 6%.
The FM has also increased the duty on large cars from 22% to 24% and for some cars to 27% ad valorem. This will affect the luxury brands like Audi, BMW etc.
Initiatives for specific sectors of business — a quick take
Agriculture — Overall a lot of positive points to take away
Infrastructure — Multiple exemptions for fuels like NG, LNG and Uranium
Mining — support for surveying and prospecting
Railways — Impetus for boosting safety and service delivery
Road industry — Exemptions given for road construction equipment
Civil aviation — Mostly positive things
Manufacturing — Proposals with the intention of cost reduction for raw materials and inputs and capital cost.
Textile — Positive proposals to improve modernization
Branded retail — Taxes as a component of Retail sale price to come down by 0.9%
Bicycle — Customs duty rose to 30% for cycles and 20% for parts — negative effect on manufacturers depending on imports.
Health and Nutrition — Positive measures by reducing/removing customs duty for drugs and equipment
How cruel or how kind the budget truly is will be known once we analyse the entire finance bill. Keeping reading this space for more in-depth analysis

FM’s Union Budget Speech 2012-13 leaked!

To round off the pre-budget series here is a light-hearted mock Budget speech

Madam Speaker,
I rise to present the Union Budget for 2012-13
We are reaching the end of a remarkable fiscal year. In a globalised world with its share of uncertainties and rapid changes, this year brought us some opportunities and many challenges as we moved ahead with steady steps on the chosen path of fiscal consolidation and high economic growth.
Our growth in 2111-12 has been very good. All industries have shown great growth. We have witnessed over 15% growth and are truly shining as the world's best economy
We have been able to keep inflation at a low of 0.2% all through the year
Overview of the Economy
The Economy has been in healthy condition and shows great promise for the year ahead. We have made great progress in Agriculture and Industry and our monetary policies have ensured that the economy has been robust. The external sector has shown great promise with 70% of revenues coming from Exports. Exports have grown at 180% and imports have reduced by 10%
Tax reforms
What started in 2010 in the form of DTC has been sustained and all the recommendations have been implemented in the last fiscal.
Subsidies
We have reached a stage where all kinds of subsidies for food, fuel etc have been made nil. The negative cash flows have been arrested and we are not at the mercy of opposition parties when planning a price hike.
People's ownership of PSU's
As planned, all government companies have been made truly public. The disinvestment we started in 1991 has culminated in the last year with the Parliament too being Privatized.
NUEGA — National Urban Employment Guarantee Act
With the great boost given to economy by the rural sector, the old scheme (NREGA) has been abolished and NUEGA has been proposed to ensure that Urban youth without jobs can be given jobs in villages!
Sarva Shiksha Abhiyaan
With making education free for all from KG to PhD we have been able to ensure that quality education is given free to all. In fact we have even given free education to over 10 million children from America, United Kingdom and Australia. We are renaming it as Sarva Rasthra Shiksha Abiyaan to help children from the 3^rd world countries in the American and European continents!
Health
Our one hospital every kilometer scheme has helped reduce mortality to a great extent. The average Indian male now is alive for 140 years and the female 150 years.
Financial inclusion
What was started in 2010 has resulted in every, yes, every Village in India having at least 3 bank branches and one international bank branch. Every citizen has virtual cash devices to make expenses wirelessly even to buy milk!
PART - B
Madam Speaker,
I shall now present my tax proposals.
Last year I provided relief to individual taxpayers by broadening the tax slabs. To take us closer to DTC rates, I propose to enhance the exemption limit for the general category of individual taxpayers from Rs 200 crores to Rs 210 crores this year.
Senior citizens (those above 90 years of age) need not pay any tax irrespective of their income.
To boost luxury car sales, aircraft sales, luxury yacht sales, diamond sales etc it is proposed that investments upto Rs 50 crores in any of these investments can be used for gaining tax exemption.
It is also decided that since the whole public sector is now private, all citizens will have an equally share of the country's income. Our rough estimates put this at around Rs crore per citizen for the last year. We will use the Aadhar numbers to disperse this dividend.
VII. Indirect Taxes
I shall now turn to my indirect tax proposals.
We will continue to maintain Central Excise at 90% and VAT at 0.1%. We estimate this measure to fetch Rs. 10768896 Billion to the Government coffers
I am feeling very low to announce that corporate income tax will have to be raised by 1% to 1.5%. We will try to roll this back if the CEOs of companies oppose by doing drastic measures like 1 hour hartals. Else, we can impose the new rates.
Infrastructure
Now that we have six lane roads in every single village and an airport for every talk, I propose to support the Industry by letting them build roads and airports in our neighboring countries. All infrastructure projects executed outside India will get a subsidy of 50% from the government. I find it very tiresome when I visit some of these countries and have to drive by road.
Service tax
To promote the "Service" motto given to us by our forefathers I have increased the service tax to minus 29%
As the greatest economy in the world, with a voice on the global stage, India stands at the threshold of a century, which will once again be ours. With oneness of heart, let us all build an India, which in not too distant a future, will enter the comity of most developed nation in the Universe (adding the 17^th planet with humans recently found).
Madam Speaker, with these words, I commend the Budget to the House.

Letter to the Finance Minister – From a Salaried Employee

Respected Finance Minister Sir, as a salaried employee, I voice the feeling of all the salaried in India. The one pain that we all face is because of the feeling that we are the highest taxed people of the country as all our income is transparent and the tax is almost always deducted at source.

Tax Slabs
Sir, my first request is to increase the tax slabs significantly. The current entry level slab and the gap between the higher levels are too low. Today a carpenter or electrician asks for Rs.750 a day as minimum wage. This means that he will make Rs.15,000/- even if he works for 20 days in a month. He goes without taxes or TDS. On the other hand if a salaried person touches the Rs.1.8 lakhs per annum slab he is taxed on his income.
Please increase the initial slab for income tax to Rs.5 lakhs. Make it atleast Rs. 3 lakhs. Also let the higher slabs have significant gap between them. As history has proven earlier, the less pain there is to pay taxes; more people will voluntarily pay their taxes. This in turn will lead to higher revenues to the Government.
The creation of a separate slab for Super Senior Citizens is highly appreciable. My grandfather has benefitted from this slab.
Tax Saving Investments
Sir, the last two years we had the support of Infrastructure Bonds apart from the Section 80C options to reduce taxes. Please consider to increase the volume of investments qualifying for the tax benefits. The Rs.1 lakh limit for tax savings is archaic and was one that you had implemented almost 10 years ago. Now that you are in power again, please make the investment quantity relevant for the current times. An increase upto Rs. 3 lakhs under section 80C and Rs.3 lakhs again for housing loan interest will be appreciable.
Please do not think that I am asking for these jumps in the tax benefits slabs out of greed. I am only bringing to your notice the current reality of high costs. Even if we buy a house with 2 bedrooms and 850 square feet of usable space (1000 square feet is what my builder bills us for), we have to spend about Rs.30 lakhs. If we take a loan for Rs.25 lakhs, we will be higher than the current Rs.1.5 lakhs slab for the housing loan interest benefit.
Service Tax for Construction
Though it is true that more and more service need to be brought under the tax net, the service tax on house construction has hit us hard. Some of us prefer to go with quality and long standing builders. Only these builders charge the service tax. Many new comers and fly-by-night builders do not charge this and show attractive rates for innocent buyers.
The other aspect of this is that the ultimate cost for us to buy houses has gone up significantly. As end users, we cannot pass this burden on to others too. Please consider removing the service tax on house construction.
Taxing Pension Plans
Sir, please consider liberal treatment for a few other avenues for tax savings. Currently the tax free commutation for pension funds is very low at one-third. The plans as of now are highly unattractive due to this.
Please make this amount fully tax free on withdrawal. This will prompt more of us in private employment to opt for contributory pension schemes like the New Pension Scheme and pension plans from private life insurance companies.
Expenses as Deduction
Sir, similar to businesspeople, please consider a few necessary expenses for the salaried such as mobile phone bills and actual office commuting cost (fuel, vehicle maintenance expenses, bus/train fare) as deductable expenses for the salaried. Cost of buying mobile phone and laptops and 3G data card may also be made deductable from income. In this modern work environment, all these gadgets have become necessary for the salaried employees.

Is the Budget Only About Taxes?

The first thing an average citizen of India thinks about before any Government Budget is about his/her personal income tax. Discussions during and immediately following the Budget presentation by the Finance Minister is also about income tax slabs and the tax savings instruments. But is the budget presentation only about income tax?

Income Tax
As an "Aam Aadmi" all we know is about our own income and the tax related to it. So it is no wonder that one is curious if not serious about the money that one could retain for himself/herself out of the total income. Traditionally too the Budget presentations have gone into the details of the personal income tax and corporate income tax changes.
Government Budget — Income
The Government Budget however is not just about income tax. It is very similar to our household budget, which has both income and expenses. The government gets its income from the taxes it charges. This comes in different forms: Direct tax and Indirect taxes. Direct taxes are taxes that are charged by the Government directly when income is generated — income tax is a direct tax. Indirect taxes are taxes that include taxes which are not directly charged to the user. These include taxes such as service tax, sales tax, excise duty and customs duty.
The income for the Government also comes from dividends paid by the companies it owns. The other income that the Government gets is from the sales of its assets like shares of companies it owns.
The income for the Government is higher from the indirect taxes than from the direct taxes. Of the direct taxes, the income tax received from individual is a smaller part when compared to the income tax received from companies.
Expenses of the Government
The Government spends on salary for its employees, pension for its past employees, welfare measures for the citizens, maintaining its defence and police forces, developing and maintaining infrastructure, delivering education at all levels, subsidies for food, fuel and fertilizers, various temporary employment schemes and many other not so visible services to its citizens.
Budget Deficit
Currently our Government is running on a deficit. This means that our Government is spending more than its income. The planned income for the Government was Rs.10 lakh crore. However its planned expenses were Rs.14 lakh crores. This creates a deficit of 40% on the income.
The Government manages the expenses by borrowing from several sources. However this adds to the burden in the future budgets as the interest on its borrowings itself becomes huge. During the last two years we have only been able to service the interest that had to be paid. We repaid only meager amounts of the principal of the loans. This is not sustainable in the long run. This way of borrowing to meet the expenses will only lead to severe crisis, when money is not available for borrowing. The situation can be worse as in the case of Greece now, were the entire world has lost trust on the repayment capacity of the Greek Government.
Balancing the Budget
For a Finance Minister, these are tough times. This is because there are not many avenues to increase the revenue for the Government. Reducing the expenses in many sectors is politically harmful.
It is us as citizens of the country who have to understand that there is no free lunch in this world. If we get something for free from the Government today, we have to ultimately pay for it in one way or the other. If not us, our future generations will definitely have to pay for it.
The way out for us as citizens, to get the best out of any Government is to say no to free-bees and to ask for a responsible Government that will invest in the long term wellness of the country.
This is possible not overnight. But it is possible in a series of positive and responsible budget that works towards reducing the Government's budget deficit.
Summary
The budget is definitely not just about taxes. The budget is more about establishing an income-deficit balance that will be able to sustain a growing country and its citizens with growing aspirations. It is also the role of us as responsible citizens to let go of the attitude of getting as much as possible for free from the Government.

FM’s Union Budget Speech leaked!

To round off pre-budget series here is a SPOOF of the Finance Minister's Budget speech

Madam Speaker,
I rise to present the Union Budget for 2112-13
We are reaching the end of a remarkable fiscal year. In a globalised world with its share of uncertainties and rapid changes, this year brought us some opportunities and many challenges as we moved ahead with steady steps on the chosen path of fiscal consolidation and high economic growth.
Our growth in 2111-12 has been very good. All industries have shown great growth. We have witnessed over 15% growth and are truly shining as the world's best economy
We have been able to keep inflation at a low of 0.2% all through the year
Overview of the Economy
The Economy has been in healthy condition and shows great promise for the year ahead. We have made great progress in Agriculture and Industry and our monetary policies have ensured that the economy has been robust. The external sector has shown great promise with 70% of revenues coming from Exports. Exports have grown at 180% and imports have reduced by 10%
Tax reforms
What started in 2010 in the form of DTC has been sustained and all the recommendations have been implemented in the last fiscal.
Subsidies
We have reached a stage where all kinds of subsidies for food, fuel etc have been made nil. The negative cash flows have been arrested and we are not at the mercy of opposition parties when planning a price hike.
People's ownership of PSU's
As planned, all government companies have been made truly public. The disinvestment we started in 1991 has culminated in the last year with the Parliament too being Privatized.
NUEGA — National Urban Employment Guarantee Act
With the great boost given to economy by the rural sector, the old scheme (NREGA) has been abolished and NUEGA has been proposed to ensure that Urban youth without jobs can be given jobs in villages!
Sarva Shiksha Abhiyaan
With making education free for all from KG to PhD we have been able to ensure that quality education is given free to all. In fact we have even given free education to over 10 million children from America, United Kingdom and Australia. We are renaming it as Sarva Rasthra Shiksha Abiyaan to help children from the 3^rd world countries in the American and European continents!
Health
Our one hospital every kilometer scheme has helped reduce mortality to a great extent. The average Indian male now is alive for 140 years and the female 150 years.
Financial inclusion
What was started in 2010 has resulted in every, yes, every Village in India has at least 3 bank branches and one international bank branch. Every citizen has virtual cash devices to make wireless expenses, even to buy milk!
PART - B
Madam Speaker,
I shall now present my tax proposals.
Last year I provided relief to individual taxpayers by broadening the tax slabs. To take us closer to DTC rates, I propose to enhance the exemption limit for the general category of individual taxpayers from Rs 200 crores to Rs 210 crores this year.
Senior citizens (those above 90 years of age) need not pay any tax irrespective of their income.
To boost luxury car sales, aircraft sales, luxury yacht sales, diamond sales etc it is proposed that investments upto Rs 50 crores in any of these investments can be used for gaining tax exemption.
It is also decided that since the whole public sector is now private, all citizens will have an equally share of the country's income. Our rough estimates put this at around Rs crore per citizen for the last year. We will use the Aadhar numbers to disperse this dividend.
VII. Indirect Taxes
I shall now turn to my indirect tax proposals.
We will continue to maintain Central Excise at 90% and VAT at 0.1%. We estimate this measure to fetch Rs. 10768896 Billion to the Government coffers
I am feeling very low to announce that corporate income tax will have to be raised by 1% to 1.5%. We will try to roll this back if the CEOs of companies oppose by doing drastic measures like 1 hour hartals. Else, we can impose the new rates.
Infrastructure
Now that we have six lane roads in every single village and an airport for every talk, I propose to support the Industry by letting them build roads and airports in our neighboring countries. All infrastructure projects executed outside India will get a subsidy of 50% from the government. I find it very tiresome when I visit some of these countries and have to drive by road.
Service tax
To promote the "Service" motto given to us by our forefathers I have increased the service tax to minus 29%
As the greatest economy in the world, with a voice on the global stage, India stands at the threshold of a century, which will once again be ours. With oneness of heart, let us all build an India, which in not too distant a future, will enter the comity of most developed nation in the Universe (adding the 17^th planet with humans recently found).
Madam Speaker, with these words, I commend the Budget to the House.
PLEASE NOTE: THIS IS A SPOOF AND NOT THE BUDGET OF 2012