Monthly Archives: July 2019

Thursday Trivia ~ Key Eventful Budgets of the Past that shaped our Present!


Budget of 1991 – Era of Globalization, Privatization and Liberalization

Ex-Prime Minister Manmohan Singh is regarded as one of the key economists under the leadership of then Prime Minister Narsimha Rao who opened the closed doors of our economy to the World. The era up to 1991 is classified as License Raj where people had to wait several years for a gas connection, telephone connection and even a scooter! Today’s generation doesn’t believe that such a time even existed.

Kids too laugh when I tell them that we had to wait for several hours to speak with our relatives who stayed in other part of the country, these days they simply do a video call even to other countries and it feels as if we were never apart!

The landmark move in the Budget of ’91 has not only opened up our economy but also our minds. We have seen a good amount of jobs being created and Indian companies sending their young talent to foreign lands. Companies such as Infosys, TCS has made India a household name in the software industry.

These changes helped us change the shape of our economy. Form a country that was an agricultural economy we shifted to manufacturing and eventually a service based economy. This was also a milestone which led to introduction of private sectors in industries where only government functioned, Telecom, Television channels, Airlines and so on and so forth.

Some budgets simply change the course of History and 1991 Union Budget was the one!


The Gift Tax Saga

India has had a Love – Hate relationship with Gift Tax since independence.

In 1958, Government introduced Gift Tax Act wherein the gifts were taxed in the hands of gift giver at a flat rate of 30% with a basic exemption of Rs. 30,000/-.

However, Gift Tax Act, 1958 was abolished in the budget of 1998 and the giver as well as the recipient was not required to pay taxes on such transactions.

But in the budget of 2004, Gift Tax saw a backdoor entry through Income from Other Sources.

The major shift being that in 1958, Gift Tax was a giver based taxation and in 2004, as we know it today it became a recipient based taxation system. So rightfully the person who receives the gift is taxed.

However, a few exemptions are also provided and the term ‘relatives’ was used where a complete exemption was given where donor and donee were related to each other falling in the purview of Income Tax Act. There is also an exemption provided for any sum of money received on marriage as gift from anyone. The provision has been evolving ever since it was introduced in 2004.

“There may be liberty and justice for all, but there are tax breaks only for some.” – Martin A. Sullivan


The story of Indirect Taxes – VAT, Service Tax and the ultimate Goods and Services Tax

Indirect taxes are expense-based taxes. In any economy, an expense from one person is revenue for another. Since, a lot people are not under the net of income tax for the government, indirect tax applies to every Indian who spends money.

The Budget of 1986 is landmark for Indirect Taxation for India as it introduced MODVAT. Which laid the foundation in later years as Sales Tax was replaced with VAT in 2005. Similarly, Service Tax was introduced in 1993.

GST has replaced VAT and Service Tax and virtually all forms of indirect taxes. It wasn’t passed in a budget but was passed in the Parliament on 29th March 2017 as The Goods and Service Tax Act. The Act came to effect on 1stJuly 2017.

GST has been built on an Indirect Tax platform, which brings entire India under one structure. There have been a lot of discussions around its rates, although Finance Ministry looks to keep 2 rates for the future. GST has been designed to bring down price of goods and services as input credits are available and only consumer bears the tax. This takes care of costs not being inflated along the way.



LTCG stands for Long Term Capital Gain on equity investment. First of all, LTCG is applied on equities if the investor has held on to it for more than 1 year. Equities held in form of shares or mutual fund units attract short-term capital gain STCG, if they are held for less than a year. You may consider that 1 year is short period, but increasing the tenure will seriously hamper the equity market mood. Also many investors/ traders on an average tend to hold on to an investment position for a much shorter period.

Long Term Capital Gains on Equities has seen a Love – Hate relationship from various Finance Ministers over the years. While some are of the view that it must be taxed as it creates wealth, some believe it should be exempt from tax to encourage more participation in the capital markets. No prices for guessing I am from which camp.

In the Budget of 2004, LTCG on Equities was abolished and STT was brought on the transaction value of equities. The markets cheered the news!

However, last year in the Budget of 2018, Finance Minister re-introduced LTCG on Equities at 10% and all returns accrued before January 31, 2018 were grandfathered. There is a basic exemption of Rs. 1 lakh and gains above that are only taxed.

The markets had a knee jerk reaction but didn’t really crash. In fact, they are up and now touching their lifetime highs.

This simply shows that investors have tremendous faith in the future of India. Plus, the confidence for Indian businesses to create wealth for them over the long term and for that even tax is accommodated.

“There is no such thing as a good tax.” – Winston Churchill

Budget 2019 – Snapshot for an Investor!

As a taxpayer, our interest in the budget is usually limited to the changes in the tax slab that we belong to. If there is any significant change on it, then we communicate it as a good or bad budget.

However, a budget is more than that.

There are other aspects in the economy that substantially impact our wealth creation which are covered under the budget. And as investors, we should prudently take an interest in understanding it’s impact. Of course, we will speak about tax reforms in this article too and we shall cover other aspects that will directly impact your wealth in the long term.

  1. Aadhar now interchangeable with PAN cards for Tax filing

Slowly, Government seems to be in the mood of saying a good bye to PAN cards. Why? Because they were easily made before. People used to make multiple PAN cards for tax evasion purposes. This had become a rampant exercise.

Mandating Aadhar number for filing of tax returns is a welcome move for tax collection.

  1. Aadhar card for NRIs

Earlier Non Resident Indians had to stay for 180 days in India in a year which would classify them as Resident Indian citizens. Only then their Aadhar card could be generated. However, this has now been done away with.

NRI can simply make their Aadhar card and no need to wait for 180 days.

  1. Tax collection increased by whopping 78% during last 5 years

After Piyush Goyal thanked all the tax payers in this year’s Interim Budget speech, so did Mrs. Nirmala Sitharaman. We are glad that finally someone understood a taxpayer’s effort in national development.

There has been an Increase in tax collection by 78% from ₹6.4 lakh crore in 2013-14 to ₹11.4 lakh crore in 2018-19.

This is good news as Governments start to collect more taxes, they are more comfortable to widen their tax base in the future. So good times to come!

  1. Increase in Minimum Public Shareholding of Listed Companies from 25% to 35%

It’s a good thing as more shares will be available in the market for investors to buy. Will also provide for more liquidity in the market. It will further boost investing in times to come.

  1. Social Stock Exchange for Voluntary and Social Organizations

It’s a boost to the social organizations to receive more funds for the amazing work they do. Also, they will become more transparent as the stock exchange has certain listing requirements that ask them to present their Revenue statement and Balance Sheets.

  1. Recapitalization of Public Sector Banks by Rs. 70,000/- crores during the year.

Public Sector Banks have been in the focus since 2013 now. After years of irresponsible lending, they had been asked to disclose their Non-Performing Assets with the structure provided by the RBI.

To make them healthy again, a slurry of measures have been taken. Insolvency and Bankruptcy Code has been opened up where banks can get into litigation with such NPAs. Upto Rs. 4 lakh crores have been recovered till date. 6 PSU Banks were put into Prompt Corrective Action framework where RBI basically asked them to clean up their act before lending again. Now these Banks have come out of that framework and healthy to lend again.

Also, there were mergers of bad PSU banks with good PSU banks. This has brought down to PSU bank number to 8 in total.

Flow of credit from these banks have been at 13.8% for the last year. Which is good but we need to increase it to around 18% before any visible impact can be seen.

  1. Door Step Banking and Online Loans

With the use of technology, loans will be disbursed quickly. Will benefit middle class the most.

  1. Housing Sector

Post IL&FS and DHFL crisis, RBI will now overlook the Housing sector. Earlier National Housing Board (NHB) had been entrusted with that responsibility.

  1. Affordable Housing

Enhanced interest deduction up to ₹3.5 lakh for purchase of an affordable house. This will give a breather to the middle class.

  1. Disinvestment

Disinvestment target for the year has been kept to Rs. 1 lakh 50 thousand crores.

Re-initiate sale of Air India. This is much needed before it drains out tax payers money.

Strategic sale in Central Public Sector Enterprises (CPSEs) in which Government holds 51% or more will see a strategic disinvestment on case by case basis.

More retail investors participation is encouraged by issuing CPSE ETFs in ELSS segment. ELSS is a tax saving option for investors. It will be seen how these CPSEs perform and create wealth for ELSS holders rather than simply being a tax saving option.

  1. The Big Infrastructure Push

Rs. 100 lakh crores to be invested in Infrastructure sector of India over the next 5 years. This doesn’t mean every company in this sector will start to generate returns immediately. An investor must remember that most of these companies are under huge debt obligations which needs to paid out first before creating profits for shareholders.

  1. Bond Markets

Retail investors will be encouraged to invest in Treasury Bills through stock exchanges. This is a welcome move!

Finance Ministry will work with RBI and SEBI to allow stock exchanges to use Triple A rated Bonds as collateral. This move will definitely add some liquidity with stressed housing finance companies. Flow of money will improve.

Bond and CDS Markets will be notified for an Infrastructure focus investments.

  1. Boost to Electric Vehicles

Rs. 1.5 lakhs of deduction provided on taking loans for electric vehicles.

  1. Change in Securities Transaction Tax in Options

Something to cheer for options market. Earlier, STT was levied on the Option price which used to make it costly.

Now, STT will be levied on the difference in Option Price and Strike Price. Will bring the cost down substantially for an option trader.

  1. Petrol and Diesel to get costly by Rs. 1 cess per liter

Hopefully, crude prices will come down in the future and this impact will not be felt.

  1. Hike in customs duty on Gold and Precious Metals from 10% to 12.5%
  2. Nominal excise duty on crude and tobacco products.
  3. Hike in surcharge of taxable income

Income from Rs. 2 crores to Rs. 5 crores – 3% effective tax hike

Income above Rs. 5 crores – 7% effective tax hike

  1. 2% TDS on cash withdrawal of more than Rs. 1 crores in a year.
  2. In case of Buy Back by listed companies, additional tax of 20% to be imposed. As is the case with unlisted companies currently.


It’s a decent budget with not much visible changes. Although the reforms carried out in the housing and banking sector will help the middle class of India in a big way. Not to mention the Infrastructure push by the Government which is need of the hour, this will give our next generation a great place to live in.

The overall budget proposals are good, how they will be implemented in the future is something every Indian citizen should keep an eye on.

– Jinay Savla

Disclaimer : The article has been prepared based on our first reading of the Budget 2019. A reader should not consider taking any action based on the same.

Thursday Trivia ~ Book Summary – The 7 Habits of Highly Effective People by Stephen Covey

Author Stephen Covey is regarded as the Self Help Guru and rightly so as his teachings are timeless. The 7 Habits have been widely regarded as the foundation for personal effectiveness and a must read for everybody regardless of their age. Being effective is till today an underrated skill that everyone must develop. To be effective author suggests the following 7 habits

  1. Be Proactive
  2. Begin with End in Mind
  3. Put First Things First
  4. Think Win / Win
  5. Seek First To Understand, Than To Be Understood
  6. Synergize
  7. Sharpen the Saw

Key Takeaways!

  • The book has been divided into two parts. First part is Personal Victory (first 3 habits) while the second part is Public Victory (last 4 habits).
  • We are born proactive – as a child we learn walking proactively. Although overtime we become reactive due to social conditioning and stop taking the first step for anything.
  • A proactive person always keeps an end in his mind when he starts a project. He knows the outcome beforehand and works hard on achieving it.
  • Personal victory comes before Public victory.
  • To attain Public victory, it’s important to Think Win / Win in situations when dealing with others. There is no point in having a situation that is Win / Lose, Lose / Win or Lose / Lose.
  • To create a Win / Win situation, a person should learn to empathize with others. Understand others first before putting a point across.
  • Pubic victory is a matter of a lot of outcomes coming together. A leader always looks to synergize with those outcomes. Such outcomes are a matter of a lot of people coming together for a common cause.
  • Synergy is present when everyone in the team strives to achieve the desired vision and mission of the company.
  • Practice! Practice! Practice!
  • These 6 habits must be practiced repeatedly to a point where they are ingrained into the nature of the person.

Steve Jobs is one of the greatest leaders our generation has witnessed. He was proactive who never settled down with success of his products. That’s why we saw fantastic iPhones, iMac, iPods and iPads releasing every year. In his biography, the author speaks about how he was sure of iPod changing the world and needed to be as small as possible. Every employee of Apple works for the common vision statement and creates a product that everyone loves. Needless to say, Steve understood what the world wanted even before the world knew it could even exist.

– Jinay Savla