Demat Made Simple

Long ago, P J Kutar had written a letter to me pointing out that the investors would get better protection if the depository participants (DPs) upgrade their software to relate the unique identification number on the transfer slips provided to account holders with their account IDs. When I pointed this to C B Bhave, MD of NSDL, he wasted no time in instructing the DPs to do the needful. Many account holders faced a problem when they went to the DPs for some work but did not carry their slip book with them.

To eliminate this problem, Bhave has issued Circular No NSDL/PL/2000/341 dated March 24, 2000 followed with NSDL/PI/2000/499 dated April18, 2000.

The following is the gist -

"Any instruction for debit of a client account submitted on an instruction form other than the one issued to a client should not be accepted. However, in case the client has come to Participant's office and forgotten to bring his delivery instruction form issued to him, the Participant may execute the delivery instruction, subject to the following:

n The client comes personally to the DP's office.

n The client signs delivery instruction form in the presence of officials of the DP.

n The client produces transaction statement of his account, while presenting the delivery instruction form.

n The loose leaf delivery instruction forms issued to a client, must also have pre-printed serial numbers. These serial numbers should be from a separate series and the record should be maintained by the participants."

The fact that NSDL monitors controls and improvements in the systems on an on-going basis is heartening.

Amendments to Budget Proposals

There were a few changes announced by the Finance Minister, while moving the Finance Bill through parliament for passing. The Budget looks much better now than in its original form. The following points are of interest to individual assessees:

n Long-term Capital Gains

NABARD or NHAI Bonds issued on or after April 1, 2000 under new specially formulated Sec 54EC are slated to replace all avenues u/s 54EA and EB which saved tax on long-term capital gains. Sec 54EA required contribution of the entire net sale proceeds and had a lock-in of three years whereas Sec 54EB was satisfied with contribution of only the long-term capital gains and had a lock-in of seven years. The new bonds require contribution of only the long-term capital gains as was the case with Sec 54EB but the lock-in was five years. I am afraid that the new Bonds will have quite low rate of returns and therefore, the assessee would lose by way of returns what is saved as tax exemption. I had therefore doubted the utility of the Bonds in saving taxes. Now, this lock-in has been thankfully reduced to three years.

n Tax Rebate

Contributions out of income chargeable to income tax by an individual or HUF to some specific schemes qualify for deductions from tax payable at a flat rate of 20 per cent of the contributions made. The aggregate contribution to all these schemes qualifying for deduction is subject to a ceiling of Rs 60,000.

A higher qualifying limit of Rs. 70,000 in place of Rs. 60,000 was applicable to infrastructure-related instruments. The Tax-saving Bonds of ICICI/IDBI with a lock-in of as low as three years serve the best. In the wake of ever-rising endemic inflation, this ceiling was too low. Now, this qualifying limit has been raised to Rs 80,000 while retaining the Rs 60,000 limit in the case of avenues not related with infrastructure.

n Surcharge

Surcharge at 10 per cent on tax computed after taking into account deductions and rebates is levied. The Budget proposed to increase this levy to 15 per cent on net total income higher than Rs 1,50,000. This would have hit, for obvious reasons, the salaries class the most and moreover, the employers would have been heavily burdened with keeping track of the percentage to be employed while applying TDS. Now, the salaried class will be paying only 10 per cent surcharge.

But what is the percentage applicable to pensioners whose investment income takes them beyond the Rs 1.50 lakh mark? What about businessmen or professionals who also earn a salary or pension? I hope that these and such related issues are tackled by the amendment.

n Interest on Housing Loan

Deduction is available on interest paid on loans borrowed for purchase of a self-occupied property. The ceiling is Rs 30,000. It is higher at Rs 75,000 but only on capital borrowed after April 1, 1999, provided the acquisition or construction of the property is completed before April 1, 2001. This terminal date was raised to April 1, 2003 by the Budget. Now, the ceiling has been raised to Rs one lakh.

While welcoming the amendment, I wish to submit that this is most unkind to all those who have taken a loan before the magic date, April 1, 1999. All such individuals find themselves trapped.

I have a suggestion for them. Pay off the old loan, even if it involves a penalty. Take a fresh loan to finance the repayment of the old loan. Take this action in a hurry if you find that the interest component of your loan is significantly higher than the old ceiling of Rs 30,000.

What if it is a very old loan and you are already residing in the house for several years? No problem. Your house satisfies the requirement that its acquisition or construction should be completed before April 1, 2003.

There are quite a number of housing finance companies with aggressive marketing managers, who have recognised and realised the wisdom of such switch over from old loan account to a new one. In some cases, the old and the new may lie with the same lender!

ICICI Home Finance and HDFC are offering such a switch over facility.

n ESOP is not a Perk

Employee's Stock Option has evolved as an excellent tool in the hands of enterprising entrepreneurs to hold on to their skilled employees. Unfortunately, much of its value was diluted because this was taxed twice. It was taxed as a perquisite when the option was accepted by the employee and then again, as capital gain when the employee sold the stock. Fortunately, good counsel has prevailed and it will no more be treated as a perk.

Now the budget looks much better, if only the authorities do their homework before the budget rather than after it.