Investment: L& T and infra stocks

Source: ET Wealth: 31Jan2011: Good time to buy infra stocks, not funds

Get the best deal for used wheels

Source: ET-Wealth-24Jan2011: Get the best deal for used wheels

Aakash Salgaonkar owned two hatchbacks, but still longed for a sedan. A budget of Rs 5 lakh was not helping till he stumbled on a steal: A three-year-old black Chevrolet Optra that had run 28,940 km for Rs 3 lakh. A new model would have cost Rs 8 lakh. Salgaonkar bought the car for Rs 2.7 lakh in early 2010. A year later, the finance executive from Mumbai is still smiling. “With second-hand cars, you can get a model in good condition for sometimes half the price,” says Sandeep Kapoor of Relioquick India , which organises automobile shows. Used cars are perennial suspects for performance, mileage and maintenance costs. But these factors pale before cheap prices. Say, you want a sedan. A new Honda City in Mumbai costs more than Rs 10 lakh. You could get a used model for half that price if you can live with its two-year-old tag. A year-old hatchback could be cheaper by up to Rs 1.5 lakh. The prices vary across cities. Used wheels are an answer to people against loans or accumulating finances. Still, buyers are intimidated by the prospect of future costs. Even if a car costs 50% of its original price, there are doubts on fuel and maintenance expenses. This leads to what is called the ‘lemon and cherry’ problem. This theory discovered by economist George Akelorf is characteristic of the second-hand car market. A buyer usually assumes that what is being passed is a lemon (bad car) and refuses the right price. A seller who is refused the right price even for a cherry (good car) will not part with it. So well-maintained used cars are hard to find.

A buying guide

A car that rolls out of a showroom is considered used. The price wanes as kilometers multiply. Used cars are up to 70% cheaper. Experts say owners these days ditch vehicles after 2-3 years. It could be as early as three months. The chances of getting a relatively new car have risen as a result. Age should not be the only decisive factor. “The parameters that determine the price are its condition, features, ownership and demand,” says Jagdish Khattar of Carnation Auto. Bargaining is fine, but look for the not-so-obvious signs. For instance, dealers say if the paint is fresh, it could be an attempt to mask an accident. Enquire about the ownership and history of a car. To check if a vehicle is worthy of purchase, experts advise on a correlation between the distance run and the years a customer plans to retain it. Banwari Lal Sharma of Carwale, an online portal for cars, says a car must not have run beyond 50,000 kms if a customer is looking to own it for 3-5 years. If the expected ownership is 1-2 years, 60,000-70,000 kms is alright, he says. Sharma is against buying a car beyond 1 lakh km unless you are an expert. Test drive a car accompanied by a mechanic. And drive it on all terrains. Check for its history on defects. Before possession, one should obtain the following documents: RC book, insurance copy, tax receipts, warranty documents, service and maintenance records and a set of car sale documents available with RTO agents and signed by the seller

Where to buy?

The usual stop for a used car is the neighbourhood mechanic. Carmakers such as Maruti Suzuki, Tata Motors and General Motors too have launched pre-owned cars. These companies buy back and renovate models. Dealers charge a commission of up to 2% from buyers and sellers. To check prices, turn to portals such as carwale and gaadi. Dealers often name a price, but they do not offer the best price as they eventually look to sell. It is better to sell to an individual through a dealer. Such deals can return up to 25% more. Abdul Majeed of Pricewaterhouse Coopers recommends reputed dealers. “They do the first level screening,” he says. A mechanic’s price could be up to Rs 25,000 cheaper than a dealer but the amount may not cover servicing and repair charges. The advantage with big garages is that the car will be serviced. Company showrooms can be more expensive by nearly 15% but could be value for money. The car is likely to be in good condition. There is warranty and free service of up to 3 times.

The right price

Used cars are cheaper but securing the right price based on performance and age can be tricky. “You should ideally not pay more than 50% of the original value if the car is 3-4 years old. This 50% should include the 5-10% that you may need on renovation,” says Majeed.

Things to look out for in a used car

Bonnet: Check if the vehicle has been painted fresh.

Engine: A well-maintained engine would not produce unusual noise.
Documents: Check if engine no. and chasis number are matching with the numbers in the registration papers.

Odometer: Do the math on the reading and year of manufacture. A 3-5 year old car that has travelled 14,000 to 18,000 km a year is a good buy.

Leaks: After a test-drive, park the car on clean ground and look for oil leaks from engine or gearbox.

Brakes: Apply brakes at the speed of 30-50 km to check that the car stops in a straight line.

Tyre: Look for wear and tear and also the alignment. If tyres are not in good condition, there is a chance of bargaining for up to Rs 1,000.

Exhaust: Blue smoke during start indicates engine trouble. It means the engine consumes too much fuel, a possible problem with fuel injection.

Tax: Long Term Cap Gains: Sale of Plot

Source: ET-Wealth-24Jan2011: Q&A   Q: I want to know the treatment of long-term capital gains on the sale of a residential plot that I sold recently . I intend to reinvest the proceeds in purchasing another residential plot in two years. Should I declare the capital gain in my tax returns for 2011-12 and show the exemption? Can I invest the sale proceeds in any other investment vehicle till I purchase the plot? Yes, you will have to reflect the long-term capital gains arising from the sale of plot in your I-T returns for 2011-12 . There is no tax benefit if the sale proceeds are reinvested in another plot. To claim exemption under section 54F, you have to invest the sale proceeds in a residential house. You can purchase a residential house within two years from the date of sale of the plot or a year before the date of sale of plot. You cannot claim exemption if you own more than one residential house at the time of the sale. In case you could not complete the reinvestment in the new house within the due date for filing of your I-T returns, you should park the sale proceeds in a capital-gain-savings account which can be opened in any nationalised bank

Tax: TDS on interest from bank deposits

Source: ET-Wealth-24Jan2011: Smart Things to Know: TDS on Interest from Bank Deposits   1.    Interest earned on bank deposits is subject to tax deducted at source (TDS) if the total interest amount in a financial year exceeds Rs 10,000. 2.    Interest earned on term deposits is subject to TDS. However, interest earned on savings account balances is not subjected to TDS. 3.    Even if a customer has multiple deposits, the interest earned will be aggregated and subjected to TDS if the threshold level is crossed. 4.    TDS is applicable on the entire interest income if it is more than Rs 10,000 in a financial year, and not on the extent to which the interest income exceeds Rs 10,000  5.    TDS is deducted at a rate of 10% for all categories of depositors except non-resident ordinary accounts where the applicable rate is 30.9% (inclusive of a 3% education cess) 6.    It is compulsory to register the PAN. If a term deposit accrues interest and the PAN is not known, TDS will be deducted by the bank at a higher rate of 20%

Tax: Infra bonds

Source: ET Wealth: 24Jan11: How much tax do infra bonds really save?

By investing in these products, taxpayers can claim a deduction of up to Rs 20,000 under Section 80CCF. This is above the Rs 1 lakh invested under Section 80C. While you save tax, your real returns may not be as high or precise as those being projected by some brokers. So before you rush to invest in the issue, here are a few points to ponder.


Remember buyback dates: Both issues offer a buyback option to investors after the five-year lock in. It is best to exit at the first opportunity and reinvest the proceeds in other, more lucrative options. If you miss the window that opens for a specified period, the company may not buy your bonds. However, you can still sell them. The bonds will be listed on major exchanges and you can sell them like any other security in the secondary debt market. Keep in mind that it is not easy for retail investors to find buyers in the secondary bond market.

Tax: Disabilities can be tax savers

Disabilities can be tax savers There are other signs to suggest that the taxman is not the heartless Scrooge he is often made out to be. If a taxpayer suffers from a disability, he can claim deduction of Rs 75,000 under Sec 80U. If he has a disabled dependent, he can claim the deduction under Sec 80DD. Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness and deduction is available only if the impairment is at least 40%. If the disability is severe (80% or above), the deduction is Rs 1 lakh a year. The dependant could include the taxpayer's spouse, children, parents and even siblings. Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that the taxpayer may spend on himself or on the disabled dependent. However, the disabled person should be wholly or mainly dependent on the taxpayer for maintenance, and should not have claimed deduction for the disability under Section 80U separately. How much tax can you save: A deduction of Rs 75,000 can cut tax by Rs 23,175 in the highest tax bracket. In case of severe disability, the tax is lower by Rs 30,900. Proof required: A certificate of disability from a civil surgeon or the chief medical officer of a government hospital.

Tax: Unlimited deduction for your second home loan

Source: ET-Wealth-3Jan2011: 8 Tax Saving Secrets   Take unlimited deduction for your second home loan When it comes to buying a second house, the taxman can be very encouraging. Under Section 24b, one can claim deduction of up to Rs 1.5 lakh a lakh for interest paid on a home loan. But if the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as a deduction. As Savla says, "If you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or a deemed income is charged to tax." How much tax can you save: If you have taken a home loan of Rs 50 lakh at 9.5% for 20 years, your interest payment in the first year will be Rs 4.7 lakh and you can save tax up to Rs 1.09 lakh. Proof required: Loan account statement from your lender

Tax: Claim HRA as well as home loan benefits

Source: ET-Wealth-3Jan2011: 8 Tax Saving Secrets   Claim HRA as well as home loan benefits But you can claim both house rent allowance (HRA) exemption as well as the tax benefits on the interest paid on a home loan. Many organizations do not allow employees to claim both benefits. Their logic is that HRA is exempt if you are paying rent and home loan benefits apply only for a self-occupied house. You can't be doing both at the same time. But this is a gray area in the Income Tax Act. "In legal terms, silence signifies approval. In other words, the Act need not expressly allow something. The lack of express disallowance also signifies intention of approval," says Shanbhag. So given this, HRA and interest on home loan are two separate provisions and claiming one of them as a deduction does not influence the other. As Shanbhag puts it, "The taxpayer may own any number of flats, either in the same city that he works in or anywhere else in the whole of India or for that matter abroad, but that in no way influences the HRA deduction that he is entitled to." There are many such examples in the tax laws. Let's take for instance, Section 80C (PPF, NSC, ELSS etc.) and Section 80D (medical insurance premium). "Everyone will agree that both Section 80C and Section 80D can be separately claimed. But does it expressly say so anywhere?" asks Shanbhag. How much tax can you save: In the highest tax bracket, a deduction for Rs 1.5 lakh will bring down your tax by Rs 46,350. Proof required: Loan account statement from your lender

Tax: Cut tax by investing in fiance's name

Source: ET Wealth – Dec 27, 2010 : How to cut tax by investing in spouse's name   If a couple is engaged, and the girl does not have any taxable income or pays tax at a lower rate, her fiancé can transfer money to her. The income from those assets won't be included in his income because the transaction took place before they got married. One can give up to Rs 1.9 lakh (the tax exempt limit for women) without putting any tax liability on the girl.

Tax: Cut tax by investing in child's name

Source: ET Wealth – Dec 27, 2010 : How to cut tax by investing in spouse's name   ·         If investments are made in the name of minor children (below 18 years), the income earned from such investments is clubbed with that of the parent who earns more. ·         Earlier, you could avoid this tax by investing in a long-term deposit which would mature when your child turned 18. But this rule changed a few years ago. Now, the interest earned on fixed deposits and bonds is taxed every year even though the investor gets it on maturity. So, opening fixed deposits in the name of minors makes little sense any more. ·         Open a PPF account in the name of the child because, as mentioned earlier. However, the contribution to your own PPF account and that of the child cannot exceed the overall limit of Rs 70,000 a year.