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    The expectation is that at the end of the holding period of five years (in this specific case) one will always be able to find a greater fool who is willing to buy real estate at an even higher price. 

    In more general cases, the expectation is to find a greater fool who is willing to buy.

    Some regular readers have been asking on the social media as to why I have stopped writing on real estate.

    Actually, I haven’t, it’s just when it comes to real estate, I have had nothing new to say for a while. But today’s piece is about real estate. Not that this has something very new to say, but the story that I came across was interesting enough to be discussed in detail.

    First and foremost, I would like to thank Pune based Ashish Deshpande, Director, Paradigm Wealth Managers, for bringing this to my notice. So here is the story.

    On the insistence of a friend, Deshpande went to check out a new real estate development in Wadala in Mumbai.

    His friend could only afford the one bed room hall kitchen (BHK) that was on offer. And how much did it cost? Rs 1.8 crore. Deshpande got chatting to the builder’s sales guy and asked him, how many end users were actually buying the one BHK apartments. The sales guy, not surprisingly, answered 90 percent. I mean, what else could he have said. He is expected to sell apartments not philosophise about them.

    Of course, like a good sales guy, he was lying. Deshpande then asked the sales manager to imagine the profile of the guy who would in a position to pay Rs 1.8 crore to buy an apartment to live in it. Let’s do a little maths to get into a little more detail here.

    A bank or a housing finance company would finance up to 80 percent of the value of the apartment. This means a home loan of Rs 1.44 crore (80 percent of Rs 1.8 crore). Let’s say the individual who wants to buy this apartment goes to the State Bank of India. He takes on atwenty-year home loan at 9.25 percent per year.

    How much does the EMI on this amount to? Rs 1,31,885 per month. How much does a person need to earn per month for the bank or the housing finance company, to give him the required home loan? Assuming around 40 percent of the salary goes towards the EMI, the monthly salary would have to be around Rs 3.3 lakh. This would mean an annual pay of around Rs 40 lakh.A bank or a housing finance company would finance up to 80 percent of the value of the apartment.

    How many people actually earn that kind of money? Further, the individual would also have to arrange for a downpayment of Rs 36 lakh (Rs 1.8 crore – Rs 1.44 crore). How many people have such a saving? Also, would you expect someone earning as much as Rs 40 lakh per year to live in a one BHK apartment? Would take a very desperate person to do that.

    Deshpande offered this logic to the sales manager (not in as much detail). Then the manager let the cat out of the bag and said that most of the people purchasing one BHKs were buying it as a second home. People buy second homes typically to put it on rent to make a regular income, avail of the huge tax deduction that is available or to simply invest money and stay put. Or they simply have some money lying around and they don’t know what to do with it.

    Rental yields (annual rent divided by the market price of the apartment) are currently around two percent. So why would anyone in their right mind buy a home to put it on rent? Even after tax returns on fixed deposits, for those in the 30 percent tax bracket work out to around five percent.

    When it comes to saving tax, the strategy perhaps makes some sense. In case of a second home loan (and third and fourth and so on) theentire interest paid on a home loan is tax-deductible as long as a notional rent is added to the income.

    But what complicates matters in this case is that the delivery of the apartment is not scheduled up until 2020. That essentially increases the risk given that there are a whole host of under construction properties that haven’t been delivered over the last few years.

    Also, the apartment comes with the condition that it cannot be sold before possession is granted. So this basically means that it is a five-year investment and can be sold only by around 2021. So what is a reasonable rate of return for an investor to expect in this case? Deshpande works with a simple rate of return (and not compounded) of eight percent per year. This would mean an absolute rate of return of 40 percent over a period of five-year.

    This basically means that five years later the apartment should be worth at least Rs 2.5 crore (actually Rs 2.52 crore to be very precise). If we include stamp duty and other charges (which also need to be recovered) the apartment should fetch at least Rs 2.75 crore in 2021.

    A simple rate of return of eight percent per year might just work in this case because the buyer is also getting a huge deduction for the interest that he pays on the home loan. But what if someone is looking at least at a compounded rate of return of 10 percent per year? Then the price of the apartment has to be around Rs 2.9 crore in 2021. And this is without taking the stamp duty into account.

    Now, imagine one BHK apartments selling for Rs 3 crore in 2021? These are the numbers we are looking at. What if there are no buyers? As Deshpande puts it: “in the absence of an end user your investment becomes a fixed deposit fetching 2% return annually with principal not in sight or at least at big risk.”

    So where does that leave us? It brings us back to the Greater Fool Theory of Real Estate. Or the theory on the basis of which people are still betting on real estate. The expectation is that at the end of the holding period of five years (in this specific case) one will always be able to find a greater fool who is willing to buy real estate at an even higher price. In more general cases, the expectation is to find a greater fool who is willing to buy.

    If that is how you like to invest, then all I can say is best of luck. Or maybe you have a lot of black money lying around. And there is still no place better than real estate to launder it.

    This article was originally published in Vivek Kaul’s Diary — a newsletter that cuts through the noise and presents actionable views on socio-economic developments in India and the world. He is the author of a trilogy on the history of money and the financial crisis. The series is titled Easy Money.


    Please consider before filing Quarterly VAT Return
    वित्तीय वर्ष 15-16 के  विवरणपत्र (fourth Quarter) को प्रस्तुत करने की अंतिम दिनांक 30.04.16 है। इस विवरणी को भरने के पूर्व आपसे यह अपेक्षा की जाती है कि जिन व्यवसाईयों को आपके द्वारा माल का क्रय किया गया है या जिन व्यवसाईयों को  आपके द्वारा माल विक्रय किया गया है। उन व्यवसाईयों को क्रमश: क्रय एवं विक्रयों की सूची भेजकर यह सुनिश्चित कर लिया जावे कि जितनी क्रय अथवा विक्रय हमारे द्वारा दर्शाई गई है, उतनी ही क्रय या  विक्रय उनके द्वारा विवरणपत्रों में दर्शाई जा रही है। यदि इस प्रकार से क्रय एवं विक्रय का मिलान हमारे द्वारा रिटर्न प्रस्तुत करने के पहले कर लिया जाता है तो रिटर्न प्रस्तुत करने के पश्चात् किसी प्रकार का कोई मिस्मेच शेष नहीं रहेगा तथा कर निर्धारण के समय मिसमैच के कारण इनपुट टैक्स रिबेट अमान्य होने के कारण निकलने वाली अनावश्यक डिमांड से मुक्ति मिल सकेगी | 

    Introduction of Presumptive taxation scheme for persons having income from profession

    Introduction of Presumptive taxation scheme for persons having income from profession

    The existing scheme of taxation provides for a simplified presumptive taxation scheme for certain eligible persons engaged in certain eligible business only and not for persons earning professional income. In order to rationalize the presumptive taxation scheme and to reduce the compliance burden of the small tax payers having income from profession and to facilitate the ease of doing business, it is proposed to provide for presumptive taxation regime for professionals.

    In this regard, new section 44ADA is proposed to be inserted in the Act to provide for estimating the income of an assessee who is engaged in any profession referred to in sub-section (1) of section 44AA such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette and whose total gross receipts does not exceed fifty lakh rupees in a previous year, at a sum equal to fifty per cent. of the total gross receipts, or, as the case may be , a sum higher than the aforesaid sum earned by the assessee. The scheme will apply to such resident assessee who is an individual, Hindu undivided family or partnership firm but not Limited Liability partnership firm.

    Under the scheme, the assessee will be deemed to have been allowed the deductions under section 30 to 38. Accordingly, the written down value of any asset used for the purpose of the profession of the assessee will be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in respect of depreciation for the relevant assessment years.

     It is also proposed that the assessee will not be required to maintain books of account under sub-section (1) of section 44AA and get the accounts audited under section 44AB in respect of such income unless the assessee claims that the profits and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under sub-section (1) of section 44ADA and his income exceeds the maximum amount which is not chargeable to income-tax.

    These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

    Summery of Budget

    Budget – tax reforms

    – relief to small tax payers
    Rebate of rs 5000 from 2000 for income below 50000

    – presumptive taxation for business limit increased to 2cr

    – presumptive income for professionals – profit being 50% of turnover – limit 50L

    – phasing out of exemptions
    – additional depreciation to be curtailed,  r&d benefit to be curtailed to 150%

    – new mfg companies taxedd at @25%, if no profit linked deduction

    – business with turnover less than 5cr to be taxed at 29% from next year

    – 10% income in respect of patent registered in India

    – long term capital gain term for unlisted shared down to 2 years

    – poem to be deferred by 1 year

    – country by country reporting applicable for company having turnover of 750 billion euro

    – no change in exemption limit for individuals

    – General anti avoidance time to be implemented from April 1, 2017

    – first time home buyer – additional interest deduction subject to limits

    – if income from dividend greater than 10 lakh, additional tax @10%

    – surcharge @15% up from 12% for super rich – income exceeding 1cr

    – infrastructure cess on cars

    – excise duty on jewellery and silver items without input credit

    – excise duty on branded garments exceeding rs. 1000

    – excise duty increased on tobacco products by 10 to 15%

    – limited period compliance window for domestic resident @ 45% of undisclosed income 1 St June to 30 September 2016

    – 3 lakh case pending before first appellate authority, new scheme for reduction of litigation (eligible under both direct and indirect tax)

    – dispute amendment for cases affected by retrospective amendment

    – penalty rates changed from 50% & 200% in specified circumstances

    – disallowance u/s 14A – rule 8d to be modified to not increase expenditure incurred

    – recommendation of eashwar committee accepted

    – TDs provision rationalised

    – 206AA not apply if non resident has tax identification number (in absence of pan)

    – scope of e-assessment to be widened

    – interest u/s 244A – interest rate hiked to 9% from 6% – officer to be held accountable

    MP Budget Highlights

    मध्यप्रदेश के वित्तमंत्री के द्वारा वित्तीय वर्ष 2016-17
    के लिए पेश बजट मे वैट एक्ट के प्रावधानों की समीक्षा।

    राज्य सरकार के द्वारा बजट मे विभिन्न वस्तुओं पर छुट प्रदान की है। ज्ञातव्य हो कि राज्य सरकार के द्वारा बजट के पूर्व कर की दरों मे वृध्दि कर दी गई थी। अतः सरकार को बजट मे अधिक वस्तुओं पर वैट नही बढाना पडा जिसके कारण होने वाली आलोचनाओं का सामना नही करना होगा।
    बजट के मुख्य-मुख्य बिंदु इस प्रकार है:-
    1.पर्यावरण की सुरक्षा 
                  पर्यावरण की सुरक्षा हेतु बैटरी चलित कार एवं रिक्शा, जैविक कीटनाशक, बायो डिग्रेडेबल बैग एवं लिफाफे, इंडक्शन  चुल्हे एवं बर्तन इत्यादि पर कर की दरों मे कमी प्रस्तावित की गई है ताकि इन वस्तुओं के उपयोग से पर्यावरण की रक्षा की जा सके। साथ ही पर्यावरण को दूषित करने वाली वस्तुओं जैसे कि प्लास्टिक का समान, गैस गीजर पर कर की दर मे वृध्दि प्रस्तावित है जिससे इन वस्तुओं के उपयोग को हतोत्साहित किया जा सकेगा।
          स्वास्थ्य को बढावा देने हेतु सोया मिल्क डायलिसिस मशीन इत्यादि को सस्ता किया गया है।
    3.करो का युक्तियुक्तकरण
    3.1  हाल ही मे राज्य सरकार के द्वारा सभी प्रकार के वाहनों पर वैट की दर को 14 % से बढाकर 15 % किया गया था किन्तु पास के राज्यों मे हैवी मोटर व्हीकल पर कर की कम दर को देखते हुए हैवी मोटर व्हीकल पुनः 14 % किया जाना प्रस्तावित है।
    3.2   पूर्ण दर से कर चुकाकर क्रय किए गए माल को अन्तर्राज्यीय विक्रय मे बेचने पर मध्यप्रदेश मे चुकाये गए पूर्ण कर का रिफण्ड प्रदान करना होता है जिससे राजस्व मे कमी आती है। इस समस्या के समाधान हेतु यह प्रावधान लाए जा रहे है कि व्यवसायी के द्वारा जितना केन्द्रीय विक्रय कर जमा किया जाएगा उसे उतना ही आयटीआर प्राप्त होगा।
    4.व्यापारियों को सुविधाएं
    4.1  वर्तमान मे 20 लाख तक के टर्नओवर वाले व्यवसायियों को वार्षिक रिटर्न प्रस्तुत करने की पात्रता है। इस लिमिट को 20 लाख से बढाया जाकर 40 लाख किया जा रहा है।
    4.2 व्यवसायियों को विभाग से पासवर्ड डाक के माध्यम से प्राप्त होता है जिसमे विलम्ब होने से व्यवसायियों को परेशानियों का सामना करना पडता है। इस समस्या के समाधान हेतु अब पासवर्ड व्यवसायी को उनके रजिस्टर्ड मोबाइल पर प्राप्त हो जाएगा जिससे व्यवसायी तुरंत अपना कार्य कर सकेंगे।
    4.3 वित्तीय वर्ष 2011-12 तक के प्रकरणो मे विवादित बकायाकरों के समाधान हेतु कर समाधान स्कीम लायी जा रही है।
    4.4 वर्तमान मे व्यवसायी को रजिस्ट्रेशन सर्टिफिकेट विभाग से मेन्युअली प्राप्त करना होता है। किन्तु अब व्यवसायी इसे अपने डीलर प्रोफाइल से डाउनलोड कर सकेंगे। इसी के साथ व्यवसायी अपने कर निर्धारण आदेश, उनके द्वारा जमा किए गए कर, विभाग के द्वारा जारी नोटिस एवं वैधानिक फार्म की जानकारी अपने डीलर प्रोफाइल से प्राप्त कर सकेंगे।
    4.5 वर्तमान मे ई-कामर्स कम्पनियों के द्वारा प्रदेश के बाहर से प्रदेश के ग्राहकों को सीधे माल बेचा जा रहा है जिससे जहां एक ओर राज्य सरकार को कोई राजस्व प्राप्त नही हो रहा है वही दूसरी ओर स्थानीय खेरची व्यापारियों का व्यापार प्रभावित हो रहा है इस समस्या के समाधान हेतु ई-कामर्स कम्पनियों के द्वारा माल के मध्यप्रदेश के सीधे विक्रय किए जाने पर 6 % की दर से प्रवेशकर देय होगा। इससे ई-कामर्स कम्पनिया मध्यप्रदेश के व्यवसायियों के माध्यम से माल का विक्रय करने को बाध्य होगी।
    4.6 नए मल्टीप्लेक्स
    4.7 अभ्यास पुस्तिका, ग्राफ बुक, ड्राईंग बुक, प्रयोगशाला नोट बुक के निर्माताओं के द्वारा क्रय किए गए कागजों पर 5% के स्थान पर 2% का रिर्वसल किया जाकर 3% की दर से इनपुट टैक्स रिबेट दिया जाना प्रस्तावित है।
    5. प्रशासनिक कसावट
    5.1 वर्तमान मे मासिक कर दाताओं को कर अगले माह की 10 तारीख तक जमा कराने की सुविधा प्राप्त है किन्तु अब 10 तारीख के स्थान पर व्यवसायियों को 6 तारीख तक ही कर जमा कराना होगा।
    5.2 वर्तमान मे कर विलंब से जमा कराने पर 1.5% प्रतिमाह ब्याज देय होता है। किन्तु अब प्रथम 3 माह मे ही 1.5% की दर से ब्याज देय होगा। 3 माह के पश्चात विलंब जारी रहने पर 2% की दर से ब्याज देय होगा।
    5.3 मध्यप्रदेश के भीतर चाय, लोहा एवं इस्पात, ऑइल सीड, पान मसाला एवं खाद्य तेल पर स्थानीय ट्रांजीट पास के द्वारा ही माल परिवहित किया जा सकेगा।
    5.4 वर्तमान मे पीथमपुर का क्षेत्राधिकार धार मे होने से उधोगपतियों को परेशानी का सामना करना पडता है अतः इस समस्या के समाधान हेतु पीथमपुर का क्षेत्राधिकार इन्दौर मे तथा मालनपुर का क्षेत्राधिकार ग्वालियर मे स्थानांतरित किया जाना प्रस्तावित है।
    5.5 वर्तमान मे केवल 66 वस्तुओं पर फार्म 49 लागु है। अब सभी करयोग्य वस्तुओं को मध्यप्रदेश मे लाने पर फार्म 49 लागु किया जाना प्रस्तावित है।
    5.6 अपंजीयत ठेकेदारों से अब 2% के स्थान पर 3% की दर से स्तोत्र पर कटौती की जाएगी।
    5.7 मेन्यूअल पंजीयन की व्यवस्था पूर्णतः समाप्त की जा रही है।
    5.8 वृत्तिकर अधिनियम एवं विलासिता अधिनियम के अंतर्गत भी पंजीयन जारी करने हेतु एक दिन की समय सीमा लागु की जा रही है।
    5.9 आयुक्त वाणिज्यिक कर द्वारा प्रशासित समस्त विधानों के तहत पंजीयत व्यवसायियों के लिए यूनिक आई डी (पंजीयन क्रमांक) की व्यवस्था की जा रही है।
    5.10 एक पक्षीय कर निर्धारण आदेश के निराकरण हेतु 60 दिन की समयावधि निश्चित की जा रही है
    6. कर की दरों मे कमी
    6.1कर से मुक्ति:-
    o सुखे बेर को 5 % से घटाकर 0%।
    o बेर चूर्ण को 14 % से घटाकर 0%।
    o 38 कृषि यंत्रों को 5 % से घटाकर 0 %।
    o बैटरी चलित कार एवं रिक्शा को 5 % से घटाकर 0 %।
    o बायो डिग्रेडेबल सामग्री से निर्मित बैग एवं लिफाफे को 5 % से घटाकर 0 %।
    o तेल रहित खली, सोयामील, कपास्या खली, मक्का खली पर 0 %।
    6.2 कर की दर मे कमी:-
    o सेना मे कार्यरत अधिकारियों/जवानों को केन्टीन स्टोर से बेचे जाने वाली कार पर 15 % के स्थान पर 4 %।
    o 12 हजार किलोग्राम से अधिक के बाहर के वाहन पर 15 % के स्थान पर 14 %।
    o सोयामील, डायलिसिस मशीन एवं कंज्यूमेवल्स, बायो आधारित धुंआ रहित चुल्हा, गैस स्टोव तथा इंडक्शन कुक टॉप के पार्टस एवं एसेसरीज पर 14 % के स्थान पर 5 % की दर से वैट लागु किया जाना प्रस्तावित है।
    6.3 कर की दरों मे बढोत्री।
    o प्लास्टिक थैली, प्लास्टिक से निर्मित कप, ग्लास, प्लेट, थाली, कटोरी, कांटा, छुरी, चम्मच तथा पोलीथिन थैली एवं प्लास्टिक बैग तथा एच.डी.पी.ई बैग तथा सैक को छोडकर अन्य सैक पर कर की दर 5 % से बढाकर 14 % किया जाना प्रस्तावित है।
    o 10 हजार रू. मूल्य से अधिक की सायकल पर 0 % के स्थान पर 5 % वैट प्रस्तावित है।
    o ग्लास मिरर तथा गैस गीजर पर 5 % के स्थान पर 14 % कर।
    7. प्रवेशकर।
    7.1 प्रवेशकर की पूर्व की रियायतों को यथावत् रखा जाएगा।
    7.2 नैचुरल गैस को मध्यप्रदेश के बाहर से आयात कर सी-2/सी-3 के निर्माण मे उपयोग करने पर प्रवेशकर सामान्य दर से लागु।
    8. केन्द्रीय विक्रय कर।
    8.1 केन्द्रीय विक्रय कर की पूर्व की रियायतों को यथावत् रखा जाएगा।
    9.मनोरंजन कर।
    9.1 मनोरंजन कर की छुट सिनेमाघरों के भु-स्वामी के अतिरिक्त पट्टे पर लेने वाले पट्टेदार को भी दिया जाना प्रस्तावित है।

    Pitalia & Associates
    Chartered Accountants

    विभाग में पंजीयत ट्रेडर्स, ठेकेदार एवं सेवा संबंधी व्यवसाय करने वाले व्यवसाईयों द्वारा ट्रक ट्रिपर्स एवं जेसीबी दर्ज की गई ‘‘सी’’ फार्म के समर्थन में रियायती दर के आयात कर, स्वयं के उपयोग में लाकर ‘‘सी’’ फार्म का दुरूपयोग करने के संबंध में।


    Income Tax : Trust Registration and Tax Rate

    Trust formed for charitable or religious purposes which are not intended to do commercial activities are allowed various benefits under the Income-Tax Act, inter-alia, exemption under section 11.

    The term religious purpose is not defined under the Income-Tax Act. However, Section 2(15) of the Act defines “charitable purpose” to include relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.

    Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—

    (i) such activity is undertaken in the course of actua​​l carrying out of such advancement of any other object of general public utility; and(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;

    ​​​​​​​Is registration of a trust mandatory?

    It is mandatory for a trust to get the registration under Section 12AA of the Income-tax Act, 1961 so as to claim exemption under section 11.

    When a trust can apply for registration?

    There is no time-limit to apply for the registration. However, if application for registration as trust has been made on or after June 1, 2007, the exemption would be available only from the financial year in which such application is made.

    However, exemption to a trust could not be denied in respect of earlier assessment years (for which the proceedings are pending before the Assessing Officer) provided that objects and activities of the trust for such preceding assessment years were same.

    Form to be used to apply for registration?

    A trust is required to apply for registration in Form No. 10A

    Documents to be furnished along with application form?

    The documents which are required to be furnished along with application Form No. 10A are as follows:

    1) Where the trust is created, or the institution is established, under an instrument, the instrument in original, together with one copy thereof; and where the trust is created, or the institution is established, otherwise than under an instrument, the document evidencing the creation of the trust or the establishment of the institution, together with one copy thereof. If the instrument or document in original cannot conveniently be produced, it shall be open to the Principal Commissioner or Commissioner to accept a certified copy in lieu of the original.

    2) where the trust or institution has been in existence during any year or years, prior to the financial year in which the application for registration is made, two copies of the accounts of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up.

    What is the tax rate?

    A trust is chargeable to tax as per the slab rates which are applicable to an individual (not being a senior citizen or super senior citizen).

    Surcharge: The amount of income-tax (as computed above) shall be further increased by a surcharge at the rate of 10% of such tax, where total income exceeds one crore rupees. However, the surcharge shall be subject to marginal relief (the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of one crore rupees by more than the amount of income that exceeds one crore rupees).

    Education Cess: The amount of income-tax and the applicable surcharge, shall be further increased by education cess and secondary and higher education cess calculated at the rate of two per cent and one per cent respectively of such income-tax and surcharge.

    Source- Official Income Tax Website of Government of India