Expect a correction by the middle of next week

Markets are approaching their highest level in two years

The market ended on a firm note today. The BSE Sensex closed at 17,644, up 86 points and the Nifty closed at 5,282, up 22 points. It is now once again reaching the highest level in two years, a level it had hit in January. The market has been up for seven weeks in a row and the chances of a correction next week are high. We expect a reaction by the middle of next week.

Asian stock markets were also higher today, despite a subdued overnight market in the US. Japanese exports were looking up due to the weak yen. The key benchmark indices in China, Hong Kong, Indonesia, Singapore, Taiwan, South Korea and Japan rose by 0.41%-1.55%. The Dow Jones rose 5.06 points (up 0.05%) to 10,841.21. The Nasdaq declined 1.35 points to 2,397.41 and the S&P 500 fell 1.99 points to 1,165.73.

Tata Motors (up 3.3%) is reportedly selling about 20% stake in its equipment and service unit Tata Construction Equipment Company (Telcon) to Japan’s Hitachi Construction Machinery Company for about $220 million. Bharti Airtel (down 1.1%) has set up two special purpose vehicles in the Netherlands and Singapore to facilitate the $9-billion Zain deal. ONGC (up 1.8%) is considering buying an asset in Canada that can produce around 10,000 barrels a day of heavy oil, worth at least $1 billion.

Patel Industries has received a $1-billion contract to develop a waterfront integrated township project in Mauritius. GMR Energy, a subsidiary of GMR Infrastructure (up 1.1%) plans to raise over Rs16,000 crore from a group of private equity players led by Singapore-based Temasek Holdings and banks to fund its expansion. Gitanjali Gems (ended flat) plans to divest 25% of its holding in each of its brands from September 2010. Videocon Industries (up 3.7%) launched its GSM mobile service. The company plans to invest Rs14,000 crore over the next three years to build up the wireless network and will cover 100 towns in the next 100 days. 

Institutional investors are on a buying spree. Foreign and domestic institutional investors purchased Rs653 crore and Rs156 crore yesterday, respectively.

Initial jobless claims in the US for the week ended 20th March were 4,42,000 which was a bit less than the expected total of 4,50,000 and down 14,000 from the prior week. The US Federal Reserve said on Thursday that it would remove the economic stimulus once the economic recovery looks strong. It also hinted that asset sales would be the biggest part in the exit strategy. European leaders decided on Thursday to create a joint financial safety net with the IMF to help Greece. As per the agreement, eurozone nations and the IMF will give a loan to Greece to help it tide over its debt crisis.

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COMMENTS

Subhash Parab

7 years ago

Last Sunday i.e.on 21/03/2010, an agent from MetLife visited my residence, whom I was called for Term Plan for myself and my wife. However, he was insisting for ULIP. He also showed me a table prepared for another proposed client @ 20% p.a. compounted growth for next 20 years.
However, I insisted on Term Plan, which he promised to send by email, which he has not sent so far.

State introduces VAT on real estate

Maharashtra is trying to push value-added tax on homebuyers by passing it under a ‘composition’ scheme

The Maharashtra State Budget 2010 has proposed to introduce a ‘composition’ scheme for builders and developers, where 1% value-added tax (VAT) will be levied on homebuyers. This tax appears to be an insignificant amount. But if it is levied, the proposed tax will come with riders—buyers won’t be able to contest the legislation, and they will not be eligible for any refund once they pay this tax.

“The low rate of 1% is a sweetener for builders and developers. One of the reasons for introducing (the) composition scheme is to reduce legal resistance on the subject. Once this scheme is accepted, it cannot be fought in a court of law, since it signifies voluntary acceptance, notwithstanding whether the levy is legally tenable or not,” said Prem Chhatpar, a charted accountant.

Moneylife had reported yesterday (see here) on how builders and developers were forcing homebuyers to cough up VAT of 4.5% on their booked properties.

A few industry experts were aware that VAT was being pushed through the State Budget.

“Unless and until the Supreme Court gives a final judgement (on applicability of VAT on under-construction properties) within the intervening period, collection of this tax won’t be legal. 

“It is unconstitutional for the State government to introduce VAT on sale of immovable property, because it does not fall under their jurisdiction. The State has the power to levy tax on sale of goods or deemed sale of goods,” said Mr Chhatpar.

It is still not clear if the State government has scrapped the 5% VAT completely as there is no mention of the same anywhere in the Budget. It has introduced a fresh VAT of 1%. But the question of whether consumers who had earlier paid 5% VAT will get a refund still remains unanswered.

“The government did not say that it is bringing down VAT from 5% to 1% to help the real-estate industry. They said that they want to impose 1% (VAT) from 1st April,” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd, a real-estate consultancy.

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COMMENTS

Anwarali Virani

5 years ago

WHY THE VAT WHEN ALREADY THEY HAVE INTRODUCED THE SERVICE TAX. THAT TOO WITHOUT GIVING ANY EXTRA FACILITY FOR THE FLAT OWNERS.

mk krishnan

6 years ago

sir, i have registered an agreement with leadingn builder in mumbai in the minth of feb2010, and paid 80% before march31, now i am asking for possession, while making remaining amount, builder is charging me 5% vat on the agreement value saying tht the earlier law may come back. can you suggest what is right????
thanks

Prashant a salunke Chartered accountants

7 years ago

Statutory compliances applicable to the builder w.e.f. 1st April 2010
1) In Maharashtra budget VAT is imposed on builders and developers w.e.f. 01/04/2010. Under this scheme 1% VAT would be payable on the contract price of flats mentioned in the agreement of sale. However the builders and developers will not be eligible for set off under MVAT Act. This scheme shall come into force for the agreements registered after 1st April 2010.
2) Obtaining registration under section 3 of MVAT act within one month from the date when the turnover of the dealer exceeds Rs. 5 lacs. Or obtaining registration under voluntary scheme under MAVT Act.
3) Payment of MVAT and filing MVAT returns on half yearly basis in the year of registration and in next year as per periodicity of dealer as per rule 17 of MVAT Act.
4) As the dealer is covered under definition of an employer by notification no.JC/HQ/1/VAT/2005/97 dated 29th August, 2005 specifying the employers for the purpose of deduction of TDS on works contracts. Therefore, builders will be liable to deduct TDS from the bills of such contractors to whom material and labour job is subcontracted.. Rate of TDS on works contract is 2% in case the contractor is registered under MVAT Act and it is 4% in case contractor is unregistered dealer.
5) The dealer has to make the payment of Vat TDS as per rule 40 within 21 days from the expiry of the month during which tax is so required to be deducted by the dealer. The payment is to be made by challan No 210.
6) The dealer has to issue certificate in Form 402 to the contractor.
7) The dealer has to file TDS return in Form 405 with Joint Comm of sales tax (Admn) in whose jurisdiction the place of business of the employer is situated within 3 months of the end of the year to which the return relates. ( Rule 40 (d)
8) The dealer has to get his books of accounts audited if the turnover exceeds Rs. 60 Lacs w.e.f.1/04/2010 under section 61 within ten months from the end of the year to which the report relates.

Prashant a salunke Chartered accountants

7 years ago

Statutory compliances applicable to the builder w.e.f. 1st April 2010
1) In Maharashtra budget VAT is imposed on builders and developers w.e.f. 01/04/2010. Under this scheme 1% VAT would be payable on the contract price of flats mentioned in the agreement of sale. However the builders and developers will not be eligible for set off under MVAT Act. This scheme shall come into force for the agreements registered after 1st April 2010.
2) Obtaining registration under section 3 of MVAT act within one month from the date when the turnover of the dealer exceeds Rs. 5 lacs. Or obtaining registration under voluntary scheme under MAVT Act.
3) Payment of MVAT and filing MVAT returns on half yearly basis in the year of registration and in next year as per periodicity of dealer as per rule 17 of MVAT Act.
4) As the dealer is covered under definition of an employer by notification no.JC/HQ/1/VAT/2005/97 dated 29th August, 2005 specifying the employers for the purpose of deduction of TDS on works contracts. Therefore, builders will be liable to deduct TDS from the bills of such contractors to whom material and labour job is subcontracted.. Rate of TDS on works contract is 2% in case the contractor is registered under MVAT Act and it is 4% in case contractor is unregistered dealer.
5) The dealer has to make the payment of Vat TDS as per rule 40 within 21 days from the expiry of the month during which tax is so required to be deducted by the dealer. The payment is to be made by challan No 210.
6) The dealer has to issue certificate in Form 402 to the contractor.
7) The dealer has to file TDS return in Form 405 with Joint Comm of sales tax (Admn) in whose jurisdiction the place of business of the employer is situated within 3 months of the end of the year to which the return relates. ( Rule 40 (d)
8) The dealer has to get his books of accounts audited if the turnover exceeds Rs. 60 Lacs w.e.f.1/04/2010 under section 61 within ten months from the end of the year to which the report relates.

REPLY

neha

In Reply to Prashant a salunke Chartered accountants 2 years ago

Hello Sir,
I.am.booking under construction apartment in Bangalore which is under JDA with land owner.
Builder is giving two contract of sale of land and construction .

Could you suggest the VAT %age and calculation

Upfront commission being granted for ELSS schemes

Fund houses are paying upfront brokerage of three years which includes trail commission to incentivise distributors for ELSS schemes

Fund houses are providing an advance lump-sum upfront brokerage for
equity-linked saving schemes (ELSS) in an attempt to woo distributors.

SBI Mutual Fund is giving an upfront brokerage of 2.25% for its Magnum Taxgain Fund which includes trail commission. No trail commission is paid for three years. Even Morgan Stanley is offering 2.5%-3% upfront commission for its diversified equity scheme, Morgan Stanley Growth Fund.
ELSS schemes usually have a lock-in period of three years. In the belief that an investor would stay invested in the fund for the entire period, fund houses are passing on the commission in advance.

According to industry sources, HDFC Mutual Fund is giving a three-year lump-sum commission of 3% upfront for its ELSS schemes.

“HDFC has two tax-saving schemes. When the entry load was banned by the Securities and Exchange Board of India (SEBI), HDFC was giving 1.75% upfront commission and for the other scheme they were giving 4% upfront commission but no trail commission for three years,” said a certified financial planner (CFP).

HDFC Mutual Fund declined to comment on the issue.

Sources say that the upfront commission spells good news for distributors but the flipside is that investors may start demanding rebate from distributors especially during March, when people rush to put money in ELSS schemes.

“The investor goes on a kickback shopping. Whoever gives the investor highest kickback, he will invest with him,” said an IFA.

“There will be no long-term loyalty with the customer. The new broker will not get any commission because it’s paid in advance in case of ARN change. SEBI officials say that rebating should not be given,” said a source.

If an investor opts to change his distributor, then the new distributor does not get the trail commission because it’s already paid in advance to the old distributor. Sometimes fund houses decide the terms of brokerage with the distributor.
An email query sent to Morgan Stanley remained unanswered.

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COMMENTS

Aakash Bansal

7 years ago

Distributor is Dead, Long Live the Advisors

sunil

7 years ago

They should just increase the Trial Fees and Get rid of all other commissions. Long Term Investors will stick on to funds and churn will be avoided.

However, why isn't SEBI going after Insurance , especially ULIP agents ? There Lobby is too strong to break and IRDA the regulator itself is involved in it. God bless ULIP Investors.

Debashis Basu

7 years ago

Thanks Mr Surana for correcting us. We have amended the article accordingly

Alok Surana

7 years ago

Morgan Stanley do not have ELSS Fund

Chandra Sekhar

7 years ago

Exit loads should be removed. If an investor comes out within one yr, what he pays exit load neither distributor gets benefit from this nor investor. If an investor wish to come out within one month, what he pays 1% is a huge amount, which he paid including on principal (on that day NAV) not on profit. If it annualised it will 12%. Exit loads should be removed. Pl take this issue to SEBI to abolish this. Rather entry load 1% will be OK... So that distributors will alive and industry will alive..

S Narayan

7 years ago

It is very shocking that inspite of entry load ban by sebi mutual fund like hdfc is giving 3 to 4% commission to mutual fund agent.

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