V R Associates, Chartered Accountants

How to restructure salary, investments to cut income tax outgo by Rs 64,557

Hyderabad-based engineer Rutuj Patil earns well, but more than a fifth of his income goes in tax even though he claims most of the deductions available to him. He estimates that he can reduce his tax by almost Rs.65,000 if his company rejigs his pay structure to include some tax-free emoluments and he increases the contribution to the NPS to 10% of his basic salary. Patil should start with the NPS. Under Section 80CCD(2), up to 10% of the basic salary put in the NPS on behalf of the employee is tax-free, but Patil has opted for a monthly contribution of only 5% of his basic pay. If he hikes the contribution to the maximum 10%, his tax will reduce by about Rs.22,000. Since he already invests in the NPS, Patil knows how the scheme works and the allocation that suits him. Next, Patil should ask his company to replace the taxable emoluments in his salary with some tax-free perks, such as gadget allowance and reimbursement of newspapers bills. Under Section 17(2), gadgets bought in the name of the company and given to the employee for personal use are taxed at only 10% of their value.

This perk came into focus during the ‘work from home’ phase after the Covidinduced lockdown. If Patil buys items such as computers, white goods and ACs worth Rs.1.2 lakh in a year (Rs.10,000 per month), his annual tax will be reduced by around Rs.37,500. Newspapers and books worth Rs.12,000 (Rs.1,000 per month) will reduce the tax further by around Rs.3,750. More tax can be saved if Patil invests in debt funds instead of fixed deposits. While the interest from deposits is taxed every year, the gains from debt funds are taxed only in the year of withdrawal.

RBI steps up gold buying amid US dollar volatility

The Reserve Bank of India (RBI) has stepped up gold purchases to help diversify its foreign exchange reserves base amid US dollar volatility. The rise in the value of outstanding gold reserves made up more than four-fifths of the near $3-billion increase in forex reserves at a record $ 648.5 billion as of April 5. In January-February this year. The RBI bought 0.43 million troy ounce, or close to 13.3 tonnes of gold, from the market. That is over 80% of the total gold purchases of 0.52 million troy ounce in 2023 by the central bank. "We are building up gold reserves, the data is released from time-to-time" said RBI governor Shaktikanta Das at the post policy media conference on April 5. "All aspects while building up the reserves are assessed and then we make a decision." The central bank's stated objective of holding gold in reserves is mainly to diversify its foreign currency assets base, as a hedge against inflation and foreign currency risks. The Reserve Bank of India has started to accumulate gold regularly from the market since December 2017. Its stock of gold as of end February, 2024 is 26.26 million troy ounce, up from $17.94 million troy ounce in December 2017.

Disclaimer: The information provided in this post is derived from Economic Times, dated April 15th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

🌟 Exciting Times Ahead for Banking Sector! 🌟

As the Reserve Bank of India (RBI) carefully evaluates risks amidst the dynamic landscape of 24x7 banking transactions, banks are advocating for flexibility in reserve norms. With the recent turbulence witnessed in US regional banks, the need for adaptability is more pressing than ever.

Sources reveal that banks have petitioned the RBI for the inclusion of Cash Reserve Ratio (CRR) funds as High Quality Liquid Assets (HQLA) for Liquidity Coverage Ratio (LCR) computation. This strategic move could provide banks with the necessary leeway to meet potential surges in LCR requirements, especially in light of possible alterations in deposit classifications by the RBI.

While the RBI mulls over modifications to enhance liquidity risk management, banks are diligently preparing for potential shifts in deposit outflow dynamics. The possibility of increased outflow factors underscores the importance of prudent fund allocation amidst burgeoning loan demands and the imperative to address instant banking channel contingencies.

In this dynamic environment, Indian banks are navigating through mandates of CRR and Statutory Liquidity Ratio (SLR), recognizing the symbiotic relationship between these ratios and the Liquidity Coverage Ratio. Notably, the recent surge in volume and value within the NEFT and RTGS systems underscores the evolving nature of banking transactions, necessitating agile responses from financial institutions.

As we stride towards a future marked by continuous evolution in banking operations, collaboration between regulatory bodies and banks remains paramount. Stay tuned as we navigate these transformative times together!

Disclaimer: The information provided in this post is derived from Economic Times, dated April 10th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

RBI launches survey of manufacturing companies

Mumbai: The Reserve Bank has launched the next round of quarterly order books, inventories and capacity utilisation survey of manufacturing companies, a key input for the monetary policy formulation. The 65th round of survey is for the reference period January-March 2024 (Q4:2023-24), the central bank said. The Reserve Bank has been conducting the order books, inventories, and Capacity Utilisation Survey (OBICUS) of the manufacturing sector on a quarterly basis since 2008. The information collected in the survey includes quantitative data on new orders received during the reference quarter, backlog of orders at the beginning of the quarter, and pending orders at the end of the quarter. It also collects data on total inventories with a breakup between ?nished goods (FG), work-in-progress (WiP) and raw material (RM) inventories at the end of the quarter, item-wise production in terms of quantity and value. The level of capacity utilisation (CU) is estimated from these responses. "The survey provides valuable input for monetary policy formulation," the Reserve Bank said. While the survey findings are published by the RBI, it treats the company-level data as confidential and never disclosed. The next bi-monthly monetary policy is scheduled to be held from June 5 to 7, 2024.

Disclaimer: The information provided in this post is derived from Economic Times, dated April 10th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

🚀💰 Considering a Secure Investment with Over 8% Interest? Learn about RBI Floating Rate Savings Bonds! 💰🚀

Are you on the lookout for a safe yet rewarding investment opportunity? Look no further than the RBI Floating Rate Savings Bonds (FRSBs) 2020 (Taxable). Currently offering an impressive interest rate of 8.05% per annum, these bonds stand out among other debt investment options. But is now the right time to invest? Let's dive in!

🔍 Understanding Interest Calculation:
The interest rate of RBI Floating Rate Savings Bonds isn't fixed. It's reset every six months, linked to the National Savings Certificate (NSC) interest rate. Currently, with NSC offering 7.7%, RBI Floating Rate Savings Bonds are poised to maintain their 8.05% interest rate from July 1, 2024.

🔑 Key Features to Note:
Issued by the Reserve Bank of India on behalf of the Government of India.
Lock-in period of seven years.
Interest rate reset twice a year, with interests paid semi-annually.
Interest taxable in investors' hands.
No premature withdrawal option, except for senior citizens with penalties.

💡 Is it a Wise Investment?:
Compared to bank fixed deposits, where rates hover around 7-7.85%, RBI Floating Rate Savings Bonds offer slightly higher returns with sovereign guarantees. However, investors should consider the floating interest rate and lack of liquidity options. Despite these, it remains an attractive option for those seeking high-yielding debt instruments.

⚠️ Expert Insights:
"RBI Floating Rate Savings Bonds offer one of the highest yields in India currently, suitable for those with excess liquidity and a long investment horizon," says Raghvendra Nath, MD of Ladderup Wealth Management. However, investors should be cautious of potential fluctuations in interest rates and plan accordingly.

🔒 Final Thoughts:
For investors prioritizing safety and consistent income, RBI Floating Rate Savings Bonds present a compelling option. However, it's crucial to assess your risk tolerance and investment goals before diving in.
In a landscape where interest rates seem to have peaked, seizing this opportunity could prove beneficial in the long run. Explore the potential of RBI Floating Rate Savings Bonds and make an informed investment decision today!

Disclaimer: The information provided in this post is derived from Economic Times, dated April 10th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

Banks must play bigger role in rupee derivatives: RBI

Mumbai: Indian lenders must play a larger role in global derivatives and work to ensure that smaller retail players do not pay more for access to foreign exchange products, central bank governor Shaktikanta Das said Wednesday, underscoring the need for local banks to reflect the country's rising economic status and emerge as market makers. "Participation of domestic banks in derivative markets remains limited with only a small set of active market-makers... Domestic banks are dealing with market-makers in global markets rather than with end clients and are yet to emerge as market makers of note globally," Das said at a conference of fixed income market participants in Barcelona. While ensuring prudence and due diligence, the focus should be on widening participation of Indian players in markets for rupee derivatives, both local and offshore, Das said, pointing to the crucial hedging function that derivatives markets provide to the economy.

Observing that liquidity in over the counter (OTC) derivatives markets, especially interest rate derivatives, is largely confined to a few products, Das said that local market players were still to fully utilise new regulatory frameworks and exploit opportunities. Reiterating an issue that the Reserve Bank of India (RBI) has flagged numerous times over the past year, Das said that retail players are yet to receive the same fine pricing that large customers enjoy. "Divergence in pricing in FX (foreign exchange) markets for the small and large customers are wider than what can be justified by operational considerations," Das said, adding that lenders may need to do more to facilitate the use of the FX Retail Platform.

Disclaimer: The information provided in this post is derived from Business Standard, dated April 9th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

Climate change poses challenges for monetary policy, says RBI report

Mumbai: Frequent weather shocks caused by climate change pose challenges for the monetary policy as well as downside risks to economic growth, a Reserve Bank report said. Global average temperatures are on a rise, with accompanying increase in extreme weather events (EWE), and the economic and social impact of global warming is becoming increasingly evident, said RBI's Monetary Policy Report - April 2024. The report said that climate change has increased the frequency and ferocity of weather shocks, posing challenges for monetary policy. It said there are different channels through which climate change can affect monetary policy. Climate change directly impacts inflation through adverse weather events affecting agricultural production and global supply chains, climate change could impact the natural rate of interest, and the after-effects of climate change might weaken the transmission of monetary policy actions to financing conditions faced by households and firms.

"For these reasons, central banks are increasingly incorporating climate risks explicitly into their modelling frameworks," the report said. In the absence of any climate mitigation policies, the long-term output will be lower by around 9 per cent by 2050 vis-a-vis a no climate change scenario with full pass-through of the physical risks of climate change to the economy. "Lower productivity may lead to a fall in the natural rate of interest. Frequent shocks to inflation will, however, necessitate tighter monetary policy even with a lower natural rate of interest," the RBI said. The report also stressed that frequent weather-related disturbances due to climate change pose downside risks to the baseline growth path.

Disclaimer: The information provided in this post is derived from Business Standard, dated April 9th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

📈 **RBI May Maintain Key Interest Rates to Tackle Inflation: Insights from Experts**

As the Reserve Bank of India (RBI) gears up for its upcoming Monetary Policy Committee (MPC) meeting scheduled from April 3-5, experts weigh in on the potential course of action. Amidst India's robust GDP growth estimated at nearly 8 per cent, concerns over inflation management are taking precedence, leading many to anticipate that the RBI may opt to keep key interest rates unchanged.

Key points to note from expert opinions:

1. **Inflation Management**: With inflation hovering around 5 per cent and potential future shocks in the food inflation domain, experts like Madan Sabnavis anticipate the MPC to maintain status quo on rates, prioritizing inflation control efforts.

2. **Economic Growth**: India's impressive economic growth, revised GDP estimates, and consecutive quarters of 8 per cent plus expansion suggest a stable economic outlook, influencing the MPC's stance on interest rates.

3. **Global Economic Trends**: Observations from major economies like the US and UK, as well as the recent rate cut by Switzerland, are likely to influence the RBI's decision-making process.

4. **Geopolitical and Economic Factors**: Ranen Banerjee highlights various factors such as global crude prices, logistics costs, and geopolitical conflicts that will inform MPC deliberations.

5. **Real Estate Sector Expectations**: Nitin Gupta expresses hope for a marginal reduction in the repo rate to stimulate growth in the affordable housing segment, aligning with the government's vision of Housing for All.

6. **Inflation Outlook**: RBI Deputy Governor Michael Debabrata Patra's remarks on moderating inflation and falling core inflation provide further context to the inflationary landscape.

As the RBI aims to strike a balance between supporting economic growth and managing inflation, all eyes are on the MPC's decision on April 5. Stay tuned for updates on India's monetary policy direction.

Source: Economic Times, April 1, 2024

🔍 **CBIC Issues New Guidelines for GST Investigations: Enhancing Transparency and Efficiency**

The Central Board of Indirect Taxes and Customs (CBIC) has recently introduced new guidelines for GST investigations, aiming to streamline processes and ensure fairness in our taxation system. Under these guidelines, significant changes have been implemented, particularly concerning investigations against big industrial houses or major multinational corporations.

Key highlights of the guidelines include:
1. **Prior Approval Requirement**: GST field officers now require approval from their zonal principal chief commissioners to initiate investigations against large entities, ensuring a more standardized approach and oversight.
2. **Deadline for Concluding Investigations**: Investigations must be concluded within one year of initiation, promoting efficiency and timely resolution of tax matters.
3. **Transparent Communication**: Official letters will be issued to designated officers of listed companies or PSUs, clearly stating the reasons for investigation and specifying the information/documents required within a reasonable timeframe.
4. **Specificity in Inquiry**: Guidelines emphasize on clarity and specificity in inquiries, discouraging vague expressions and fishing expeditions.
5. **Focus Areas**: Investigations must be initiated only after approval, especially in cases involving matters of interpretation, big industrial houses, sensitive matters, or those before the GST Council. Detailed study of trade practices and transaction nature is also mandated.
6. **Collaborative Approach**: In cases where multiple offices are simultaneously investigating the same taxpayer, coordination is encouraged to consolidate efforts and avoid duplication.
7. **Timely Conclusion and Reporting**: Investigations should reach conclusion promptly, with no unnecessary delays in issuing show cause notices or closure reports.

These guidelines mark a significant step towards fostering a conducive tax environment while ensuring compliance and fairness. Implementing these measures effectively will contribute to tax certainty and stability in our business landscape.

Source: Business Standard, April 1, 2024

🚨 Tax Scrutiny Alert: Domestic Startups Facing Income Tax Heat 🔍💼

In a recent development, several new economy ventures, predominantly in the fintech arena, have come under the income tax radar, receiving notices under Section 68 of the Income Tax Act. These notices lump investments received by startups with their earned income, leading to tax and penalty assessments on the combined amount.

One startup, registered with DPIIT, has been slapped with a hefty tax and penalty of Rs 37 crore on venture capital funding of Rs 40 crore, highlighting the severity of the issue. Under Sec 68, companies failing to explain funding sources adequately risk being taxed on capital raised alongside income earned.

💼 Balance Sheet Scrutiny: A founder of a fintech startup recounts receiving a notice demanding balance sheets of investors from the previous fiscal year. Despite submitting relevant documents, including PAN cards, tax demands persist, creating financial strain on startups.

💰 Venture Funds in Crosshairs: Alternate Investment Funds (AIFs) have also received tax notices, raising concerns about the challenge of showing income on a standalone basis for these funds. The government's amendment to Section 68 via the Finance Act 2022 adds to the complexity, mandating the disclosure of venture fund sources.

🔍 Robust Scrutiny Procedures: The Central Board of Direct Taxes (CBDT) emphasizes faceless scrutiny proceedings based on dynamic jurisdiction, with assessments expected to adhere to guidelines.

⚖️ Striking a Balance: Experts advocate for a balanced approach, ensuring tax compliance without hindering entrepreneurial spirit. It's imperative for regulatory bodies to foster an environment where legitimate investments are safeguarded against undue scrutiny.

The evolving tax landscape poses challenges for startups, underscoring the importance of proactive compliance measures and a supportive regulatory framework.

Source: Economic Times, 29th Mar 2024.

🚀 Exciting Times Ahead for India's Economy! 💼

India's growth trajectory continues to inspire confidence and optimism as RBI Deputy Governor Michael Debabrata Patra forecasts a remarkable 10% growth rate for the nation in the next decade. Speaking at Nomura's 40th Central Bankers Seminar in Kyoto, Japan, Patra outlined the key drivers propelling India towards becoming the second-largest economy by 2032 and the largest by 2050.

📈 Despite the challenges posed by the pandemic, India's resilience shines through, with early indicators suggesting a resurgence above the 7% growth rate witnessed in the pre-COVID era. Patra highlights the IMF's upward revisions in growth forecasts, with India projected to contribute a significant 16% to global growth, solidifying its position as a major player in the world economy.

💪 Fueled by favorable demographics, stable currency dynamics, and technological advancements, India stands poised for exponential growth. Patra emphasizes the importance of addressing challenges such as skill gaps and low female labor participation to fully unlock India's economic potential.

🛍️ Embracing the mantra of "Make in India for the World," Patra underscores the need to ramp up efforts in expanding India's export footprint across diverse sectors including IT, agriculture, tourism, financial services, and e-commerce.

🌐 With concerted efforts and strategic initiatives, India is poised to carve its path towards economic supremacy on the global stage. Let's seize the opportunities, overcome challenges, and chart a course towards a prosperous future for India!

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Source: Economic Times, 29th Mar 2024.

RBI announces temporary halt to Rs 2,000 banknote exchange/deposit on April 1

The Reserve Bank of India (RBI) has stated that the exchange or deposit of Rs 2,000 banknotes will not be possible on Monday, April 1, 2024, at its 19 issue offices across the country. This temporary halt is due to operations linked with the annual closing of accounts. The facility will resume on Tuesday, April 2, 2024, according to the RBI's announcement. "The facility of exchange/deposit of Rs 2,000 banknotes will not be available on Monday, April 1, 2024 at the 19 issue offices of the Reserve Bank of India due to operations associated with the annual closing of accounts," it said. The RBI had earlier declared the withdrawal of Rs 2,000 denomination banknotes from circulation on May 19, 2023. As of February 29, nearly 97.62 per cent of the Rs 2,000 banknotes have been returned to the banking system. Only about Rs 8,470 crore worth of the withdrawn notes are still in the possession of the public. Individuals holding Rs 2,000 banknotes can deposit or exchange them at the 19 RBI offices situated across the country. They can also opt to send these banknotes through India Post from any post office to any of the RBI issue offices for credit to their bank accounts in India.

Initially, the public and entities holding such notes were required to either exchange or deposit them in bank accounts by September 30, 2023. This deadline was later extended to October 7, 2023. Deposit and exchange services at bank branches were discontinued on October 7. Since October 8, 2023, individuals have been provided with the option of either exchanging the currency or having the equivalent sum credited to their bank accounts at the 19 offices of the RBI. The 19 RBI offices where the exchange or deposit of the banknotes is facilitated are located in Ahmedabad, Bengaluru, Belapur, Bhopal, Bhubaneswar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Patna, and Thiruvananthapuram. The Rs 2,000 banknotes were introduced in November 2016, following the demonetization of the then Rs 1,000 and Rs 500 banknotes.

Disclaimer: The information provided in this post is derived from Economic Times, dated March 29th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.