Rajen Gala

Arbitrage

Leave a Comment / Financials /

What Is Arbitrage? Arbitrage describes the act of buying a security in one market and simultaneously selling it in another market at a higher price, thereby enabling investors to profit from the temporary difference in cost per share. Arbitrage is a widely used trading strategy and probably one of the oldest trading strategies to exist. Traders who engage in the strategy are called arbitrageurs. Let me tell you a story about a “Chaiwala”! He was truly chaalu or shall we say, “Extra Smart”!! He would provide tea at ₹ 5 per cup and his cost of preparing the same was ₹ 4. Thus, he made a profit of ₹ 1. But he was not happy with making a profit of just ₹ 1. So he thought about how he could increase his profit. It was then that he had a brainwave out of the blue! He identified a Government canteen which offered tea at ₹ 2. BIG IDEA! Wasn’t it?  He could now simply buy tea for ₹ 2 and sell it for ₹ 5 and make a much better gain of ₹ 3 This buying of a thing in one market and selling in another market at a higher price is known as “Arbitrage”. Similarly, if arbitrage opportunities exist, stocks too can be purchased in one market at a lower cost and sold in another at a higher cost. So, for the next few days, our Chaiwala had a field day earning happily as he served his daily chai. But Alas! Such arbitrage opportunities do not last long. As information flow increases and the arbitrage opportunity gets known, it soon starts to disappear. And this is exactly what happened in the case of our “chaiwala”. The chaiwala had an assistant who one day spilled the beans about the “arbitrage” advantage being enjoyed by the chaiwala. Soon after that, the chaiwala was rounded up and he confessed about the arbitrage opportunity he had spotted. Since his customers, in a sense, had been paying a fair price all this while since ₹ 5 had been the standard retail price in all canteens, the chaiwala was forgiven but was warned against adopting this practice again. So, the arbitrage opportunity too vanished in thin air as the very next day, he was back in his own canteen making tea at ₹ 4 and selling it at ₹ 5. Thus, it’s important to understand that “arbitrage” opportunities are short-lived. It is essentially a short window of opportunity that can be exploited by taking action at the right time. As information flow gets efficient, this opportunity vanishes as we saw in the case of the chaiwala. KEY TAKEAWAYS Arbitrage occurs when a security is purchased in one market and simultaneously sold in another market, for a higher price. The temporary price difference of the same asset between the two markets lets traders lock in profits. Traders frequently attempt to exploit the arbitrage opportunity by buying a stock on a foreign exchange where the share price hasn\’t yet been adjusted for the fluctuating exchange rate. An arbitrage trade is considered to be a relatively low-risk exercise.

Arbitrage Read More »

How to value your Business?

Leave a Comment / Business /

How to value your business? There are several ways to determine the value of your business. Asset based approach Asset based valuation is the form of valuation in business that focuses on the value of the company’s assets or the fair market value of its total assets after deducting liabilities. Assets are evaluated and the fair market value is obtained. The key here is determining fair value, especially of assets since fair value may differ significantly from acquisition value (for non-depreciating assets) and recorded value (for depreciating assets). There are two types of asset: tangible and intangible. Tangible assets are the physical things belonging to your business, such as your business premises, stock, land and equipment. Intangible assets are any non-physical assets, such as your business brand, reputation and intellectual property including copyrights and patents. To get the Net Book Value (NBV) of your business, you subtract the costs of your business liabilities (such as debt and outstanding credit) from the total value of your tangible and intangible assets. Things which you never paid for may form part of the value, as would a unique way of doing business that gives your company an advantage. Balance sheet figures can’t be equated with value due to historical cost accounting and the principle of conservatism. Simply put, relying on basic accounting metrics doesn\’t paint an accurate picture of a business\’s true value. Discounted Cash Flows Discounting future cash flows is a quantitative business valuation method. Business owners use information from the company’s income statement to value their company. Companies usually report their earnings as income before interest, taxes, depreciation and amortization (EBITDA). This number is essential for valuing a company using the discounted cash flow method. Business owners must forecast future years’ EBITDA when using the discounted cash flow method. Discounted Cash Flow = Terminal Cash Flow / (1 + Cost of Capital) # of Years in the Future The benefit of discounted cash flow analysis is that it reflects a company’s ability to generate cash. However, the challenge of this type of valuation is that its accuracy relies on the terminal value, which can vary depending on the assumptions you make about future growth and discount rates. Market Capitalization Market capitalisation is the total value of all outstanding shares of the company\’s stock. It is calculated by multiplying the stock\’s current share price and the number of shares outstanding. Market capitalization provides an idea of the size of the business and makes it easy to identify peers within a sector. Market capitalization demonstrates that share price alone tells you little about a company\’s overall value. Just because a stock has a high share price does not necessarily mean the company is worth more. Market capitalization omits some important facts in the overall valuation of a company. Most importantly, it does not take into consideration the company\’s debt. To calculate enterprise value, add the company\’s market capitalization to its outstanding preferred stock and all debt obligations, then subtract all of its cash and cash equivalents. To calculate enterprise value, add the company\’s market capitalization to its outstanding preferred stock and all debt obligations, then subtract all of its cash and cash equivalents. Enterprise Value The enterprise value is calculated by combining a company\’s debt and equity and removing the amount of cash it\’s currently holding in its bank accounts (since it’s not part of its actual operations). Enterprise value can be calculated by adding debt to equity and subtracting cash. Enterprise Value = Debt + Equity – Cash Example: Suppose consider a company had a market capitalisation of ₹51 Crores, its balance sheet showed liability of ₹13 Crores. The company also had about 5Crores in Cash in its account, giving an enterprise value of ₹59 Crores. (i.e. ₹51Crores + ₹13Crores – ₹5Crores = ₹59Crores) Entry valuation An entry valuation framework model values a business by working out how much it would cost to establish a similar business. Essentially, it’s asking “if my business didn’t exist, how much money would it cost to start it from scratch, right now?” A good way to get an accurate estimate is to create a list detailing start-up costs, the price of acquiring tangible assets, employing and training staff, establishing a customer base, and developing products and services. You might be able to save some of your hard-earned cash if you set up your business in a cheaper location or opt for more cost-effective equipment. After working out these savings, subtract them from your projected start-up costs. Present Value of a Growing Perpetuity Formula A growing perpetuity is a kind of financial instrument that pays out a certain amount of money each year, which also grows annually. Imagine a stipend for retirement that needs to grow every year to match inflation. The growing perpetuity equation enables you to find out today’s value for that sort of financial instrument. The value of a growing perpetuity is calculated by dividing cash flow by the cost of capital minus the growth rate. Value of a Growing Perpetuity = Cash Flow / (Cost of Capital – Growth Rate) So, if someone planning to retire wanted to receive ₹6,00,000 annually, forever, with a discount rate of 10 percent and an annual growth rate of 4 percent to cover expected inflation, they would need ₹1,00,00,000 the present value of that arrangement.

How to value your Business? Read More »

Why to value your Business?

Leave a Comment / Business /

Why to value the business? Valuing business is a great way to examine the financial health and moneymaking potential of the business. There are plenty of other benefits that come part and parcel with valuing the business: A valuation also offers the opportunity to consider and manage the company\’s risk profile. Valuation is not about determining what a company is worth in the hands, but instead its transferable value. Valuations can be performed on assets or on liabilities. They are required for a number of reasons including merger and acquisition transactions, capital budgeting, investment analysis, litigation and financial reporting. The true value of an assets may not be shown with a depreciated schedule and if there has been no adjustment of the balance sheet for various possible changes, it may be risky. By having proper valuation of business that will help make better business decisions. The valuation is usually needed when required to negotiate with banks or any other potential investors for funding. Professional documents of the company’s worth are usually required since it enhances credibility to the lenders. Valuation can give a clearer overview of the financial health of the business, which can help to pinpoint underperforming areas and focus on the approaches that are working well. Business owners can know the worth of their shares and be ready when to sell the business and to ensure no money is left on the table and get good value form the business. If there is a plan to sell a business, it is wise to come up with a base value for the company and then come up with a strategy to enhance the company’s profitability so as to increase its value as an exit strategy. Your business exit strategy needs to start early enough before the exit, addressing both involuntary and voluntary transfers. More risk in the business, lower the multiple can be expect to be achieve. To work out the unique multiple, you need to accept that there is some guesswork and subjectivity involved. Unfortunately, there is no set way of finding a designated multiple. Instead, there are a few basic rules of thumb to follow: Research your industry. What multiples have other businesses like yours sold for? How healthy is your business\’s financial history? Is it stable enough to request a higher multiple? What situation will the business be left in once you depart (if you are selling)? Do you have any contracted income guaranteed over the coming years? How expansive is your customer base, and how strong are your supplier relationships? Valuing your business isn’t just about offering a snapshot of the profit and loss of your business, it can give a detailed overview of your company’s chances of sustainability over a prolonged period of time, so it’s definitely something that you should consider.

Why to value your Business? Read More »

Credit Spread

Leave a Comment / Debt /

CREDIT SPREADS A credit spread refers to the difference in interest rates between a corporate bond and a comparable Government bond. Assume that the interest rate on a five-year corporate bond is 6 per cent and that on a similar five-year Government bond is 5 per cent. This means that the interest on a corporate bond consists of a risk-free rate of 5 per cent plus a credit spread of 1 per cent. Different securities in the market have different risk profiles. Therefore, compensation is paid to investors proportionately according to the risk taken by the investor in selecting a particular security. There will be a spread between two different kinds of papers due to the following reason: Credit quality – Lending money to the Govt. is any day safer than lending money to a corporate because the Govt. will never default. Hence, one is willing to park one’s money at a lower yield. The difference in yields between two different kinds of debt papers in the market is known as credit spread. For example, if the Govt. security is giving an yield of 4% while a corporate paper is giving an yield of 7%, the difference between them is 3% – which is the credit spread. However, the spread between a Govt. and good quality corporate papers is usually around 1.5%.

Credit Spread Read More »

WILL

Leave a Comment / Estate & Succession /

WILL A Will is a sensitive topic. People are not comfortable discussing a Will in India. There is a misconception that if someone tells to make a Will, the person thinks that nothing is going to happen to him or he doesn’t have any assets or he thinks indirectly you are telling him that his end is near or that you are eyeing his property. However, all apprehensions disappear when I make them understand the consequences of not making a Will. I have shared some information on Will. What does Will mean? Will means the legal declaration of the intention of a testator with respect to his property which he desires to be carried into effect after his death. The person who makes the Will is called “Testator” and the person who inherits property under a Will is called the “legatee” or “beneficiary”. The testator will express his intentions about distribution of his property amongst his sons/daughters/relatives/friends when he is alive, but it will come into effect only after his death. The essential characteristic of a valid Will are as follows, There must be a legal declaration, Such declaration must be with respect to the properties of the testator, The declaration must be intended to operate after the death of the testator. Who can make a Will…? As a general proposition of law, every person of sound mind who has attained the age of majority may dispose of his property by Will. Persons capable of making Will contains four Explanations which are as follows: Explanation 1 stipulates that a married woman may dispose of by Will of any property which she could alienate by her own act during her life. Explanation 2 stipulates that persons who are deaf and dumb are not thereby incapacitated of making a Will if they are able to know what they do by it. Explanation 3 lays down that a person who is ordinarily insane may make a Will during an interval in which he is of sound mind i.e. during lucid interval. Explanation 4 imposes a bar saying that no person can make a Will while he is in such a state of mind, whether arising from intoxication or from illness or from any other cause that he does not know what he is doing. Apart from that, so far as Hindus are concerned, it is the consistent view of all the courts that a Hindu who has not attained the age of majority prescribed by the Indian Majority Act cannot execute a valid Will. It has also been authoritatively held that a person who has not the capacity to comprehend the extent of his property and the nature of the claims of all people whom he is excluding from participation does not possess a sound disposing mind to execute a valid Will. To put it in precise terms, a Hindu who has attained majority and is of sound disposing mind may bequeath by Will whatever property he or she is entitled to give away during the life time. Example A, can perceive what is going on in his immediate neighbourhood, and can answer familiar questions, but has not competent understandings as to the nature of his property, or the persons who are of kindred to him, or in whose favour it would be proper that he should make his Will. Mr. A cannot make a valid Will. A, executes an instrument purporting to be his Will, but he does not understand the nature of the instrument, nor the effect of its provisions. This instrument is not a valid Will. A, being very feeble and debilitated, but capable of exercising a judgement as to the proper mode of disposing of his property, makes a Will. This is a valid Will. Will helps in Wills helps in clarity regarding distribution of properties. If you have a physical property it should be specifically distributed to avoid the disputes. Will allows you transfer of offshore assets. Suppose you have assets in India as well as outside India. So, should you make one Will which covers both the assets? Or should you make separate Wills in each country where you have assets? So, the answer to this question depends on the types of assets you have. If you have movable assets even a single Will be sufficient to cover all the assets. But if you have immovable assets outside India or in multiple countries then separate Wills for each country is advisable. Immovable assets take the law of the land where the asset is situated. Will can allow you to disinherit certain relatives. If you want someone among your legal heirs not to have any assets of yours post your death then making a Will is compulsory. If you die without making a Will, this person as per succession law might get some part of your assets. Tax Saving. For example: Let us suppose that a person preparing the Will has a son and a wife. If there were no Will, both would inherit his assets in equal proportion. But in order to save subsequent taxes, it might be better to distribute the assets not to the son but to the son’s wife, as well as to the grand-children. This can easily be achieved through the Will. Important points while making Will: Will must be signed by the testator. Ideally the person should sign on all the pages of the Will but at least on the last page signature by testator is must. Unsigned Will is invalid. What happens if a person signs all the pages of the Will and forgets to sign the last page? The Will is invalid. The last page signature is compulsory in India. If suppose a person has two Houses. If he gives one house to one of his Son today and the other house to the other Son after his death. It’s not a Will it’s a settlement. A Will must be attested by at least two witnesses. Minimum two witnesses

WILL Read More »

GIFT

Leave a Comment / General /

A valid gift has to satisfy the following requirements: Must be voluntary Without any consideration Accepted by the person to whom it is gifted. The person giving the gift is called the donor and the person receiving the gift is the donee. The gift maybe accepted by the donee personally or someone on his/her behalf. The acceptance may either be expressed or implied.   Gift Received from Non-relatives Gifts received from any person or persons other than relatives up to Rs 50,000 in a financial year are exempt from tax. If Gift received in excess of Rs. 50,000 in any financial year, as per income tax laws, the entire amount shall be taxable as ‘Income From Other Sources’ in the hands of individual or HUF under section 56. For example: If one receives ₹ 60,000 as a gift from any person, the entire amount of ₹ 60,000 would be added to the income and taxed at the slab rate and considered as ‘Income from Other Sources’. If one receives ₹ 50,000 from one friend as a gift and ₹ 35,000 from another friend, the limit of ₹ 50,000 would be considered to be breached. The entire gift value of ₹ 85,000 would be taxable in the hands of receiver of the Gift as ‘Income from Other Sources’. Gifts Received from Relatives As per the Income tax act, the sum of money received from any of your relatives are fully exempt from tax. Here the “relatives” term defines by the Income Tax act as follows: Spouse of the individual. Brother or sister of the individual. Brother or sister of the spouse of the individual. Brother or sister of either of the parents of the individual. Any lineal ascendant or descendant of the individual. Any lineal ascendant or descendant of the spouse of the individual. In case of a Hindu undivided family, any member thereof. For example: If Mr. A, gifts ₹ 10 lakh to his wife, his wife will, however, not be taxed on the receipt of a gift from her husband, who falls under the specified list of \’relatives\’ who are exempt under the Income Tax Act. This exemption is available irrespective of which tax bracket his wife falls in. The gift is tax-free in her hands, also because he has already paid taxes before making the gift to his wife. However, if his wife creates an Fixed Deposit from the same and earns interest, the interest would be added to the income of the husband. Here, clubbing of income provisions will apply to this interest income and it will be clubbed to husband income and taxed normally. Therefore, Mr. A, must understand that he may not be able to use a financial gift effectively to save tax. If you are receiving sum of money of ₹ 100000 from your uncle (your mother’s brother), it is fully exempt from the Tax. There is no maximum limit on the value of gifts received to be exempted from Gift Tax. All gifts received from relatives (irrespective of value) are exempted from the levy of Gift Tax. Movable Property as Gift  a) Without consideration: Where any person receives, in any previous year, from any person or persons any property other than immovable property without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property will be taxable in the hands of receiver. b) For Inadequate Consideration: Where any person receives, in any previous year, from any person or persons any property other than immovable property for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration. The excess differential amount will be taxable in the hands of receiver. Immovable Property as Gift a) Without Consideration: Where any person receives, in any previous year, from any person or persons any immovable property without consideration and the stamp duty value of which exceeds fifty thousand rupees then in such case, the stamp duty value of such property will be taxable in the hands of receiver. b) For Inadequate Consideration: Where any person receives, in any previous year, from any person or persons any immovable property for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts: (i) the amount of fifty thousand rupees; and (ii) the amount equal to five percent of the consideration The excess differential amount will be taxable in the hands of receiver. Special Tax Exempt gifts The following list of gift are fully exempted from Tax whether it is received as Cash, or any other form of the material doesn’t affect the exemption. Gift received under a Will or by way of inheritance. Gift in contemplation of death of the donor; Gift from any local authority. Gift from any fund or foundation or university or other educational institution or hospital or any trust or any institution referred to in Section 10(23C). Gift from any trust or institution, which is registered as a public charitable trust or institution under Section 12AA/12A. On the occasion of the marriage of the individual. By way of transaction not regarded as transfer under section 47. From an individual by a trust created or established solely for the benefit of relative of the individual.   In the occasion of Marriage of the Individual Gifts received by an individual on his own marriage are fully exempted from the levy of Gift Tax. It has also been clarified that the gifts received by a person on his own marriage are exempted and not on the marriage of their son / daughter / brother / sister. There is no monetary limit attached to this exemption. Note that, if you receive any gifts at the time of engagement or the marriage anniversary it is liable to pay the tax. Stamp Duty and Registration of gift deed Registration of a gift deed is

GIFT Read More »

Hindu Succession Act 1956

Leave a Comment / Estate & Succession /

Hindu Succession Act, 1956 Who is an Hindu…? This Act applies:- To any person, who is a Hindu by religion in any of its forms or developments including a Virashalva, a Lingayat or a follower of the Brahmo, Prathana or Arya Samaj. To any person who is Buddhist, Jain or Sikh by religion. To any other person who is not a Muslim, Christian, Parsi or Jew by religion unless it is proved that any such person would not have been governed by the Hindu law or by any custom or usage as part of that law in respect of any of the matters dealt with herein if this Act had not been passed. Who is a Hindu? Following persons are Hindu: Any child legitimate or illegitimate, both of whose parents are Hindu, Buddhists, Jains or Sikhs by religion. Any child legitimate or illegitimate, one of whose parents is Hindu, Buddhists, Jains or Sikhs by religion and is brought up as a member of such religion to which such parent belongs or belonged to. Any person who is a convert or reconvert to the Hindu, Buddhists, Jain or Sikh. Rules of Succession When a Hindu Male Dies Intestate. It is clearly provided in Section 8 of the Hindu Succession Act that the property of a male Hindu dying intestate shall be held according to the provisions of the Hindu Succession Act in the following manner: Firstly, upon the heirs, being the relatives specified in Class I of the schedule; Secondly, if there is no heir of Class I, then upon the heirs, being the relatives specified in Class II of the schedule; Thirdly, if there is no heir of any of the two classes, then upon the agnates of the deceased; and Lastly, if there is no agnate, then upon the cognate of the deceased. The Hindu Succession Act contains a schedule wherein the legal heirs are classified as Class I and Class II depending upon the relationship between the testator and his heirs. Hindu Male Class I heirs Son, daughter, widow, mother. Son of a predeceased son; daughter of a predeceased son. Son of a predeceased daughter, daughter of a predeceased daughter. Widow of a predeceased son. Son of a predeceased son of a predeceased son, daughter of predeceased son of a predeceased son; widow of a predeceased son of a predeceased son. Hindu Male Class II heirs Father (a) Son’s daughter’s son, (b) Son’s daughter’s daughter, (c)Brother, (d) Sister. (a) Daughter’s son’s son, (b) Daughter’s son’s daughter, (c) Daughter’s daughter’s son, (d) Daughter’s daughter’s daughter’s (a) Brother’s son, (b) Sister’s son, (c) Brother’s daughter, (d) Sister’s daughter Father’s father, father’s mother Father’s widow, brother’s widow Father’s brother, father’s sister Mother’s father, mother’s mother. Mother’s brother, mother’s sister. Explanation: In this schedule, references to a brother or sister do not include reference to a brother or sister by uterine blood. The adopted children (sons and daughters) are also to be counted as heirs in Class I and also the child born out of void or voidable marriages are considered to be legitimate by virtue of Section 16, and hence they are entitled to succession. Legal heirs listed in Class I of the schedule qualify to become the legal heirs in the first place. Only when the legal heirs mentioned in Class I are not present, then the legal heirs of Class II come into the picture. Section 9 of the Hindu Succession Act states, that among the legal heirs specified in the schedule, those in Class I shall take preference simultaneously and to the exclusion of all other heirs. Those in the first entry in Class II shall be preferred to those in the second entry, and so on. A male person whose legal heirs fall in the category in Class I of the schedule mentioned above will share the assets by giving one share to the widow. If there is more than one widow, then all the widows taken together will have one share. Likewise, the surviving sons and daughters and also the mother of the person dying intestate will each have a share. Likewise, all the legal heirs taken together in the lineage of each predeceased son or each predeceased daughter of the person, shall have one share between them. With regard to the property of a male person dying intestate, the sum shall be divided between the legal heirs in the second class of the schedule in any one entry, so that they share the assets of the person dying intestate equally. It is clearly provided in the Section 8 of the Hindu Succession Act, that if the legal heirs in Class I and II are not present, then the assets of the deceased person dying intestate shall be given away to agnates. Finally, if there is no agnate, then the assets will devolve upon the cognates of the deceased. Example: When a person died, he had two sons, each son had two sons further one of his sons died. When the person died ½ of the wealth goes to the son who is alive and the other half goes to the son’s kitty who is dead. Since the other son is not alive this half will be divided in to his grand sons in equal ratios. In such a scenario each blood line gets one share and not each person gets one share. Agnates In case a Hindu male passes away intestate and leaves no class I or class II heirs, then the property would devolve on agnates. A person is said to be an agnate of another if the two are related by blood or adoption wholly through males. Agnate relationship does not extend to relationship by marriage and is restricted to relationship by blood. Also, agnate does not include widows of lineal descendants of the intestate. Cognates If a Hindu male passes away without a Will and has no class I or class II heirs or agnates, then the succession would be through

Hindu Succession Act 1956 Read More »

Hindu Undivided Family (HUF)

Leave a Comment / General /

What Is Hindu Undivided Family (HUF)? By definition, HUF consists of all individuals who are lineally descended from a common ancestor and also comprises of daughters. HUF is not formed by a contract but by the status of a family i.e., it is created automatically in any Hindu Family. Having a common ancestor is a pre-requisite to form a HUF. Hindu Undivided Family (HUF) is not defined under the Income Tax Act but is covered under the Hindu Law. How to form a HUF? Minimum two members are required to form a HUF, constituting a joint family. A HUF is automatically formed when a person marries and start their family. It is not compulsory for the couple to have kids. Owning an estate or a property is also not mandatory to form a HUF. The Hindu Law though does not govern Buddhists, Jains, and Sikhs; it can be treated as a HUF for taxation purpose. In HUF, the income generated belongs to the whole family, instead of a specific individual. Thus, this income is then taxed in the hands of the HUF. Naturally, HUF is treated as a distinct entity for tax purposes. HUF need to have a separate PAN card and need to file separate IT returns. One of the major benefits of the Hindu Undivided Family is that it is considered a separate legal entity. This entitles HUF to obtain a separate PAN card and bank accounts in the name of the HUF. Once a HUF is formed, typically the head of the family becomes the “Karta”. Until January 2016, women were not eligible to be the Karta of a HUF. However, the Delhi High Court, in a landmark case, gave the decision in favour of a woman being the Karta of HUF.  Basic Requirement for existence of HUF Only one member or co-parceners cannot form HUF. Family is a group of people related by blood or marriage. A single person male or female, does not constitute a family. Joint family continues even in the hands of female after the death of sole male. Even after the death of the sole male member so long as the original property of the joint family remains in the hands of the widows of the members of the family and the same is not divided among them; the Joint Hindu Family continues to exist. An HUF need not consists of two male members. The plea that there must be at least two male members to form an HUF as a taxable entity, has no force. A father and his unmarried daughter can also form an HUF. Who are Coparceners and Members of HUF? The male members are called coparceners, while the females are referred to as just members. The difference between the two is that any of the coparceners can demand partition of the HUF. The female members do not have this right in most parts of the country, except for some states like Maharashtra and Tamil Nadu that have allowed unmarried daughters to function as coparceners. The Hindu Succession (Amendment) Act, 2005 which came into force from September 9th September 2005 removed this gender discrimination by giving equal rights to daughters as sons. The daughters become the coparceners of their father’s families on birth in the same manner as sons and have the same rights as sons in the family properties.

Hindu Undivided Family (HUF) Read More »

Succession

Leave a Comment / Estate & Succession /

What is succession? Passing of assets and liabilities from a dead person to a living person is called succession. Liabilities can be transferred to the living person subject to the available assets. Two terms commonly used with respect to succession are: Testamentary Succession which means the disposition of the property of an individual, generally effected by a Will or Codicil, which would take effect after his death. Intestate Succession which implies succession to the property of the deceased without him having provided for the manner in which it is to be given to his heirs. RELIGION BASED APPLICABLE LAWS: Hindus, Buddhists, Sikhs & Jains- Hindu Succession Act, 1956. Muslims – shariat – Muslim Personal Law. Parsis, Christians, Jews, others married under Special Marriages Act – Indian Succession Act, 1925. Hindu Succession Act, 1956 Who is an Hindu…? This Act applies:- To any person, who is a Hindu by religion in any of its forms or developments including a Virashalva, a Lingayat or a follower of the Brahmo, Prathana or Arya Samaj. To any person who is Buddhist, Jain or Sikh by religion. To any other person who is not a Muslim, Christian, Parsi or Jew by religion unless it is proved that any such person would not have been governed by the Hindu law or by any custom or usage as part of that law in respect of any of the matters dealt with herein if this Act had not been passed. Muslim Personal Law All the Muslims in India are governed by the Muslim Personal Law (Shariat) Application Act, 1937. This law deals with marriage, succession, inheritance and charities among Muslims. … These laws are not applicable in Goa state, where the Goa Civil Code is applicable for all persons irrespective of religion. Indian Succession Act 1925 To whom does this act applies: Europeans by birth or descent domiciled in India. Other Europeans and English subject if they own immovable property in India. Persons of mixed Europeans and Native Blood. Indian Christians. Jews Parsi Hindus, for Testamentary Succession. Muhammadan, many provisions of testamentary succession apply to Muslims. Person Marring under Special Marriage Act.

Succession Read More »

How do Interest Rate Work?

Leave a Comment / Financials /

How do interest rate work…? An interest rate is the cost of borrowing money. A borrower pays interest for the ability to spend money now, rather than wait until he has saved the same amount. FOR EXAMPLE….. If you borrow Rs 200 at an annual interest rate of 5%, at the end of the year you\’ll owe Rs 205. The interest a lender receives is his compensation for taking a risk. How…? With every loan, there is a risk that the borrower will not be able to pay it back. The higher the risk that the borrower will default (fail to repay the loan), higher is the interest rate. That\’s why maintaining a good credit score will help lower the interest rates offered to you by lenders. Interest rates work both ways. Banks, governments and other large financial institutions need cash and they are willing to pay for it. If you put money into a savings account at a bank, the bank will pay you interest for the temporary use of that money. Governments sell bonds and other securities for the same reason. In this case, you are the lender to the government and the interest rate is your compensation for temporarily giving up the ability of spending your cash. Government-issued bonds pay relatively low interest rates as the risk of default is close to zero. Interest rates for Unsecured credit will always be higher than secured credit. Secured credit is backed by collateral. A home loan is a classic example of secured credit, because if the borrower defaults on the loan, the bank can always take the house. Credit cards are unsecured credit because there is no collateral backing the loan, only the cardholder\’s credit score. Long-term loans also carry higher interest rates than short-term loans, because the more time a borrower has to pay back a loan, the more time there is for things to possibly go bad financially, causing the borrower to default. Another factor that makes long-term loans less attractive to lenders is inflation. In a healthy economy, inflation almost always rises, meaning the same rupee amount today is worth less in a few years from now. Lenders know that the longer it takes the borrower to pay back a loan, the less that money is going to be worth. For example, if you take out a home loan with a nominal interest rate of 12%, but the annual rate of inflation is 4%, then the bank is only really collecting 8 % on the loan. So how do interest rates affect the rise and fall of inflation? Well, lower interest rates put more borrowing power in the hands of consumers. And when consumers spend more, the economy grows, creating inflation. And If the RBI decides that the economy is growing too fast, then it can raise interest rates, slowing the amount of cash entering the economy.

How do Interest Rate Work? Read More »

👨🏻‍💼
👨🏻‍💼