All About Credit Cards

TDS on Interest, Commission & Brokerage
M. George Korah FCA, DISA

In this paper, we will discuss the Tax deduction provisions on interest payments as well payments which are in the nature of commission or brokerage.

First let us look at interest payments. When you deposit money with a bank, then the bank pays you interest. This interest could be paid out monthly, quarterly, half–yearly or annually. In the case of cumulative deposits, the interest as you know, will be paid on the date of maturity of the deposit, along with the money that you had deposited.

Whatever be the method or period of payment of interest, the Bank will calculate the total interest due (or paid) to you in one financial year (1st April to 31st March). If the amount exceeds Rs. 5,000 then the Bank will deduct tax at source from your interest payment as per the provisions of section 194 A of the Income Tax Act. For payments made to Resident individuals the rate at which they would deduct tax is 10.3 %.

You may have received an intimation from the Bank, before the financial year end, enquiring whether you plan to submit Form 15 H or in the case of a Senior citizen, Form 15 G, to avoid TDS on your interest. Please note that these Forms are like affidavits, wherein you are declaring that you do not have taxable income and hence any wrong statement could get you in trouble. You should be aware that, one copy of this Form will be sent to the Income Tax Office, so sign this Form, only after making sure that you have complied with all the requirements of these Forms.

If the Bank receives this Form from you, then it will not deduct any tax at source from your interest.

The limit of Rs. 5000, beyond which the Bank will deduct TDS, has now been revised to Rs. 10,000 from financial year 2007-08 .This has been one of the welcome changes of Budget 2007. Hence if your term deposit fetches you 10 %, then you can safely put Rs. 90,000 in a Branch of a Bank, without facing the TDS cut.

Please note that this limit is for every branch & not for all branches of a bank put together. Therefore if you want to deposit Rs. 5 lakhs in the same Bank, without facing the TDS problem, you will have to deposit this money in more than 6 branches, making sure that any single deposit does not give you an annual interest of Rs. 10,000 or more.

Also keep in mind that interests on Recurring Deposits & Savings Bank accounts do not attract TDS.

Besides Banks, companies & partnership firms are also required to deduct tax at source from interest payments made by them. Normally individuals & Hindu Undivided Families (HUF) are not required to deduct TDS from interest payments made by them. If, however, they have crossed the turnover limits, stipulated under section 44AB, then they are also required to deduct tax at source from interest payments made by them.

The limit, like in the case of Banks is Rs. 5000, below which no TDS is required. However the increase in this limit to Rs. 10,000, brought about by the recent Union Budget, is not applicable to payments made by non-banking entities.

Partnership firms, who pay interest to their partners, need not deduct tax at source.

We shall now examine the tax provisions relating to TDS from Commission or Brokerage.

ABC Pvt Ltd has recently bought some land to construct it office. In connection with this purchase it has to pay Rs. 1.50 lakhs as commission to the broker Mr. Iqbal. Does the company have to deduct any TDS on such brokerage payment? The answer is an emphatic ‘Yes’.

Commission or Brokerage has been defined as below –

Commission or Brokerage includes any payment (not being insurance commission) received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities.

Who is responsible for tax deduction –

Any person (other than an individual or HUFs) who is responsible for paying commission or brokerage to a resident shall deduct tax at source.

Individuals & HUFs who are hit by the provisions of section 44AB in the preceding financial year are to deduct TDS from Commission/Brokerage.

When tax has to be deducted –

Tax shall be deducted at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier. Where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee.

Basic exemption

Payment in excess of Rs. 2500 is subject to tax deduction – No tax is deductible if the amount of commission or brokerage paid/credited during the financial year does not exceed Rs. 2500.

Rate of TDS

The rate of TDS including educational cess will be 5.15%

Hence from the commission due to Mr. Iqbal, the company ABC Pvt Ltd will have to deduct an amount of Rs. 7725 ( 5.15% of Rs. 1.5 lakhs) & pay him only the balance.

All limited liability companies or companies having more than one owner are required to register in the Register of Business Enterprises.

Among several reasons, one important one is to maintain a correct record of people that may be held responsible for actions in the name of the company. In self-employed businesses, there can be no doubt as to who is the responsible person. Therefore, such enterprises are exempt from the general registration duty.
Only if the self-employed business trades goods or has more than five employees, is registration required. Other self-employed businesses may register at their own will.

An increasing number of banks, insurance companies and other organisations have made it a rule not to enter a deal with a new associate before they have made sure the company is registered in the Register of Business Enterprises.

Companies who want to do international business will experience that the foreign counterpart will request a company certificate from the Register of Business Enterprises before they will commit themselves to an unknown customer or supplier.

Registration in the Register of Business Enterprises is done by submitting the Combined register return, usually together with the registration in the Central Coordinating register of Legal Entities. If you are already registered in the Central register of Legal Entities, mark the return accordingly.

Note the rigid requirements with respect to signatures and additional information for returns to the Register of Business Enterprises.

When registering, the planned name of the self-employed business must include the owner’s family name, with or without first name(s). For other forms of business entities, you must in addition state the type of organisation (e.g. AS for a limited liability company or ANS for unlimited liability companies, see the Norwegian Company Act, no. 78, §2-2).

Before registration, you are advised to check if the planned name is ”available” by contacting the Register of Business Enterprises in Brønnøysund. Your right to a name of the business is obtained either by starting to use the name or by an entry in the Register of Business Enterprises.

If the name of the business enterprise states the name of a person or describes the nature of the business, the enterprise must be connected to the named person or type of business. If the initial conditions change significantly, the name should be changed accordingly.

Instructions
Things You’ll Need:
Flyers
Step 1:
Locate paid subscription services online that provide updated listings on a daily or weekly basis, such as RealtyTrac, ForeclosureListings.com and FreeForeclosureDatabase.com (see Resources below). You can locate records across the United States, which is particularly convenient if you plan to invest in more than one state.
Step 2:
Review public notices, which are usually found at country courthouses around the country, on a regular basis. Not only will you find foreclosure listings, but you'll also get information on defaulted properties (the step before foreclosure). If your area has a fairly large newspaper, public auctions and information on defaulted properties are listed in the Classifieds or Real Estate sections.
Step 3:
Hand out and post flyers that let readers know that you are interested in distressed properties. They should be posted in high-traffic areas such as busy supermarkets, coffee shops and gyms where your message can be seen by a large number of individuals.
Step 4:
Seek out the foreclosure lists of banks, mortgage companies and other lenders. Many lenders have online sites with this information, while others have in-house departments that you will have to contact by telephone or in person. As these are the contacts that will have the information before anyone else, you should establish relationships with several of these people so that you'll have a leg up on the competition.
Step 5:
Network with qualified real estate agents who are knowledgeable about the foreclosure market. Some of these agents have relationships with various lenders and have information on foreclosure listings before they are made public. You may have to pay commissions, but it is well worth it.
Step 6:
Join professional organizations and let your fellow members know that you are in the business of purchasing foreclosures. Once you make your associates aware, you may find that they will direct business your way. You can reward them for their tips by offering them a finder's fee.
Step 7:
Place advertisements in local newspapers in the real estate section. Let readers know what you are interested in purchasing foreclosures or pre-foreclosures, and give them your contact information.
Tips & Warnings
It's a good idea to have a business phone line and email address so that you can separate your business and personal communications.

What is Fixed Deposits(FD)?


Fixed Deposits (FD) is a system where a person – known as a depositor – deposits a lump sum amount of money in bank at a predetermined fixed period. The longer the period of the fixed deposit, the higher is the interest rate the depositor earns. The number of days an amount may be entered into a fixed deposit scheme ranges from 15 days to 5 years. After maturity period of the fixed deposit, the depositor then acquires the lump sum amount equal to his principal deposit, plus interest thereon.

The Reserve Bank of India(RBI) ensures an effective policy and restriction for the safety of these bank fixed deposits. Interest rates on fixed deposits differ from various banks depending on the maturity periods and the amount of deposits. The amount of fixed deposits range from Rs.10 to as high as 100 million rupees. Interest rates for bank fixed deposits are dependent on the amount of the investment and its maturity period which ranges from 4 to 10 percent. (Effective October 1st 2008, State Bank of India (SBI) offers 10.5% for normal FD and 11% for the senior citizen). Below is a presentation of the interest rate a fixed deposit can yield for a given period of maturity: These rates taken while writing this article. Period of Maturity Annual Interest Rate (in percent)


Interest Rates for Fixed Deposits(FD)


15 - 29 days 4.00%

30 - 45 days 4.75%

46 - 90 days 5.25%

91 - 120 days 6.00%

121 - 180days 8.00%

181 - 364 days 8.50%

1 year – not more than 2 years 9.00%

2 years – not more than 3 years 9.25%

3 years – not more than 5 years 9.50%

Above five years 10.00%


All bank deposits in India are covered with insurance by the Deposit Insurance and Credit Guarantee Scheme of India and is, therefore, considered to be the safest investment form a depositor or investor can work on. Opening a Fixed Deposit Account is like opening a savings account after complying with the requirements where a deposit receipt is given to the depositor and is subject to updating within the period of the fixed deposit. It is necessary to update the account to verify if all transactions have been accounted for correctly.

What It Is
Ring insurance is best purchased as an extension (also called a "rider") for your renters or homeowners insurance policy. Renters and homeowners insurance policies cover the stuff in your home, but only up to a certain dollar value. Expensive, special items like engagement rings, art, and electronics are guaranteed through scheduled personal property coverage -- an insurance policy extension that covers particular items.

Who Needs It Most
Any newlywed with jewelry that has high material or sentimental value -- whether your wedding and engagement rings cost $500 or $50,000, an insurance policy is a way of honoring not just their financial value but what they represent. The sentiment behind your rings is priceless, but the rings themselves can be replaced -- if they're insured -- in the event that something happens to them.

How It Works
You'll need to provide your receipts as well as an appraisal (which costs a small fee; you can get an appraisal from a certified gemologist). And remember: If you move after the wedding, make sure your "ring rider" follows you. Some couples have the ring insured at the bride's house (or her parents') before the wedding but forget to add it to the policy for their new home when they move in together.

If you don't have a renters or homeowners policy, there's an alternative way to insure your ring: Certain insurance companies offer policies through jewelers on individual pieces -- ask your jeweler if they'll work with an insurance company to offer ring insurance. These kinds of policies can vary widely company by company (usually a jeweler will offer a policy that's underwritten by smaller company), so ask specific questions about the level of coverage provided.
Questions to Ask
Is the ring covered if you lose it accidentally, or only if it's stolen?
How will the company replace the ring -- with a check? Or will they require you to purchase a replacement through a specified jeweler?
What if it's a vintage ring or other unique piece? How will the quality and size of your diamond -- and that of a replacement if needed -- be documented?
Is the ring insured to full cost or a fraction of it?
How will you need to prove the ring vanished if you make a claim?
Are there any circumstances that aren't covered? (What if your ring flies off at the circus and gets trampled by elephants, for example?)
Average Cost
The yearly cost to insure your ring is $1 to $2 for every $100 that it would cost to replace. In plain English, this means that if your ring costs $9,000 to replace, you might expect to pay between $90 and $180 per year to insure it -- or slightly more in cities where the risk of theft is higher.


How to Get Your Cost Down
Buy a vault or safe to keep jewelry in when it's not being worn. (You can also keep paperwork like appraisals in the safe, so you'll always know where it is if needed.)

What to Remember (If You Only Remember One Thing)
When you shop for a "ring rider" policy, make sure to read the fine print: A good policy will cover every potentially ring-threatening situation -- from theft to damage to accidentally dropping it in the garbage disposal.

Double-Declining-Balance depreciation method (DDB)

method of accelerated depreciation, approved by the Internal Revenue Service, permitting twice the rate of annual depreciation as the straight-line method. It is also called the 200 percent decliningbalance method. The two methods are compared below, assuming an asset with a total cost of $1,000, a useful life of four years, and no salvage value .

With straight-line depreciation the useful life of the asset is divided into the total cost to arrive at the uniform annual charge of $250, or 25% a year. DDB permits twice the straight-line annual percentage rate-50% in this case-to be applied each year to the ndepreciated value of the asset. Hence: 50% × $1,000 = $500 the first year, 50% × $500 = $250 the second year, and so on.

A variation of DDB, called 150 percent declining balance method, uses 150% of the straight-line annual percentage rate.

A switch to straight-line from declining balance depreciation is permitted once in the asset's life-logically, at the third year in our example. When the switch is made, however, salvage value must be considered.

BAKERY
BabyCakes NYC
248 Broome Street
Lower East Side


When Erin McKenna was diagnosed three years ago with allergies to wheat and dairy and she decided to give up sugar, all she really wanted was a cupcake. Magnolia was off-limits, along with just about every other bakery in New York City. So she decided to open her own. “I wanted it to be really adorable and scenic and big on atmosphere,” says Erin, a California native, now 30. “A destination place.”


BabyCakes was born in August, a button-cute shop dominated by a clanging vintage cash register. Erin, an aspiring stylist, put the word out to well-connected fashion friends, and before long, her vegan treats had a following among customers of all dietary persuasions.


Behind the brisk business and gee-whiz décor, however, lies a tale of trial and error. Erin got a deal on a Broome Street storefront but made the mistake of signing her lease before a $120,000 bank loan came through. It didn’t. Milking her mother’s life savings and calling every well-to-do friend she could find, she ended up with $12,000, just enough to open her doors and keep recruiting investors (she has nine now). She says she’s not in debt, but she is one plumbing problem away from disaster (or a tenth investor).


She keeps staffing costs low by logging twelve-hour days. Her assistant baker got 5 percent of the company for a summer’s free labor and now receives $600 a week. Erin’s youngest sister works full time for $500 a week. All are paid in cash. (“What are books?”) Erin designed the staff uniforms herself ($125 each).


Stitching together a profit has proved more difficult. She says she’s $500-a-month shy of breaking even, owing to high-cost ingredients like cold-pressed coconut oil and agave nectar. It costs her $2 to make the cupcakes she sells for an average of $3; a healthier markup would be 100 percent. Coffee is more profitable with a 500 percent markup, but BabyCakes is equipped to sell only a few cups an hour. Her shortest route to a windfall is heading into wholesale, but she says it won’t happen “for the next five years.”

more here

A credit card is a safer and more convenient alternative to cash. However, the simple act of paying for products and services with a credit card is supported by an elaborate behind-the-scenes system.

When you apply for a credit card, your application is carefully screened by the bank you apply to. A credit limit is worked out for you, based on your financial capability, educational qualifications, age etc. The bank that issues you the credit card is called the issuing bank.

At the heart of the credit card business is a mutually beneficial arrangement between the issuing bank and a host of businesses called merchant establishments through international networks such as Visa and MasterCard. Merchant establishments could be hotels, shops, travel agents or any place where transactions are made. Banks that enroll merchant establishments are called acquiring banks.

Your credit card is valid in any merchant establishment that accepts your network (MasterCard, Visa, et al) even if it has been enrolled by an issuing bank other than yours. Most Indian card issuing banks are part of either the MasterCard or Visa network, or both. There are other credit card networks like American Express and Diners Club too.

This network is at the heart of any credit card activity. When you use a card at an establishment to purchase a product or service, your card is swiped on a swipe-machine. The swipe machine is connected to a central computer belonging to the network, which in turn is connected to all issuing banks. The system verifies with your issuing bank whether you have sufficient credit to cover the purchase in a few seconds and approves or rejects the transaction. As soon as the approval comes through, you are asked to sign the charge slip. The merchant then verifies your signature with the one at the back of the card.

The charge slip is then forwarded to the acquiring bank, which then settles the transaction with the merchant. The issuing bank also proceeds to bill you for payment as per the cardholder agreement. The acquiring bank will settle the transaction with your issuing bank through the network.

From the merchant establishment's point of view too, the credit card is a safe and efficient payment mode and brings more business. The merchant establishment pays a fee to the bank that enrolled it for the service. From the bank's point of view, credit cards benefit in two ways: Banks make money through fees from merchant establishments and the higher-than-normal interest rate paid by card holders for the balance on their cards.

You can save on the interest cost if you are prompt in paying the balance by the due date. Credit card users get a free period of credit before they reimburse the credit card issuing bank. This may vary from 15 days to 40 days depending on the issuing banks. When you use a credit card, you have the option to pay just a part of the total amount spent and carry forward the balance. In such cases, you will have to pay interest on all your purchases without any free credit period.