Bulletins - Chartered Accountants, India

a) Where the accounts of the assessee are required
to be audited under any other law - October 31

b) Where the assessee is a 'working partner' in a firm
whose accounts are required to be audited under any law - October 31

c) Where the assessee is covered by the first proviso to
Section 139 (1) - October 31

Compulsory quoting of Permanent Account Number (PAN) / Tax Deduction Account Number (TAN) on Challans from 01.01.2005

For ensuring correct and prompt credit to taxpayers, Central Board of Direct Taxes (CBDT), Government of India have decided to implement the provisions for mandatory quoting of PAN / TAN on challans from January 1, 2005. Accordingly, no payment of taxes will be accepted by bank branches unless the PAN of the taxpayers and TAN of the deductor are quoted on the respective challans.

TDS Vs TCS

Persons responsible for making payment of Income covered by the scheme of tax deduction is are required to deduct tax at source at the prescribed rates. Tax so deducted should be deposited within the prescribed time. Returns on TDS should be submitted within the specified time.

The income tax is deducted at source on

Tax Collection at Source arises on the part of the seller. The following goods when sold must be subjected to TCS and the taxes collected thereon must be remitted into department's accounts as done in the case of TDS

Consolidated Notification providing abatement /Partial Exemption – w.e.f 1.3.2006

Notn. 1/2006 –ST dated 1.3.2006

Notification 2/2006 – ST dated 1.3.2006

Notification No.5/2006 – ST dated 01.03.06

65 – Services rendered by Club or Association to members proposed to be included.

66 – Rate increase to 12% and new services specified

66A – Charge for services received from outside India

67 - Valuation of Taxable Service – Entire Section substituted to enable determination of value and prescription of manner of such determination.

73 – Recovery of Service Tax – Provides for voluntary payment of tax, interest and 25% of penalty and demand conclusion of proceeding in such cases.

73A – Service tax collected to be deposited with Government – Voluntary and also issue of notice and order.

73B – Interest to be notified ranging between 10% to 24% p.a. on 73A demand.

73C – Provisional Attachment to protect revenue – Notice served u / s 73(1) or 73A(3).

73D – Publication of information in respect of persons in certain cases.

76 – Penalty for failure to pay service Tax – Rs.200 per day or @ 2% of such tax, per month, whichever is higher, subject to maximum of service tax.

87 – Recovery of any amount due to Central Government.

94 – Power to make rules in regard to the following:

96C – AAR can consider question of determination of liability to pay service tax.

CVD @ 4% on all imported goods ( with some exceptions ) but Cenvattable
Peak rate of duty reduced from 15% to 12.5%

Metals & Inputs

10 to 7.5

Minerals

15 to 5

Refractories & their inputs

10 to 7.5

Chemicals & Petroleum

10 to 5

Textiles – yarn / machinery

15 to 10

Information Technology

Set top box – Nil BCD but 16% CVD (+) 4% SAD

CVD withdrawn on computers but 12% ED

All man made ( like polyester, nylon, viscose and acrylic ) fibres and filament yarns has been reduced from 16% to 8%.

Computers

Packaged Software on electronic media

Set top boxes not covered under ITA

Storage devices

16 to Nil

MP3 Players and MPEG4 Players

16 to 8

Clearance to DTA by EOU / STP / EHTP

50% of Aggregate customs duties to
25% of BCD 9 (+) ED payable on like goods.

RSP based assessment for parts, components and assemblies for automobiles, plant growth regulators & Tooth brushes.

Exemption to goods manufactured without the aid of power withdrawn
Essential oils, perfumes, bricks, Ceramic tiles, previous metals, biscuits, sugar etc.

Exemption to goods sold without a brand name withdrawn
Food items, mineral water, sugar syrups, beverages containing milk etc.

All the budgetary changes, will come into effect from midnight of 28.2.2006/1.3.2006.
Clearances after this period will attract the new rates of duty.
Pre-budget stocks – Duty prevailing on the date of their removal
. CCE vs. Vazir Sultan Tobacco Ltd 1996(83) ELT 3 (SC)

A derivative is an instrument whose payoffs depend on a more primitive or fundamental good. It is a contractual relationship between parties where payoffs are derived from some agreed upon benchmark. These do not have independent existence without underlying product or commodity. Even, derivatives do not have their own value and rather they derive their value from some underlying product or commodity. A financial derivative is a financial instrument, whose payoffs depend on another financial instrument or we can say a financial derivative is a financial instrument, whose value is linked in some way to the value of another instrument, underlying the transaction. The underlying instrument could be securities, currencies or indices. For example an option on a share of stock depends on the value of the underlying share.

These are the simplest form of derivative contracts. A forward contract is an agreement between parties to buy/sell a specified quantity of an asset at a certain future date for a certain price. One of the parties to a forward contract assumes a long position and agrees to buy the underlying asset at a certain future date for a certain price. The other party to the contract assumes a short position and agrees to sell the asset on the same date for the same price. The specified price is referred to as the delivery price. The contract terms like delivery price and quantity are mutually agreed upon by the parties to the contract. No margins are generally payable by any of the parties to the other.

A futures contract is one by which one party agrees to buy from / sell to the other party at a specified future time, a specified asset at a price agreed at the time of the contract and payable on maturity date. The agreed price is known as the strike price. The underlying asset can be a commodity, currency, debt or equity security etc. Unlike forward contracts, futures are usually performed by the payment of difference between the strike price and the market price on the fixed future date, and not by the physical delivery and the payment in full on that date.

Futures contracts can be characterised by:

Few types of financial futures are:

The literal meaning of the word ‘option’ is ‘choice’ or we can say ‘an alternative for choice’. In derivatives market also, the idea remains the same. An option contract gives the buyer of the option a right (but not the obligation) to buy / sell the underlying asset at a specified price on or before a specified future date. As compared to forwards and futures, the option holder is not under an obligation to exercise the right. Another distinguishing feature is that, while it does not
cost anything to enter into a forward contract or a futures contract, an investor must pay to the option writer to purchase an option contract. The amount paid by the buyer of the option to the seller of the option is referred to as the premium. For this reward i.e. the option premium, the option seller is under an obligation to sell / buy the underlying asset at the specified price whenever the buyer of the option chooses to exercise the right.

Option contracts having simple standard features are usually called plain vanilla contracts. Contracts having non-standard features are also available that have been created by financial engineers. These are called exotic derivative contracts. These are generally not traded on exchanges and are structured between parties on their own. The relevance of exotic options can be understood from these lines:

“ Exotic products come about for a number of reasons. Sometimes they meet a genuine hedging need in the market; sometimes there are tax, accounting, legal, or regulatory reasons why corporate treasures find exotic products attractive; sometimes the products are designed to reflect a corporate treasurer’s view on potential future movements in particular market variables; occasionally an exotic product is designed by an investment bank to appear more attractive than it is to an unwary corporate treasurer.” John C. Hull

It is essential to be aware of the distinction between an American Option and a European Option.
An american option can be exercised at any time upto the expiration date, a european option can be exercised only on the expiration date itself. Most of the option contracts traded on exchanges are of the type of american option.

Basically there are two types of options viz. Call Option and Put Option. A call option gives the buyer of the option the right (but not the obligation) to buy the underlying asset on or before a certain future date for a specified price whereas a put option gives the buyer of the option the right (but not the obligation) to sell the underlying asset on or before a certain future date for a specified price. As stated earlier, the option writer is under an obligation to sell / buy the underlying asset at the specified price whenever the buyer of the option chooses to exercise the right. The specified price is known as the strike price or the exercise price and the specified date is known as the exercise date, maturity date or the expiration date.

Options can also be characterised in terms of their moneyness. Using notations, the moneyness of an option for the buyer of the option can be summarized as:

Where M is the prevalent market price for the option contract, and E is the exercise price of the option contract. For a seller / writer of the option the >, < signs will reverse. In words, the moneyness of the option for the buyer of the option can be stated as:

Limits can be set on the strike price for an option contract. If an upper limit on the strike price is set, it is called a ‘cap’. If a lower limit on the strike price is fixed, it is called a ‘floor’. If a combination of both i.e. ‘cap’ and ‘floor’ is used i.e. a range is fixed for the strike price, it is called a ‘collar’. If the market price as on maturity date is higher than the cap price, then the cap price will be the strike price, otherwise the market price will be the strike price. Similarly, if the market price as on maturity date is lower than the floor price, then the floor price will be the strike price otherwise the market price will be the strike price. In other words we can conclude that in case of a collar, the strike price can’t be higher than the cap price and lower than the floor price. Similar to a futures contract, the exercise of the option, normally, results in a contract to pay the difference between the strike price and the market price on the date of exercise of the option. As mentioned earlier, the buyer of the option has to pay a premium for purchasing the option. Hence on the maturity date the maximum loss that the buyer may suffer is the amount of the premium paid and the gain depends on the difference between the strike price and the market price as on maturity date. On the other hand, the gain to the seller of the option is limited to the amount of the premium received but the risk of loss is unlimited, depending upon the strike price and the market price as on maturity date.