Tuesday, August 31, 2010

The Joy of Expression

We express ourselves, hence we live.
Freedom does not lie in confines.
To shut ourselves up, we don't need walls.
We are imprisoned by our own minds.
Are we free to do what we want?
Are we free to want what we dream?
Are we free to dream without fear
That is caused by our own restraints?
Are we trusting that life will offer
Its bounty to us, of its own?
Do we go out and meet the world
Joyfully, on our own terms?

Thursday, August 26, 2010

Filling Time

Time to ponder, time to reflect,
Is also time to learn, to absorb.
We need time to pause, as we run,
To sort out all the things we saw.
Those gaps in time too are being filled
With all the gadgets that we carry.
We want to be always entertained
With not a moment to tarry.

Tuesday, August 17, 2010

Time for a correction?

Everything seems to be doing well right now.  The economy (in India) is very much back on track, job markets are again buoyant,  companies are talking of giving two-digit increments and retention bonuses, the stock markets are up at 18k levels which is not far from the peak and they have stayed there for some time, real estate prices have gone up in the last six months, the rupee has stopped gyrating wildly and is at 46-47 levels, oil at $75 seems to be neither underpriced nor overpriced… and the list goes on.
So life is good.  It's a grand party. Things will go on like this for the next ten years. Or so we think. 

Therefore, it's time to worry.  Things don't look as great and rosy as they did in end-2007, but they still look too good to be true.  Most economies of the world are not out of the woods yet, and there are certain macro-economic factors at play that seem eerily similar to the situation prevailing in end-2007.

The US Economy is not back on track. The meltdown caused by the subprime crisis has not gone away. The interest rates are at a record low still, i.e. close to zero, and the Fed is still pumping cheap money into the economy.  The Fed really has no more tools left in its armory than to wait it out and hope the economy recovers before something implodes. After a lot of talk of the Greek  crisis, there seems to be silence on that front.  The banks and governments have got together and "refinanced" the debt, and are now silent on how it will be ultimately repaid.  The PIIGS countries are all facing structural problems caused by huge debt; they are currently on the hospital beds with their eyes closed hoping that when they open them the disease would have miraculously gone away.


The Indian Economy was never affected too much by the 2008 crisis in the first place.  When the party was on, it benefited from inflows of money that pushed up asset prices, and when the time for reckoning came, the money rushed out leaving tumbling asset prices in its wake.  However, the real economy was not too much affected. Most of the swings we saw were due to money flows.


Right now we seem to be in a steady state.  Which is not to say that the economy is fine and things are looking rosy. The old structural problems remain and are reasserting themselves. Inflation is very high over the last couple of years, especially in the areas where it hurts the common man the most i.e. food.  RBI is slowly raising interest rates once again, but not as fast as it would like to, since the Government is not keen on too much monetary tightening. 


The world over, retail investors are not participating in the stock markets in a big way right now.  Liquidity is being artificially propped up with cheap money from the US  Fed.  The markets are being held up by the exuberance of institutional players.  Past experience tells us that if the feeling reverses, they will all rush for the exits together. The Dow is up, but how much of it is due to structural reasons and how much due to reasons to do with liquidity? In India, the rise in real estate prices witnessed in the last six months is not really backed by real demand. The stock market seems to be sustaining itself at reasonably high levels not based on solid corporate performances but more on expectations. 


So where does that leave us? We should be wondering whether the US markets will sustain. Will there be a correction (not a crash this time, let's use the word "correction") in the near future? Will there be any fallout of the crisis in the European markets which has not really gone away? If that happens, we know what the pattern is. People will start pulling out money from all emerging markets including India.  The Indian stock market for all its size lacks too much depth. A few billion dollars in or out due to FII flows, and the market reacts disproportionately.    The rupee, if this happens, could again depreciate to 50 or more levels.  In sympathy will stock prices, real estate and other assets could also tumble. In case of real estate there is the additional factor of too much supply about to enter the market. There will be some amount of stability provided by the real economy, but short term price movements are dictated more by liquidity flows.


Will it happen?  I don't know.  But there is a good chance of there being some kind of correction.  If it happens, asset prices will drop,  at least for a while.  If it does not happen, asset prices do not seem likely to go up substantially from current levels in the near future.  Balance of probability and expected gain would suggest that it is time to consider booking some profits.  It's also a time to think twice before committing to fresh investments. 

Tuesday, August 10, 2010

How to raise a cult following

Apple is the new religion.  Its products, the iphone, ipod, and ipad are the identity of the new religion. The i's of Apple remind  you of the five k's of the Sikhs – Kada, Kirpan, Kesh, Kangi and Kaccha.  The reverence it evokes among its followers, the blind allegiance to its godliness, the fierce pride in being part of the group brandishing the symbols (or should I say isymbols?), the contempt tinged with pity crowned with a condescending superiority over others who are not part of the movement – all remind you of a religious group.


How has  Jobs been able to achieve this? He has of course created good products.  The product which is the symbol of God, has to be good.  Good  does not mean cheap. No cult likes its symbols  to be devalued. It does not mean having all features either.  Apple is notorious for including only a few features and leaving out what others think are essential. The features may be introduced in later versions, one at a time, or not at all.  Followers are sold on the superiority of their icons and they take pride in the fact that they do not contain all things that other mundane products do; but what they do  contain are a few essential core elements. They also take pride in being deprived of some things – paradoxically in the mind of an acolyte this becomes an essential attribute – the sacrifice of something is required in order to underline how religious they are.  Virtue lies in being abstemious! Also, the self-denial should not come cheap, lest it be devalued.


The new religion has a great messenger. Jobs is Prophet, Messiah and deliverer all rolled into one. He is the one who is directly in touch with God – he comes down once in a while from the remote fastnesses in which all sages dwell and announces the new revelation.  His followers gather in hordes to hear him. They revel in the anticipation of the next announcement. They swoon when they see him in person. They gaze at him in reverence and hang on to his every word.  They boast to each other about how they were there when he made his descent to the auditorium. They devour his words on youtube and try not to miss anything significant – and he responds to this with a supreme air of nonchalant gracious acceptance. This scene is not very different from what you will find in any ashram in India. 


The Prophet understands their innate needs and desires.  In this case, they happen to be all material desires, but who said religion is all about spirituality alone? He has the instinct to distil their desires into a few simple must-haves.  He has visualized the final product in its simplest pristine form and glory and guided his designers to the ultimate glory of the bare essentials. He is not known to encourage too many buttons, too many features, or complex interfaces. All this is of course in the back-end.  No one knows the conversations that Moses had with God or what deal they struck with each other. They only hear the message that Moses gave when he descended from the mountain, or wherever that ordinary mortals cannot go to.  


He resides in his sanctum sanctorum where ordinary mortals are not admitted.  Apple's obsession with security is legendary.  One can only imagine what it must be like in there.  His acolytes gather themselves together in a congregation that sings his praises, and awaits his presence for the meetings.  He comes, he hears, and he disposes.  He also exhorts them to think. To come up with even simpler designs with even lesser features, with even sexier interfaces, at even greater cost.  And they respond.


Religious symbols have to be sacred  - they cannot be disassembled or taken apart in any manner. That would be sacrilege. Does the Baba who produce miracle ash by waving his arm in the air allow you to inspect his shirtsleeves before he does so?  Even so, Apple seals its products tight and allows no one to peek into the innards.  Jealous kafirs from other religions have been known to break into it but to any follower, that would be sacrilege.  I think they might even be under the belief that if they dare break into the sacred icon they might be stricken with some pestilence, or thunder and lightning may strike them dead.


Anyone who dares to question the new religion, and this could be the rest of the world, is treated with the contempt that he deserves. So what if the iphone reception falls off if it is held at a particular angle? We will wait for Jobs' decree that holding the phone at that angle is haram, forbidden, and we will willingly follow.  In this case, he chose to come out with a covering case that solved the problem. Anyway, who said there is a problem?  Only the kafirs, curse their nasty intentions!  We will allow nothing to destroy our religion. In fact, such setbacks only bring us closer together  - it brings out the devotion in us.  Contrast this attitude with the Toyota recall based on mostly fabricated reports of stuck accelerators.  Toyota is merely a brand, Apple's ibrands are religious symbols.


If you want to be part of the new religion you pay a steep price. In this case the price is only in dollars. Frequently, religions demand more. If Jobs were to decree that his followers should fast on every anniversary of Apple's founding day, they would willingly do it. Provided they are allowed to advertise their sacrifice by wearing a founding-day-fast armband on that day. There – I've just given a marketing idea to Jobs. In case he ever decides to do this, I am going to claim some royalty (like a personal darshan) – you readers shall be my witness that I thought of this first. 


In return for the price you paid, you get the right to be identified as an adherent. Imagine the looks of envy when you step out with your new ipad. You are also granted the right to look down in pity on the rest of the non-Apple world.


The Prophet is rich. His religion is rich. His company is rich. We made him so.  And we shall continue to fill his coffers so that he can go forth, proselytize, and convert more people to the cause.


Amen – Om Namo Apple aayana Mahaa!.

Monday, August 9, 2010

No Arrival

What is this place I'm hurrying to,
But another place on the way?
I've convinced myself it's my goal
Since that is what I want today.

Should I stop when I find I've reached?
The horizon stretches much beyond.
It is but a beginning, the end
That I so desperately want.

Every day is a new beginning
And so is every moment in time.
I start now, from where I have reached.
There's no such thing as having arrived.

Wednesday, August 4, 2010

Personal Finance Part 17: Tax Continued

    Valuation of Perquisites

    In case the company provides you a car for official as well as personal use, where expenses on maintenance or running are met or reimbursed by the employer, a perquisite value is added.  For cars at or below 1600cc capacity, Rs.1,800 per month is added to the salary as perk, and for cars above that capacity, Rs.2,400 per month is added. In case a chauffeur is provided another Rs.900 per month is added. Remember that these are not the "tax" amounts - when this is added to your income you will pay tax on this at a maximum rate of 30% depending on your total income.

    For loans provided by the Company, either at nil rate or concessional rates of interest, the “normal” rate of interest (as charged by SBI for that kind of loan) less what you pay as interest, is added as a perk value. Loans for medical treatment for certain diseases and loans below Rs.20,000 are exempt from this.

    Valuation of rent-free unfurnished accommodation depends on the city or town where it is provided.  For cities with a population exceeding 25 lakh people, the amount of lease rent paid (if leased by the employer) or 15 percent of salary (defined to include most components – almost works out to ctc), whichever is lower,  is added as a perk.  If furniture is provided, actual hire charges or 10% of the original cost of furniture (if owned by the employer), whichever is applicable, is added as a perk.


    Gratuity up to Rs.10,00,000 is exempt. However, this is subject to the fact that you have received gratuity after five years of continuous service. This amount of Rs.10 lakhs is for a lifetime. So you need to keep track of it! This amount used to be Rs.3.5 lakhs – it has been revised to Rs.10 lakhs in May of this year.

    Tax deducted at source (TDS)

    When your employer deducts TDS from your salary and pays it to the Government, the employer is just acting as your agent and depositing “advance tax” on your behalf with the government. For arriving at the rate of deduction, the employer just computes income tax as would  normally be paid by you based on your salary income.  Certain declarations like your projected 80C investments are considered in the calculation.

    In case you have given your house on rent to a corporate and the rent exceeds Rs.1,80,000 per annum, TDS at the prescribed rate is deducted. For bank deposits, in case your interest income exceeds Rs.10,000 for the financial year, TDS at the rate of 10% is deducted by the bank and deposited with the government on your behalf.

    In case you win a lottery or a prize in any show, TDS at the rate of 30% is deductible.

    In all these cases, the company, or agency deducting TDS on your behalf, deposits the TDS deducted with the government and provides the details to you in the form of a TDS certificate which is called Form 16 in case of Salary income, and Form 16A in all other cases.

    The incomes in all the above cases, have to be included as part of your total income and the resultant tax computed. Once you have arrived at your total tax liability, you can then set off all the TDS paid on your behalf based on the TDS certificates received by you.

    Special Tax Rates

    Dividends earned by you from Equities, or from Equity or Debt Mutual Funds, are tax free.  However, the company and/or the mutual fund has to pay a dividend distribution tax at prescribed rates. In the case of a company this tax comes out of post-tax profits, and in case of mutual funds, it comes out of your corpus.

    Winnings from lotteries are taxed at 30% irrespective of your total income. If you look at the TDS rates given earlier, you can see that this entire tax due is anyway deducted as TDS!

     There are special rates for Capital Gains as well which we shall see in the next section.

    Capital Gains

    Gain or loss on sale of asset is treated as Capital Gain and taxed at special rates. The general principle is that long term capital gains are taxed at lower rates; rates for short term capital gains are higher.  Long term is defined as sale after holding an asset for more than three years, except in case of listed equity or mutual funds, where the period is one year.

    In case of Equity and Equity oriented Mutual Funds, long-term (sale after holding for more than a year) is taxed at “nil” rate and short-term (sale after holding for a year or less) is taxed at 15%.

    In case of Debt oriented Mutual Funds, for long term gains (sale after holding for more than a year), you can choose between paying 10% of the gain (non-indexed) or 20% of the gain after indexing the purchase price.  Short term gains are just added to your income and taxed at the normal rates.

    In case of all other assets, long term gains (sale after holding for more than three years) are taxed at 20% post-indexation. Short term gains (held for three years or less) are just added to the income for the year and taxed at the normal rates.

    Indexation is nothing but “adjusting” the purchase price upwards for inflation.  The purchase price is adjusted upwards to reflect the rise in prices due to inflation, before being deducted from the sale price for computing the capital gains. This results in reducing the capital gains – the idea being to tax you for capital gains in excess of normal inflation. The Index Number is published every year.

    Capital gains can be set-off against capital losses incurred.  Capital losses cannot be set-off against your other Heads of Income, like salary.  However, these losses can be carried forward for eight years and set-off as per certain rules in later years – we shall not get into those rules since they are quite complex – you need to talk to your CA!

    In all the above cases, we have mentioned the base rate (10/15/20 percent). The actual tax will be 3% higher due to education cess (3% of the tax amount).

    House Property

    In case you own only one house in which you are staying you are eligible for deducting interest paid on housing loan (taken from approved institutions) up to Rs.1,50,000.  In case the property is jointly owned, each owner is eligible for this deduction up to Rs.1,50,000 each. You will notice that the year-end statement that you receive from your Housing Finance Company (HFC) will show the interest portion and the principal portion of your EMI separately.  The principal portion is eligible for deduction under section 80C. More about 80C later.

    Pre-construction/pre-occupation interest needs to be accumulated till you take possession of the house – it can then be apportioned equally over five years and added to the interest for the respective year, which will be subject to the ceiling of Rs.1.5 lakhs mentioned above.

    In case you own more than one property you need to show the rental incomes against your other properties and add it for tax. Even in case these other properties are not rented a “fair” rental based on rules needs to be shown as income – this is subject to some specific exemptions which again we shall not get into.  That’s the bad news – the good news is that for such properties you can deduct 30% of rental income as a standard deduction, deduct municipal taxes paid, and deduct interest without any limit to arrive at the income from those properties. Even if you arrive at a “negative” number, you can set it off against other heads of income like salaries, if in the same year. If carried forward, it is subject to some set-off rules later.

    Whatever we have discussed above only covers the general cases – there are several specific possibilities that are not covered.  In an article of this nature, it is only possible to aim for a general understanding – you must contact your CA for assistance at all times.

    In the next issue, we shall look at ways in which we can save tax, including the famous Section 80C.  Bye till then!

Monday, August 2, 2010

Thought in Motion

It soars. It flies. It is free.
My thoughts admit no boundary.
Free of constraints of the body,
I live, I thrive, because I think!
Nothing is impossible
In the fecund realms of thought.
All things that later come alive
First by mind to life are brought!
There's no life without the living.
All living is thought in motion.
I exist because I think.
Life is but thoughts and emotion!