The Hindu Business Line : Stamp of rebate on stamp duty

Stamp duty and registration fee figure in the list of qualifying expenditure/repayment of principal on a new house subject to the sub-ceiling of Rs 20,000 laid down for this purpose within the overall ceiling of Rs 1 lakh under Section 88. This is unfair to those assessees who may have made sizeable stamp duty payments besides EMIs. The sub-limit of Rs 20,000 is grossly inadequate in their case and drives them to invest in other avenues so as to be able to reap Section 88 rebate to the hilt.

The group lure

WHY DO employers take group insurance? -- Kalyani Narasimhan, Chennai

Group insurance is an excellent staff welfare measure that does not cost the world to the employer but gives him an immensely satisfied workforce. Because the policy covers hundreds of persons, the premium is naturally low, often half the rate which an individual would be required to pay had he gone ahead in his individual capacity.

More significantly, many of the rigidities that beset individual policies vanish when the employer plants his bulk before the insurer — medical examination, exclusion of pre-existing diseases, exclusion of pregnancy-related medical expenses, and so on, are happily waived.

The insurer, too, benefits in the form of lower administrative and selling expenses. In fact, this is how he is able to halve the premium amount. In short, group insurance is win-win for all the three parties — employer, employee and insurer.

Small wonder, it is such a rage these days.

Safe options?

I AM TOLD that options trading is the safest and best form of operating in the share market. Is it true? -- M. K. Siddhiramiah, Karnool

In options, unlike in normal trading, you pay only the options premium to the seller or writer of the option.

Normally, it is a minuscule fraction of the current quotation for the underlying share in the market.

When you buy a one month call option to buy 1000 shares of a company at Rs 250 each by paying a options premium of Rs 5 per share, your initial investment is only Rs 5,000 whereas had you gone for normal trading you would have had to fork out Rs 2,40,000 assuming the current price is Rs 240 per share.

Smaller upfront investment enables you to trade in a larger number of shares and if one wants one can invest in a diversified portfolio, as one must.

In the same example, assuming a person has Rs 2,40,000 at his disposal he may be able to buy 48,000 options assuming the premium in all the diversified portfolios are in the same range thus averaging Rs 5.

But one must realise that option premium adds to the cost of the investment. If one month hence the market quotation is only Rs 255, the investor should rather not exercise the option because he is not going to make any profit if one reckons the options premium as cost, as one must.

Anything above Rs 255 would give him profit. This once again is not fully correct because while selling there would be brokerage.

Thus there must be a substantial margin not only to cover the option premium but brokerage as well. And in a rising market the option premium would also shoot up.

And then, buying options is like buying a lottery — you could lose in trickles which may have a snowballing effect. This is not to scare you away from investing in options. What I have tried to do is to paint the flip side.

Previous logic

WHEN the cost to the previous owner as well as the holding period of the previous owner are treated as cost to the present owner and added to the holding period of the present owner respectively in the circumstances mentioned in Section 49, should not, as a corollary, the year of acquisition should also acquire its age from the date of acquisition by its previous owner? -- Siddartha Bannerjee, Kolkata

I couldn't agree with you more. What you say is logical. But the law being what it is, assessees are getting a raw deal.

Consider this. Three assets are acquired on amalgamation by the amalgamated company formalised on October 1, 1996.

These assets might have been acquired on April 15, 1980, May14, 1984 and March 26, 1995.

Logically, while indexing the cost the denominator ought to be 100, 125 and 259 respectively the cost inflation index of these years as published by the CBDT. But because of the language of Section 48, the denominator in each of the three cases would be 305, the index of the year of amalgamation. This is clearly unfair to the successor-assessee.

Activate refund

AN ASSESSEE filed his return and claimed refund of tax paid in excess in that return.

More than one year has passed from the end of the financial year in which the return was filed.

Thus, there is a time bar for sending intimation to the assessee. Does this spell the denial of refund to the assessee? -- R. M. Subramaniam, e-mail

No, the assessee can still activate the `refund' mechanism enshrined in Chapter XIX. He can make an application for refund pursuant to Section 239.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

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