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Swap Shares, Capital Gain and Tax

Got a comment from our reader  ”I have some share of Satyam Computer which i bought sometime between 2009-2011 on avg price of 85 Rs, now after merger with Tech MahindraI  have got share of Tech Mahindra (on swap ratio of 17:2) (current price around 2200) now if i sell my share, then what will be the tax liability on me on account of long term capital gain (more then 3 year)“. This article explains what is swap ratio, gives an overview of Capital gain, Long term capital gain and Short Term Capital gain, holding period for swap shares.

What is swap ratio?

Swap ratio is an exchange ratio used in mergers and acquisitions of companies. It is the ratio in which the acquiring company offers its own shares in exchange for the target company’s shares. For example, if company A is acquiring company B and offers a swap ratio of 1:5, it will issue one share of its own company (company A) for every 5 shares of the company B being acquired. In other words, if company B has 10 crore outstanding equity shares and 100% of it is being acquired by company A, then company A will issue 2 crore new equity shares of company A to the shareholders of company B, proportionately.

Examples of swap ratio

  • In Jul 2013 Shareholders of Mahindra Satyam received one share of Tech Mahindra (Rs 10 each) for every 8.5 shares of Rs. 2 each they had in the erstwhile Satyam that was absorbed in Tech Mahindra.
  • In Apr 2014 for Ranbaxy Sun Pharma deal  it was announced that Ranbaxy shareholders will receive 0.8 shares of Sun Pharma for each share of Ranbaxy

To calculate the swap ratio, companies analyse financial ratios such as book value, earnings per share, profits after tax as well as other factors, such as size of company, long-term debts, strategic reasons for the merger or acquisition etc.

Shares, Capital Gain and Tax

Period of Holding for Shares : Long Term Capital Gain/Short Term Capital Gain

Secrets of Millionaire Mind : How Rich and Poor People think differently

Why some people  get rich(or seem to get rich) easily, while others are destined for a life of financial struggle?  Where lies the difference , Is it intelligence, street smartness,education,skill, background,people they know, choice of jobs or plain luck or ______???  We know even those who are lucky and win huge amounts in lottery soon end up being poorer.   The Answer as per author T. Harv Eker  of  Secrets of the Millionaire Mind  is our money blueprint and it is this blueprint, more than anything, that will determine our financial lives. Rich people have a different money blueprint, they think and act differently than poor people. If we start thinking and acting like Rich People we may become rich says the book Secrets of the Millionaire Mind by T. Harv Eker. This article gives an overview of the book and then talks about Rich and Poor People thinking differently talking in detail about how belief Rich people and Poor People, the  belief I create my Life or Life Happens to me.

Secrets of the Millionaire Mind by T. Harv Eker

Secrets of the Millionaire Mind by T. Harv Eker  is divided into two parts

Part I explains how your money blueprint works. Through Eker’s  of simple writing you will learn how your financial blueprint is made, how your childhood influences have shaped your financial destiny. You also come to know how to identify your own money blueprint and revise it to not only create success but, more important, to keep and continually grow it.

In Part II you are introduced to Seventeen Wealth Files, which tell 17 ways in how rich people think and act differently than most poor and middle-class people. Each Wealth File includes action steps for you to practice in the real world in order to dramatically increase your income and accumulate wealth. How do rich people think and act? According to T. Harv Eker If you think like rich people think and do what rich people do, chances are you’ll get rich too!

How Rich and Poor People think and act differently

Filing Income Tax Returns after deadline

If you haven’t filed you income tax return till due date (31 st Jul 2014 for FY 2013-2014 or  AY 2014-15) , all is not lost you can still file income tax return, you can do so till 31 March 2015, the last day of the assessment year 2014-15. This article explains how to file Income tax returns after the deadline,Last date for filing Income Tax Returns,

Why people miss filing their Income Tax Returns

In some cases it is the unavoidable circumstances and in some cases it is sheer laziness.  Other than being your legal obligation Filing of income tax returns is important to have a three-year record of income tax returns as a necessary thing for a bank to approve a loan application along with a CIBIL score, at times required for getting VisaIt is proof of  your financial life . Our article If You don’t file the Income Tax Return on time explains it in detail.

Last date for filing Income Tax Returns

Last date for filing returns for an individual is usually 31 Jul of the assessment year.  So last date for filing returns for FY 2013-14 which is AY 2014-15 was 31st Jul 2014.

If one missed the last date for filing returns, one can still file returns till 31st Mar of the Assessment year  . So one can still  file for returns for FY 2013-14 which is AY 2014-15 till 31st Mar 2015.

If one misses the 31 March AY deadline as well, they can still file their return by 31 March of the next assessment year. However, this will be treated as a belated return. i,e for FY 2013-14  which is AY 2014-15 one can still file Belated return from 1 Apr-2015 to 31-Mar-2016.

Filing of return for FY 2013-14 or AY 2014-15 after deadline

Section 234A,234B,234C : Interest Penalty for not paying Expected IncomeTax on Time

You have to pay penalty if you don’t pay expected tax on time. Penalty is in form of interest(thankfully simple interest) on tax that you owe till you pay your tax. The penalty is charges under sections 234A , 234 B & 234 C. This article explains section 234A,234B and 234C in detail.How it is calculated and how it appears in Income Tax Return.

Overview of section 234A, 234B , 234C

You need to pay all your taxes due before filing income tax returns. These fall in two categories : Self Assessment Tax and Advance Tax

As per the Income Tax Act, if you have any outstanding tax payable at the end of a Financial Year (FY), you must pay the balance tax amount and file your income tax returns by July 31st of the corresponding Assessment Year (AY). This is called Self Assessment Tax.

You are also expected to estimate your tax liability and if your tax liability is more than 10,000 Rs you need to pay taxes at regular intervals (by 15th Sep,15th Dec and 15th Mar). As this had to be paid in advance even before filing of Income tax returns ,it is called as Advance Tax. It is optional and not mandatory. If you don’t pay Advance tax you will have to pay penalty in form of interest under section 234C & 234B. Our article Advance Tax:Details-What, How, Why explains why one should pay Advance tax.

Please note that tax payable should consider TDS so Tax Payable = Income Tax on total Income – Tax Deducted at Source.

Under section 234A, you are penalised only when the return is filed after the due date which is 31st of July of the AY. Ex: Due Date for Assessment Year 2014-2015 or Financial Year 2013-2014  was 31st July 2014. If you file your returns after due date, then under Section 234A you are liable to pay 1% simple interest per month on the balance tax payable, applicable from the month of August of the AY till the month return is filed.

Under section 234B, penalty arises when the total amount of advance tax paid along with the amount of TDS is less than 90% of the total tax liability. In such case interest is calculated at 1% per month of the amount of shortfall for time period from April to the month in which the return is filed.

Under Section 234Cthere are three componentsFor the first installment, the shortfall penalty is calculated for 3 months @1% p.m. Similarly, in the second installment, the shortfall penalty is also calculated for 3 months @1% p.m and the final installment is calculated at a flat rate if 1% for 1 month only.

Self Assessment or Advance Tax can be paid by filing a Tax Payment Challan, ITNS 280 Challan, at designated branches of banks empanelled with the Income Tax Department  or  through the Income Tax Dept / NSDL website.  Our article How to pay Challan 280 online? explains how to pay Challan 280 online

Income Tax Interest under section 234 C

Robert Kiyosaki’s Rich Dad Poor Dad : Is it good personal finance book?

Robert Kiyosaki, Les Brown and Gerry Robert in New Delhi and Bangalore said the advertisement. I know about Robert Kiyosaki through his Rich Dad Poor Dad Series books  but had to find about other speakers at nacconference.in/bengaluru.html#speakers . When I talked about Robert Kiyosaki I got mixed opinion from my friends,colleagues, readers. Rich Dad Poor Dad has been inspirational to many people, but the book seems to have as many critics as champions. Some say Rich Dad Poor Dad is a great book ,some say Robert Kiyosaki is  a fraud, his advice has flaws to it.  This article explores more about Robert Kiyosaki, His Rich Dad Poor Dad Book, Criticism of Robert Kiyosaki, Is Rich Dad book good?

Rich Dad Poor Dad by Robert Kiyosaki

Book Rich Dad Poor Dad  is written by Robert Kiyosaki and Sharon L. Lechter, and covers ten chapters in an easy paced narrative style. Growing up in Hawaii in the 1950s , Rich Dad, Poor Dad refers to the two main male influences that Robert had as a child. His own father, the figurative Poor dad worked at a steady job for a living, while the  Rich dad, father his friend Mike, ran many businesses  who eventually built an empire and became one of the richest men in Hawaii.

Rich Dad Poor Dad has sold over 26 million copies. Book has been endorsed by Oprah Winfrey(American talk show host and media mogul ) , Will Smith (Hollywood actor who said he is teaching his son about financial responsibility by reading the book),  Donald Trump (American billionaire businessman who also collaborated with Kiyosaki in 2006 for books like Why We Want You To Be Rich, Two Men One Message  and a second book called Midas Touch: Why Some Entrepreneurs Get Rich-And Why Most Don’t in 2011.) Rich Dad Poor Dad was followed by Rich Dad’s CASHFLOW Quadrant and Rich Dad’s Guide to Investing. There are may more financial books from Rich Dad series. Many of  them have been translated into many languages in more than 107 countries.

Book Rich Dad Poor Dad contrasts the mindset of his Rich Dad and Poor Dad.

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