Creation and Taxability – Hindu Undivided Family (HUF)

‘Hindu Undivided Family’ (HUF) is a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. A HUF consists of a Karta and Coparceners. The karta has to be the oldest male in the family and after he passes away his eldest son will take his place and if he chooses not to, he can give up his right and the next son in line can take his place. All the other male members are referred to as Coparceners and the female members are simply called members.
HUF is a creature of law. It cannot be “created” by act of parties. So, membership into a HUF does not come from a contract but from your status.
HUF can be used as a means of effective tax planning and it has too much importance due to tax benefits associated with the income tax
Under the Income Tax Act, 1961, HUF is treated as a separate entity for the purpose of assessment and HUF has an identity as an artificial person which is managed and controlled by its Karta & other Coparcener.
HUF can earn income from all the heads of income except income from salary and all income that arises on the investment of the HUF’s funds and utilisation of its assets is regarded as income and is separately assessed and taxed. Moreover, the income of the HUF is eligible to the same slabs and basic exemption limit as available to an individual that means the income earned by such HUF will enjoy all exemptions and deductions including the basic exemption from income-tax.
Thus, if an individual has HUF and have personal income as well as HUF income, he would be entitled to have basic exemption for his individual income and another basic exemption for his HUF income. In addition to that, he would also be eligible to a further income tax deduction or exemption both on individual and HUF income separately. But, an individual can claim two basic exemptions only if he files both individual and HUF returns.
Moreover, any income received by an individual as a member of the HUF out of the income of the family or out of the income of the estate of the family, is not taxable and exempt u/s 10(2) of the act.
The bank account of the HUF should be in the name of either the HUF or in the name of the Karta by specifically declaring that the account is that of the HUF only and only the funds belonging to the HUF should be deposited in such an account.
Gift received by HUF
As HUF is an artificial person and neither its members nor other persons, can be a relative of HUF.  So, gift received in excess of Rs. 50,000 from karta and other members are taxable in the hands of HUF under the head “Income from other sources”.
Loan by or to HUF
In the eyes of Law both HUF and its members are separate as HUF is separate entity. Hence HUF can accept or give loan from its members or to the members irrespective of interest.

S. 220(6): In high-pitched assessments, AO must ordinarily grant stay of demand

M/s Maheshwari Agro Industries vs. UOI (Rajasthan High Court)

 

The assessee offered Rs. 3.48 lakhs. The AO made a “high-pitched” assessment of Rs. 1.44 crores. The AO rejected the assessee’s stay application and issued s. 226(3) garnishee notices. The assessee filed a Writ Petition to challenge the rejection of the stay application. HELD by the High Court allowing the Petition

Taxes- Due Date Alert for the month February 2012

Your kind attention is invited to the table given below which contains the due date for Tax compliance in respect of TDS/TCS, IT/WT, ST/VAT on different dates during the month February 2012.

Sr No	Due Date	Related to	Compliance to be made
1	05.02.2012 (Sunday)	Service Tax	Payment of Service Tax for the Month of January 2012. Since Sunday is Holiday, payment will be made on Monday
2	07.02.2012 (Tuesday) .	TDS/TCS (Income Tax)	·        Deposit TDS for payments of Salary, Interest, Commission or Brokerage, Rent, Professional fee, payment to Contractors, etc. during the month of January 2012. ·        Deposit TDS from Salaries  deducted during the month of January 2012 •   Deposit TCS for collections made under section 206C including sale of scrap during the month of January 2012, if any •    Deliver a copy of Form 15G/15H, if any to CCIT or CIT for declarations received in the month of January 2012, if any
3	20.02.2012 (Monday)	VAT	Payment of VAT & filing of monthly return for the month of January 2012

Procedure of Increase in Authorized Capital

 

Increase in authorized capital is considered as a major event as it implies increasing the upper limit of a company to raise capital through shares. The Company Law Compliances in this regard includes the following:

Meetings to be held:

• A board meeting is to be convened to discuss the agenda and fix general meeting date for passing ordinary resolution of shareholders.
• Convene general meeting and pass ordinary resolution. Special resolution to be passed in case of alteration of MOA or AOA.

Alteration in MOA and AOA:

If the Memorandum of Association (MOA) and the Articles of Association (AOA) does not contain a clause permitting the company to raise its share capital then MOA and AOA is to be altered by filing E-Form 23 with an explanatory statement within 30 days of passing the resolution.

Forms to be filed with Ministry of Corporate Affairs:

File E-Form 5 with ROC (Registrar of Companies) within 30 days and accordingly the Registrar of Companies will make necessary changes in the Company’s Memorandum & Articles of Association.

Documents / Signatures to be attached:

• All the E – Forms must be digitally signed by the managing director or director or manager of the company.
• True Copy of certified MOA & AOA to be attached with e-form 5 after necessary alteration
• Demand Draft in favour of Registrar of Companies, for the requisite filling fees.
• The FORM NO. 5 should be duly stamped from the concerned Stamp authority in accordance with the Stamp Act of the State in which the registered office of the company is situated.

Open a New Branch – ROC Compliances

 

 

Only doing business is not the end, one always wishes to expand its business by opening a new Branch. Procedure to be followed by every company registered under the Companies Act to open a new Branch is explained hereunder:

• Verify Business of New Branch– Verify that the business to be transacted at the new branch proposed is covered by Memorandum of Association (MOA).

• Convene a Board Meeting - Board Meeting is to be convened after giving notice to all the directors of the Company.

• Pass the resolution – In Board Meeting, pass the resolutionto open the particular Branch describing the business to be carried thereat, to authorise somebody to arrange accommodation, establishment and other things to run the branch and to appoint someone to look after day to day business of the branch and to operate the bank account of the branch.

• Pass the Special Resolution – In order to comply with section 149(2A) with regard to commencement of a new business, pass a special resolution and file the declaration.

• File Form No. 23 – E-file the Special Resolution in Form No. 23 within 30 days of its passing, with the concerned ROC along with requisite fees.

• File Form No. 20A – E-file the declaration in Form No. 20A and file with it a copy of the Special Resolution as attachment, with the concerned ROC.

• Digitally Signed – Ensure that the said Forms are digitally signed by the managing director or director or manager of the company and is certified by a chartered accountant or a cost accountant or a company secretary in whole time practice by digitally signing the said e-form, wherever required.

• Send Filed Form No. 20A – Send the originally filled in and signed e-Form No. 20A on Stamp Paper to the concerned ROC’s office simultaneously failing which the filing will not be considered and legal action will be taken.

Fine in Cases of Default & Contravention

• Default to give notice – Every officer of the company whose duty is to give notice of the Board meeting as aforesaid and who is in default will be punishable with fine of upto Rs. 1000.

• Default to file Special Resolution – The Company and every officer of the company who is in default will be punishable with fine of upto Rs. 200 for every day during which the default continues.

• Contravene section 149(2A) – If your company commences any business in contravention of section 149(2A), every person who is responsible for the contravention will be liable for fine upto Rs. 5,000 for every day during which the default continues.

Additional steps by Listed Companies
If shares of the company are listed on a Stock Exchange, then take the following steps:

• Forward three copies of notice and a copy of the proceeding of the General Meeting in which the Special Resolution is passed.
• Notify the change if such opening of a new branch amounts to a change in the general character or nature of the company’s business.

Taxability of LLPs (Limited Liability Partnerships) in India

Limited Liability Partnership (LLP) has gained popularity even though it is relatively new in our country.  Start-Ups and SMEs have the liking in setting of their business through LLP.  Lets talk about the taxation part of LLP in our country:


Income Tax Return
ITR – 5 is applicable to LLP.
Tax Rate
Tax will be payable by the LLP at 30% plus Education Cess. No surcharge will be payable by the LLP from A.Y. 2010-11.
Authority Signing Income Tax Return
In LLP “designated partner” has greater responsibility and so, it is provided that the designated partner shall sign the income tax return of an LLP, or, where for any unavoidable reason such designated partner is not able to sign the return or where there is no designated partner as such, any partner shall sign the return.
Advance Tax
Advance Tax is required to be paid to the credit of government if advance tax on estimated income comes (after deducted TDS/TCS if any)  to Rs. 10,000/- or more in a Financial Year. Thus, if Income Tax payable (after deducting all deductions, rebates and TDS) is less than 10000 in a financial year, there is no need to deposit any Advance Tax and the same tax will be deposited at the time of self assessment before filing of income tax return.
LLP’s are required to pay advance tax in the following installments on the following dates:

• On or before 15 September – not less than 30% of tax payable
• On or before 15 December – not less than 60% of tax payable
• On or before 15 March – not less than 100% of tax payable

Liability to Pay Tax
Every partner of the LLP shall be jointly and severally liable for the payment of any tax due from an LLP which cannot be recovered, unless the partner proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP.
Presumptive Taxation
Under Income Tax Act, 1961 LLP’s are not eligible for presumptive taxation i.e, they are not entitled to avail benefit of section 44AD.
Alternate Minimum Tax
LLP is also liable to Alternate Minimum Tax @ 18.5 % and it will be imposed w.e.f AY 2012-13 on the adjusted total income if regular income-tax on total income of LLP is less than the Alternate Minimum Tax.
Furnish Audit Report
LLP are also required to submit audit report u/s 115JC(3) on or before the due date of filing of Income tax return certifying the adjusted total income and Alternate Minimum Tax.  
Carry – forward of Alternate Minimum Tax Credit
LLP is entitled to carry forward Alternate Minimum Tax Credit for ten years succeeding the year in which such credit becomes allowable. The credit allowed to be set off in a financial year will be restricted to the difference between the regular income tax computed under the normal provisions and the Alternate Minimum Tax.  

Company Vs General Partnership Firm Vs Limited Liability Partnership

 

Selection of business entity is made after taking into account factors which includes objectivity of the founder, capital required and available, ownership and management control and such other factors. Hence a general comparison is being provided between three different forms of business entity with the objective to aid users in their selection process.

Basis of Distinction	Company	Partnership Firm	Limited Liability Partnership
Registration	Compulsorily required with ROC. Certificate of Incorporation is to be obtained	Optional. Unregistered firms will not have the right to sue	Compulsory
Separate Legal Entity	It is separate legal entity, separate from its member, directors. Limited to the extent of unpaid capital.	It is not separate legal entity from partners. Liability can be extended to the personal assets of the partners.	It is separate legal entity, separate from its partners\ designated partners. Liability limited to the extent of contribution to LLP
Minimum Capital requirement	Minimum paid up capital of Rupees One lac for incorporation of Private company and Rupees five lacs for incorporation of Public Company to be required.	Not Specified	Not Specified
No. of shareholders / Partners	In a Private Company, minimum of two and maximum of fifty shareholders. In case of Public Company, minimum of seven and no maximum limit specified	Minimum of two for all firms. Maximum of ten, in case of banks and twenty in case of others.	Minimum of two and no maximum limit specified
Contracts / Business transaction by Member/ Directors/ Partners	A director \ member can enter into contract with the company	A partner can not enter into contract with the firm	A partner can enter into contract with the LLP
Ownership of Assets	The company has ownership of assets and members only have shares in the company	Partners have joint ownership of all the assets	The LLP has ownership of assets and Partners only have capital contribution in the LLP
Taxability	The income is taxed at 30% rate	The income is taxed at 30% rate	The income is taxed at 30% rate
Manner of Keeping Books of Accounts	Accrual basis	Cash basis or accrual basis	Cash basis or accrual basis
Filing of Annual Accounts	Balance Sheet and Profit and loss account are required to be filed with the ROC annually in the prescribed format	Not specified	Statement of accounts and solvency are required to be filed with ROC annually in the prescribed format.
Audit of Accounts	Accounts have to be audited compulsory on annual basis	The Audit of accounts is compulsory if total sales, turnover or gross receipts exceeds Rs.60 lacs in any financial year	Accounts to be audited annually except for LLP’s having turnover less than Rs. 40 lacs or Rs. 25 lacs contribution in any financial year.
Electronic filing of documents	Any documents required to be filed / recorded / registered has to be e‐filed through affixing digital signature	Any documents required to be filed / recorded / registered has to be submitted manually.	Any documents required to be filed / recorded / registered has to be e‐filed through affixing digital signature

UNDERSTANDING CAPITAL & REVENUE RECEIPT & EXPENDITURE WITH LATEST CASE LAWS:

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Summary of Valuation rules for Jewellery, Artistic Work, Shares and securities

Notification No. 23/2010 dated 8 April 2010 (Notification) issued by the Central Board of Direct Taxes (CBDT)  prescribed the  rules (Rules) for determining the fair market value (FMV), for the purposes of taxation, of certain specified assets received by a taxpayer without consideration or for inadequate consideration i.e. a consideration which is less than the FMV by an amount exceeding INR 50,000. The Finance (No. 2) Act, 2009 had inserted Section 56(2) (vii) (Section) to tax such specified assets received on or after 1 October 2009 (See Note-1 below). Specified assets are archaeological collections, drawings, paintings, sculptures or any other work of art (artistic work), jewellery and shares and securities.

Summary of the Rules

• The Rules prescribe different methods for the purpose of valuation of specified assets.
• The Rules come into effect from 1 October 2009, being the date from which the Section became operative.
• The FMV needs to be determined as on the valuation date. For this purpose, the valuation date is the date on which the taxpayer receives specified assets.

Valuation methods

A) Valuation of jewellery and artistic work:

1. Valuation of jewelery and artistic work (assets) is as follows:

• Estimated to be the price which the asset would fetch if sold in the open market on the valuation date.
• In case the asset is received by way of purchase on the valuation date from a registered dealer, the FMV is the invoice value of the asset.
• In case the asset is received by any other mode and the value of the asset exceeds INR 50,000, the taxpayer may obtain a report from a registered valuer in respect of the price it would fetch if sold in the open market on the valuation date.

2. For the purposes of the Rules, a registered dealer means a dealer who is registered under Central Sales Tax Act, 1956 or general sales tax laws prevailing in a State, including value added tax laws.

3. A registered valuer is a person who is entitled to function as a registered valuer for the purposes of the Wealth Tax Act.

B) Valuation of Quoted shares and securities:

1. ‘Quoted shares and securities’ are defined to mean shares or securities quoted, with regularity from time to time, on any RSE where the quotations of such shares or securities are based on current transactions made in the ordinary course of business.

2. Valuation of shares and securities quoted in a recognised stock exchange (RSE) is as follows:

• Transaction carried out through RSE: – Transaction value recorded in such RSE
• Others i.e. Transaction carried out otherwise than through RSE:-

>Lowest price quoted on any RSE as on the valuation date

>In case no trading on the valuation date, lowest price on the date immediately preceding the valuation date when trading happened

C) Valuation of Unqoted shares and securities: Valuation of unquoted equity shares is as follows:

• The Rules prescribe the method to determine the value, based on the break-up value method. To start with, under this method, the excess of book value of specified assets over specified liabilities as per the investee company’s balance sheet is determined. The excess so arrived at is divided by total amount of paid-up equity share capital of the investee company. The value so determined is then multiplied by paid-up value of equity shares received by the taxpayer. The value so arrived at is the FMV of unquoted equity shares received by the taxpayer.
• The FMV of unquoted equity shares needs to be determined on the valuation date, being the date of receipt of the shares by the taxpayer.
• For the purposes of valuation, the value of specified assets is that of all assets in the investee company’s balance sheet, as reduced by advance tax, debit balance of profit and loss account or any amount not represented by the value of any asset.
• The value of specified liabilities is that of all liabilities in the investee company’s balance sheet, excluding the following:

> Paid-up capital in respect of equity shares.

> The amount set apart for payment of dividends on preference shares and equity shares, where such dividends have not been declared before the date of transfer at a general body meeting of the investee company.

> Reserve, by whatever name called, other than those set apart towards depreciation.

> Credit balance of the profit and loss account.

> Provision for taxation other than the amount paid as advance tax, to the extent of the excess over the tax payable with reference to the book profits, in accordance with the law applicable thereto.

> Provision for unascertained liabilities.

> Provision for contingent liabilities other than the arrears of dividends payable in respect of cumulative preference shares.

• Valuation of unquoted shares other than equity shares is as follows:

>. Estimated to be the price it would fetch if sold in the open market on the valuation date.
>. The taxpayer is required to obtain a report from a merchant banker or a chartered accountant in support of the FMV.

Comments

The Rules provide guidance on the methodology of valuation of different specified assets. The Section became operative from 1 October 2009 whereas the Rules were notified on 8 April 2010 with effect from 1 October 2009. Question may arise about the validity of applicability of the Rules for the tax year ended on 31 March 2010, in view of the general understanding that rules need to be in existence as on the first day of the year immediately following the end of the relevant tax year. Question may also arise about the validity of the normative provisions of the Rules e.g. in the context of shares of an unlisted company, if the prescribed methodology results in determining an FMV which is higher than the bonafide/commercially agreed value.

Notes:-

1. The Finance Bill, 2010 proposes to insert a similar provision to tax the receipt of shares of a closely-held company by a firm or another closely-held company. If the Bill is enacted, the Rules will also apply to the valuation of shares covered by the proposed provision.

Short Note on Business & Profession

Message flagged

Wednesday, 14 April 2010 9:31 AM

Profit and gains of business as specified in section 28 of Income tax Act are taxable.

The term ‘business’ includes trade, commerce or manufacture or adventure or concern in nature of trade,

Commerce or manufacture [section 2(13) of Income Tax Act]

‘Professional Income’ is income from exercise of any profession or vocation which calls for an intellectual or manual skill. It covers doctor, lawyers, accountants, consulting engineers, artists, musicians, singers etc.

Profits of business or gains from profession are calculated after allowing all legitimate business expenditure.

Some important deductions admissible in computing income from business or profession are as follows [sections 30 to 36 of Income Tax Act] —

* Rent, rates, taxes, repairs and insurance for business or professional premises [section 30 of Income

Tax Act]

* Current repairs and insurance of machinery, plant and furniture [section 31 of Income Tax Act]

* Depreciation on building, machinery, plant or furniture [section 32 of Income Tax Act] (discussed below)

* Revenue expenditure on scientific research [section 35(1) of Income Tax Act]

* Capital expenditure on scientific research related to business (except land) [section 35(2) of Income Tax

Act]

* Preliminary expenses in relation to formation of a company or in connection with extension of an undertaking or setting up of a new industrial unit can be amortised in 5 equal installments over 5 years.

The preliminary expenditure is permitted only upto 5% of cost of project [section 35D]

* Insurance expenses [section 36(1)(i) of Income Tax Act]

* Insurance premium on health of employees [section 36(1)(ib) of Income Tax Act]

* Bonus or commission to employees [section 36(1)(ii) of Income Tax Act]

* Interest on borrowed capital [section 36(1)(iii) of Income Tax Act]

* Contributions towards approved provident fund, superannuation fund and gratuity fund [section 36(1)(iv) and 36(1)(v) of Income Tax Act]

* Bad debts in respect of income considered in previous years can be written off and allowable as deduction [section 36(1)(viii) of Income Tax Act]

* Banking cash transaction tax [section 36(1)(xiii) of Income Tax Act]

* Advertisement expenditure is fully allowed as deduction. However, expenditure incurred on advertisement in any souvenir, brochure, pamphlet etc. of a political party is not allowed as a deduction [section 37(2B) of Income Tax Act]

* Expenditure in maintenance of guest house is permissible as deduction [section 36(1)(i) of Income Tax Act]

* Any other expenditure which is not of capital nature or personal expenses of the assessee is allowed if it is expended wholly and exclusively for the purposes of business or profession. However, it should not have been for purpose which is an offence or is prohibited by any law [section 37 of Income Tax Act]

Depreciation - Depreciation means diminution in value of an asset on account of wear and tear and obsolescence.

In any business, raw material is used fully and immediately, while plant and machinery is used slowly over a period of time. After the estimated life of machinery, its value becomes Nil. Hence, it is fair that cost of machinery is charged over the period of its estimated useful life. This is the basic principle of depreciation on capital goods. Since land does not depreciate, no depreciation is allowed on land.

Under Income Tax, depreciation is calculated on the basis of ‘block of assets’. ‘Block of assets’ means a group of assets falling within a class of assets, in respect of which the same % of depreciation rate has been prescribed. e.g. all machinery having rate of depreciation as 25% will form one block of asset, machinery having 40% rate of depreciation will form another ‘block of asset’ and so on.

Depreciation is allowed on actual cost of the asset. Interest paid on borrowed funds and capitalized as pre-commencement expenses before the asset is commissioned are added to cost of the asset and depreciation claimed on such expenditure. Thus, pre-production expenditure can be included in cost of the machinery and depreciation can be charged on such ‘actual cost’.

In Chellapalli Sugar v. CIT AIR 1975 SC 97 = 98 ITR 167 (SC), it as held that it includes all expenditure necessary to bring such asset into existence. [Thus, it will include installation charges]. It was held that interest on loans up to date of commencement of business forms part of 'actual cost' of plant for purpose of depreciation.

Depreciation is calculated on Written down Value (WDV) method. If the asset is put to use for purpose of business for less than 180 days, only 50% of normal depreciation is permissible. In other words, full depreciation for the year is permissible only if asset is commissioned before 30th September of that year.

If depreciation cannot be fully claimed in a particular year for want of profits, the un-absorbed depreciation can be carried forward for any number of succeeding assessment years. [section 32(2)].

The depreciation rates in respect of some important assets are as follows:

* Residential building – 5%. Others (including hotels and boarding houses) – 10%. Purely temporary structures – 100%.

* Furniture and fittings including electrical fittings – 10%

* Motor cars 15%. Buses, Lorries, and taxis used in business of running them on hire – 30%,

* Pollution control equipment and specified energy saving devises - 100%

* General machinery - 15%, airplane – 40%, Ships – 20%

* Computers including software - 60%.

* Books by professionals – 100% for annual subscription and 60% for others - books in library - 100%.

* Intangible assets - know-how, patents, copyrights, trade marks, licenses, franchises or any other right of similar nature - 25%.

In Mysore Minerals v. CIT 1999 AIR SCW 3146 = 1999(5) SCALE 340 = 239 ITR 775 = AIR 1999 SC 3185 = 106 Taxman 166 (SC), it was held that claimant of depreciation need not be owner of asset in legal sense. Person in whom for the time being vests the dominion over the asset and who is entitled to use it in his own right is eligible to claim depreciation. – followed in Dalmia Cement v. CIT 2000 AIR SCW 4198 (SC 3 member bench).

However, if assessee has not acquired dominion over the asset, he will not be entitled to depreciation on that asset. – Tamilnadu Civil Supplies v. CIT (2001) 116 Taxman 369 = 2001 AIR SCW 4777 (SC 3 member bench).

Depreciation compulsory – As per Explanation 5 to section 32(1)(ii), inserted w.e.f. 11.5.2001, depreciation is compulsory in computing total income even if assessee had not claimed the same. This amendment applies to AY 2002-03 onwards. [In CIT v. Mahendra Mills (2000) 2 SCALE 384 = AIR 2000 SC 1960 = 243 ITR 56 = (2000) 109 Taxman 225 (SC), it was held that assessee has option to claim or not to claim depreciation. The depreciation cannot be thrust upon him. Now, this judgement is ineffective from AY 2002-03]

Depreciation in case of imported machinery obtained on loan in foreign currency – If machinery is imported on loan repayable in foreign currency, the amount payable in rupees will go on changing due to fluctuations in foreign exchange rates, as the installments and interest are spread over a period. In such case, the value of machinery should be increased on basis of entire loan outstanding and not merely installments of loans that fell due during the accounting period. –

CIT v. Arvind Mills (1992) 193 ITR 255 = 60 Taxman 192 (SC) – quoted and followed in CIT v. Madras Fertilizers (2002) 124 Taxman 581 (Mad HC DB).

5-2 Expenditure not allowed as deduction

Following expenditures are not allowed as deduction for purpose of income tax.

Deduction of taxes, interest etc. Only on actual payment basis - Tax, duty, cess, fees payable under any law, Employer’s contribution to provident fund or ESIC, bonus to employees, commission to employees, interest on any loan or borrowing from financial institutions, banks, SFC, leave encashment are eligible as deduction only if they are paid on ‘due dates’ on which these were payable. Even if these are not paid on due dates but are paid before filing of return, these are allowed as deduction, if proof of payment is filed along with the return. However, in case of employer’s contribution to provident fund, superannuation fund or gratuity fund, the same is allowed as deduction only if it was paid before due date of payment [section 43B of Income Tax Act]

Expenditure in excess of Rs 20,000 in cash fully disallowed - If expenditure is incurred in business or profession by payment of cash over Rs 20,000 in a day, entire expenditure is disallowed [Earlier, 20% of such expenditure was disallowed up to AY 2007-08]. All cash transactions in a day to a party should not exceed Rs 20,000. [Till 31-3-2008, each transaction was considered for the limit of Rs 20,000. Now, total transactions in a day will be considered [section 40A(3) of Income Tax Act]

Payment over Rs 20,000 should be made by cheque or demand draft. This restriction is not applicable in case of payments to # RBI, other banks and financial institutions, LIC # Government payments, payment by book adjustment, railway freight * Payment for agricultural produce, poultry, fish etc. to the cultivator, grower or producer (i.e. payments to middlemen are not excluded from this provision) [rule 6DD]

Similarly, a person can accept loans or deposits of Rs 20,000 or more only by account payee bank draft or cheque.

Interest on delayed payment to small industries - Interest on delayed payment made to Small Scale Industries is not allowable as deduction.

Expenditure for any purpose which is an offence in law - Section 37(1) of Income Tax Act states that any expenditure incurred for any purpose which is an offence or which is prohibited by law shall not be allowed as deduction.

Different accounting for balance sheet and income tax purposes - Method of depreciation, valuation of stock etc. is different under Companies Act and Income Tax Act. Hence, one method of accounting for income tax and other for Companies Act is permitted. The practice has been specifically approved in United Commercial Bank v. CIT 1999 AIR SCW 4050 = AIR 2000 SC 94 = 106 Taxman 601

(SC).

Accounting profits and assessable profits are conceptually different. – CIT v. Bipinchandra Maganlal (1961) 41 ITR 290 (SC).

Other important provisions in respect of business income

Some important provisions in relation to income from business or profession are as follows –

Maintenance of books of account - In respect of professional in legal, medical, engineering, architecture, accountancy or technical consultancy must maintain books, if their gross receipts are less that Rs 1.50 lakhs, they have to maintain such books of account as may enable Income Tax Officer to compute their taxable Income. If their gross receipts exceed Rs 1.50 lakhs, they have to maintain books of account as specified in rule 6F i.e. cash book, journal, ledger, copies of bills exceeding Rs 25 issued by him, original bills in respect of expenditure and payment vouchers etc. Person carrying on medical profession has to maintain additional books as prescribed. [Section 44AA and rule 6F]

Persons carrying on business or professionals other than those mentioned above have to maintain books of accounts if annual income exceeds Rs 1,20,000 or gross receipts or turnover exceed Rs. ten lakhs in case of business also have to maintain books of account.

Accounts on mercantile or cash basis - Accounts should be maintained either on mercantile basis or cash basis. Hybrid i.e. mixed system is not permitted. [In cash system, income or expenditure is considered only when it is actually received / paid. In mercantile system, income/expenditure is considered on accrual and payable basis. Actual receipt or payment may occur in subsequent financial year and may not happen in that particular year.]

Income tax audit report - If gross receipts or turnover of business exceeds Rs 60 lakhs per annum, the accounts have to be compulsorily audited. In case of professional income, accounts have to be audited if gross receipts exceed Rs 15 lakhs. This audit report should be submitted along with income tax return, before 30th September. [Section 44AB

Short Note on Capital Gain

Any Income derived from a Capital asset movable or immovable is taxable under the head Capital Gains under Income Tax Act 1961. The Capital Gains have been divided in two parts under Income Tax Act 1961. One is short term capital gain and other is long term capital gain.
1.Short Term Capital Gains : If any taxpayer has sold a Capital asset within 36 months and Shares or securities within 12 months of its purchase then the gain arising out of its sales after deducting therefrom the expenses of sale(Commission etc) and the cost of acquisition and improvement is treated as short term capital gain and is included in the income of the taxpayer.

The deduction u/s 80C to 80U can be taken from the income from short term capital gain apart from the short term capital gain u/s111A

Taxability of short term capital gains: Section 111A of the Income tax Act provides that those equity shares or equity oriented funds which have been sold in a stock exchange and securities transaction tax is chargeable on such transaction of sale then the short term capital gain arising from such transaction will be chargeable to tax @10% upto assessment year 2008-09 and 15% from assessment year 2009-10 onwards.

The short term capital gains other than those u/s 111A shall be added to the income of the assessee and no such benefit is available on short term capital gains arising in other cases and they will be taxed normally at slab rates applicable to the assessee.

If an assessee does the business of selling and purchasing shares he cannot take advantage of section 111A or section 10(38). In this case income will be treated as business income.

Capital gains in case of depreciable assets : According to section 50 of Income tax act if an assessee has sold a capital asset forming part of block of assets (building, machinery etc) on which the depreciation has been allowed under Income Tax Act, the income arising from such capital asset is treated as short term capital gain.

Where some assets are left in block of assets: If a part of such capital asset forming part of a block of asset has been sold and after deducting the net consideration received from sale of such asset from the written down value of the block of such asset the written down value comes to NIL then the gain arising shall be treated as short term capital gain and in such case where written down value has become NIL no depreciation shall be available on such block of asset even if some assets are physically left in the block of assets.

When no assets are left in block of assets: If the whole of the capital assets forming part of a block of assets have been sold during a year and the assessee has suffered a loss after deducting the net sale consideration from the written down value ofthe block of assets then such loss shall be treated as short term capital loss and no depreciation shall be allowed from such block of assets.

It was decided by Chandigarh tribunal in (2004) 3 S.O.T. 521/ 83 T.T.J. 1057 if the whole of capital assets in a block have been sold in a year and some gain arises after the sale such gain shall not be treated asshort term capital gain if some new asset has been purchased within the same year in the same block of assets and the total value of new and old capital assets in the same block is more than the sale consideration of the assets sold, sincethe block of asset does not cease to exist in such case as is required u/s 50(2). This can be explained with an example as below:

Written down value of 5 Machinery
as on 01-04-2008 500000
5 machinery  sold on 01-05-2008 600000
New Machinery purchased on 01-06-2008 250000

now in above cases the difference between the w.d.v and sale value i.e Rs 100000 can not be treated as short term capital gain in the year 2008-09 since new machinery has been purchased in the same block of asset afterwards in the same year and the total of new and old machinery is more than the sale value of the machineries sold as a resultthe block of asset continue to exist.

Short term capital gain where land & building are sold together: Some times it happens that in a block of assets namely land & building, the whole of land & building is sold together. In such casesthe capital gain on land and building should be calculated separately.

The Supreme Court has held in (1967) 65ITR 377 that depreciation is available on the value of building and not on the value of plot. Considering the above decision of Supreme Court, the Rajasthan High court in (1993)201 ITR 442 has held that Plot and building are different assets. If the assessee has purchased plot more than 3 years back and constructed building on it less than 3 years back then the gain arising on sale of plot shall belong term capital gain and the benefit of indexation shall be given on it whereas the gain arising on sale of building shall be short term capital gain and will be added to the income of the assessee. Therefore both should be calculated separately.

Where the plot has been purchased more than three years back and the building has been constructed on it less than 3 years back, it is advisable that in the sale deed the sale value of plot and building should be shown separately for more clarity and if the consolidated sale value of the Plot and building has been written in the sale deed then the valuation of plot and building should be done separately from a registered valuer.

Capital asset transferred by the partner to the partnership firm: As per section 45(3) of the Income Tax Act 1961 if any partner in a firm transfers his asset to the firm then the capital gain on such asset as arising to the partner shall be calculated by presuming the sale value of such asset as is shown in the books of accounts of the firm and not the market value of the asset.

whether such gain is treated as long term or short term will be decided as below:

a) If the depreciation has been claimed on the asset transferred to the firm then in view of section 50(2) the gain arising there from will be treated as short term capital gain.

b) If the partner has been the owner of the asset for more than 36 months and no depreciation has been claimed on it then the gain arising from such asset shall be treated as long term capital gain.

Capital gain in case of Dissolution of a Firm: As per section 45(4) of the Income Tax Act where any partnership firm or AOP or BOI is dissolved and the Capital assets of the such firm or AOP or BOI are transferred by way of distribution of assets to the partners at the time of Dissolution in such case the gain arising from such transfer to the partners will be treated as capital gain and the firm will be liable for paying tax on it in the year of distribution of the assets.

For the purpose of section 48 the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.

2. Long Term Capital Gain: A Capital Asset held for more than 36 months and 12 months in case of shares or securities is a long term capital asset and the gain arising therefrom is a long term capital gain. Long term capital gains are arrived at after deducting from the net sale consideration of the long term capital asset the indexed cost of acquisition and the indexed cost of improvement
of the asset.

The Central govt notifies cost inflation index for every year. The indexed cost of acquisition is calculated by multiplying the actual cost of acquisition with C.I.I of the year in which the capital asset is sold and divided by C.I.I of the year of purchase of capital asset. Similarly the indexed cost of improvement can be calculated by using the C.I.I of the year in which the capital asset is improved. Where the capital asset was acquired before the year 1981 then the cost of acquisition shall be the fair market value or the actual cost of its acquisition which ever is higher. The Fair market value of a capital asset can be known by the valuation of the registered valuer.

The cost inflation index table as notified is here below:

Cost Inflation Index Notified by the GOVT
Financial Year	(CII)	Financial Year	(CII)
1981-82	100	1995-96	281
1982-83	109	1996-97	305
1983-84	116	1997-98	331
1984-85	125	1998-99	351
1985-86	133	1999-2000	389
1986-87	140	2000-2001	406
1987-88	150	2001-2002	426
1988-89	161	2002-2003	447
1989-90	172	2003-2004	463
1990-91	182	2004-2005	480
1991-92	199	2005-2006	497
1992-93	223	2006-2007	519
1993-94	244	2007-2008	551
1994-95	259	2008-2009	582
2009-10		632

If a capital asset has been subjected to depreciation then no indexation benefit is allowed on sale of such capital asset in view of section 50(2) as discussed above.

Capital gain from Plot and building should be separately calculated: As discussed above plot and building are separate assets and the capital gain on above should be calculated separately. If the plot is purchased more than 3 years back and building has been constructed within 3 years the capital gain on plot will be considered as long term and the capital gain on building will be treated as short term capital gain.

Taxation of Long term capital gains: The long term capital gains are taxed @ 20% after the benefit of indexation as discussed above. No deduction is allowed from the long term capital gains from section 80C to 80U. But in case of individual and HUF where the income is below the basic exempted limit the shortage in basic exemption limit is adjusted against the long term capital gains.

Section 112(1) provides that any capital gain arising from a long term capital asset being the listed securities which are sold outside the stock exchange the long term capital gain shall be calculated on such securities as below:

a) Tax arrived at @ 20% on such long term capital gain after indexation u/s 48 or
b) Tax arrived at @ 10 % on such long term capital gain without indexation
Whichever is less.

The long term capital gain on equity shares or units of equity oriented mutual fund which are sold in the stock exchange and on which securities transaction tax is paid, is exempt u/s 10(38).

Section 50C: Section 50C has been introduced with effect from 01-04-2003 and is a very important section while calculating capital gain on land & building. Section 50C provides that Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

It means that the capital gain will be calculated by considering the sale value of the capital asset as equal to the value adopted or assessed by the stamp valuation authority for that capital asset if the actual sale value is less than the value assessed by stamp valuation authority.

If the assessee claims that the value adopted by the stamp valuation authority exceeds the fair market value then the assessing officer may refer to the valuation officer for valuation of the fair market value of the asset. If the fair market value declared by the valuer is more than the value adopted or assessed or assessable by the stamp valuation authority, the value so adopted assessed or assessable by the stamp valuation authority will be taken as full value of consideration of the capital asset.

CBDT vide its circular No 8/2002 dt 27-08-2002 has declared that if the valuation officer has declared the fair market value of the capital asset less than the value adopted, assessed or assessable by the stamp valuation authority then the capital gain shall be calculated on the value so declared by the valuer.

After the adding of word assessable u/s 50C in 2009 now it has become clear that even those immovable properties in which no sale deed is entered into and which have been sold on a full and final agreement will be within the ambit of section 50C.

Glossary of Financial Terms

A

annual report:

The write-ups and financial statements given every year to investors and inquiring members of the public concerning a corporation's business

asset:

A resource of money value, including cash, accounts receivable, inventory, real estate, machinery, collectibles, and securities

B

balance sheet:

A firm's financial statement that provides a picture of its assets, debts, and net worth at a specific time

bankruptcy:

A term that describes the legal process governed by the U.S. bankruptcy code for companies unable to meet financial obligations

beta:

The indicator used by Value Line to measure a stock's risk relative to the market, in this case the NYSE Index. The market's beta is always 1.0 (Based on past statistical records, a beta higher than 1.0 indicates that when the market rises, the stock will rise to a greater extent than that of the market; likewise, when the market falls, the stock will fall to a greater extent. A beta lower than 1.0 indicates that the stock will usually change to a lesser extent than that of the market. The higher the beta, the greater the investment risk.)

bid price:

The price one is willing to pay for a security

book value per share:

The accounting value of a share of common stock, determined by dividing the company's net worth by the number of shares that are circulating

buy-and-hold:

A strategy in which the stock portion of one's portfolio is fully invested, including dividends reinvestments, at all times.

buy and sell orders:

An intent to buy or sell a security

C

call option:

The right given a buyer to buy stock at a specified price within a certain time period

callable bond:

A bond that can be officially repaid by the issuer prior to its maturity date (Out of courtesy, a premium is usually paid when the bond is repaid.)

capital gain:

An increase from the purchase price to the selling price of common stock or any other capital asset; profit from the sale of investments or property (A capital gain that persists for one year or less is called a short-term capital gain. Likewise, one that persists for more than one year is called a long-term capital gain.)

capital loss:

A decrease from the purchase price to the selling price of common stock or any other capital asset; a loss from the sale of investments or property

cash flow per share:

Earnings after taxes and depreciation, divided by the number of a firm's shares

certificate of deposit (CD):

An interest-bearing bank receipt for a specified amount of money (CD's usually mature between three months and three years. The interest rate depends on the amount of money and length of time of the deposit.)

commission:

A broker's fee is given for assisting in buying or selling securities

common stock:

Shares in a company that represent part ownership of that company

compounding:

The paying of interest on the accrued interest as well as on the principal

corporation:

An association of individuals, under authority of law, whose powers and liabilities are distinct from those of its individual members

current assets:

Assets that can be converted to cash within a year

current liabilities:

Liabilities that must be paid within a year

current ratio:

The worth of a company (contained as current assets, including cash, accounts receivable and inventory,) divided by current financial liabilities, including all short-term debts (This ratio roughly measures a company's financial risk: logically, the more the financial liabilities, the riskier the company. Thus, small current ratios indicate high risk.)

current yield:

The amount produced by dividing the annual income, both from interest and dividends, by the current price of the security (Stocks do not gain interest; the current yield for stocks is equal to the dividend yield.)

cyclical industry:

An industry whose success is closely linked to the rise and fall of the general economy (The auto industry is a cyclical industry.)

D

debt-to-equity ratio:

The ratio found by dividing long-term debt by the equity (all assets minus debts) held in stock (This is a measure of financial risk.)

default:

A term that denotes the failure to pay the principal or interest on a financial obligation (such as a bond).

default risk:

The risk that a company will default, or fail to meet its financial obligations, i.e., fail to pay the interest or principal on its bonds

depreciation:

The decrease in value due to wear and tear, decay, decline in price, e.g., a new car purchased at $20,000 depreciates to $5,000 in five years

discount bond:

A bond whose value is less than its face amount

discount broker:

A stockbroker who charges a smaller commission than other brokers, but provides no counsel in investment

diversification:

The process of buying securities in different investment types, industry types, risk levels, and companies in order to reduce the loss from a possible company-local or industry-local loss of business (Diversification is illustrated by a famous saying, "Don't put all your eggs in one basket.")

dividend payout ratio:

The ratio found by dividing the annual dividends per share by the annual earnings per share.

dividend yield:

The yield found by dividing the annual dividends per share by the price per share (This yield is an indication of the income from a share of stock. Since return on a stock is comprised of capital gain plus dividends, the total return is comprised of dividend yield plus the capital gains percentage for stock.)

dividend:

A sum of money, determined by a company's directors, paid to shareholders of a corporation out of earnings

dollar cost averaging (DCA):

A system of buying securities at regular intervals, using a fixed amount of cash over a considerable period of time regardless of the prevailing prices of the securities (DCA protects against the risk of losing a sum of money invested all at once at an inopportune time, e.g., right before a price drop.)

Dow Jones industrial average (DJIA):

An indicator showing generally how well the market is going, found by averaging the prices of 30 industrial blue-chip stocks trading in the New York Stock Exchange

E

earnings per share:

Earnings found by dividing the net income of the company by the number of shares of common outstanding stock

earnings yield:

Yield found by dividing the earnings per share for the last 12 months by the market price per share

equity:

(1) Value determined by subtracting debts from assets
(2) An alternate term for stock or similar securities which denote a partial ownership

F

face value:

The value printed on the face of a stock, bond, or other financial instrument or document

financial strength:

A company's financial condition as seen by its analysts (Value Line rates financial strength on a scale from A++ to C.)

financial planner:

An investment professional who helps with financial plans for specific goals and assists in the coordination of financial concerns

fixed assets:

Any long-term asset, such as a building, tract of land, or patent that will not be converted to cash within a year

fundamental analysis:

An analysis of stocks based on fundamental factors, such as company earnings, growth potential, etc., to determine a company's worth, strength, and potential for growth

G

going public:

An expression used to describe the first public selling of shares of an institution that previously sold shares privately

gross domestic product (GDP):

The total value of goods and services produced by a nation. In the U.S. it is calculated by the Commerce Department, and it is the main measure of U.S. economic output (In other countries, the GDP is called the gross national product (GNP).)

H

holding period return/yield:

The yield calculated by dividing the income plus price appreciation during a specified time period by the cost of the investment

I

income statement:

The financial statement of a firm that presents both revenues and expenses during a specified time period

index:

A quantity whose variation represents market fluctuation (The Standard & Poor's 500 index measures the overall change in the value of 500 stocks of the largest firms in the US.)

industry rank:

Value Line's ranking of a company within its own industry

inflation risk:

The uncertainty of the future real (after-inflation and -tax) value of an investment

investment adviser:

A professional who, for a fee, manages an investment portfolio

issuer:

One who under writes (issues) and distributes a company's securities

 

J

junk bond:

A weak bond, rated BB or lower, that has a high default risk, and thus carries a high interest rate

K

L

liabilities:

The claims of those who have loaned to a company; debts

limit order:

An order to buy stock once the price has dropped below the price limit

liquidity:

The ability or ease with which assets can be converted into cash; also the degree to which one can obtain the full cash value of an investment

long-term debt:

A debt owed over a relatively long period of time

M

market capitalization:

The value found by multiplying the number of outstanding common stock shares by the share price; indicates firm size and total value held in stock

market order:

An order to purchase or sell stock at a current price

market risk:

The movement of a stock price relative to the overall market; indicated by beta

market timing:

The selecting of the best time for leaving or reentering the market in order to achieve the maximum result

maturity:

The time a note or bill of exchange becomes due

money-market fund:

A type of mutual fund that invests in short-term securities such as Certificates of Deposits and Treasury Bills

N

National Association of Securities Dealers Automated Quotations System (NASDAQ):

A "virtual stock exchange"--that is, a stock market without a trading floor whose orders are made through a computer network (Usually, high-tech stocks are listed here.)

net income:

Profit after taxes

net profit margin:

A measure of a company's profitability and efficiency, calculated by dividing a measure of net profits (operating profit minus depreciation and income taxes) by sales

net sales:

Amount of sales found by subtracting returns and allowances from money collected for goods and services

net worth:

Value found by subtracting all liabilities from all assets

New York Stock Exchange (NYSE):

The largest stock exchange in the U.S. located in New York City (Also known as "Wall Street," this stock exchange carries stocks of well-established companies on its trading floor.)

New York Stock Exchange index:

A market-value-weighted measure that indicates stock market changes for all NYSE stocks

O

odd lot:

A lot that is less than 100 shares, or less than a round lot

over-the-counter market:

A communications network, supervised by the National Association of Securities Dealers (NASD), which trades bonds, non-listed stocks, and other securities

operating costs and expenses:

The costs and expenses necessary to operate a company; includes manufacturing, marketing, research and development operating costs

operating income:

The income derived after subtracting operating costs and expenses from net sales

operating margin:

A measure of a company's profitability and efficiency, calculated by dividing a measure of operating profit (sales minus cost of producing goods and operating expenses) by sales

P

par value (bond):

The face value of a bond, usually $1,000 for corporate bonds, and generally higher denominations for many government bonds

payout ratio:

The ratio found by dividing the dividends per share by earnings per share (Shows how well earnings support dividends, or how secure the dividend is. The lower the ratio, the more secure the dividend.)

portfolio:

The securities an investor holds

premium bond:

A bond whose value is greater than its face value

preferred stock:

Stock whose holders have precedence over common stock in claiming dividends and assets

present value:

The amount invested at a certain interest rate

price-earnings ratio (P/E):

The ratio found by dividing market price per share by earnings per share (This ratio indicates what investors think of the firm's earnings' growth and risk prospects.)

price-earnings ratio to earnings per share growth (P/E to EPS growth):

The ratio found by dividing a stock's price-earnings ratio by its earnings per share growth rate, indicating the company's profits relative to investors' expectations

price-earnings relative:

The relative amount found by dividing a stock's price-earnings ratio by that of the market as given by a widespread market yardstick such as the S&P 500 or the Value Line index (This relative suggests to the investor whether his investment's price is reasonable compared to the market. Also can be used for historical comparison with P/E relatives of recent years.)

price-to-book ratio:

The ratio found by dividing a stock's market price per share by its book value (defined as being assets minus all liabilities) per share (This ratio measures the stock's value relative to its net assets. A high ratio, for instance, might suggest that a stock is overvalued.)

price-to-cash-flow ratio:

The ratio found by dividing a stock's price per share by its cash flow per share (This ratio, similar in type to the price-earnings ratio, serves as a measure of investors' expectations on a firm's future financial success.)

principal:

The amount owed, invested, or the face value of a debt

private corporation:

A corporation which does not offer stock for public sale (Private corporations are not required by law to provide information about their financial conditions.)

public corporation:

A corporation which offers stock for public sale (Public corporations are required by law to provide information about their financial condition, operations, and such.)

profit margin:

The margin found by dividing a firm's post-tax net earnings by sales (Profit margin measures how well a firm can earn money from sales relative to others.)

prospectus:

The written statement disclosing the terms of a mutual fund or the offering of securities

put option:

The right given a buyer to sell stock at a specified price within a specified period of time

Q

R

real rate of return:

The percentage of return on an investment over one year after adjustments for inflation or deflation

retention ratio:

The percent of a firm's earnings kept for investment purposes

return:

The sum of the income plus capital gains

return on equity (ROE):

The value found by dividing the company's net income by its net assets (ROE measures the amount a company earns on investments).

revenue bond:

A municipal bond (muni) backed by the revenue gained from a specific project such as the building of a stadium

risk/return trade-off:

The compromise made between high- and low-risk investments (High-risk investments generally generate more earnings, while low-risk ones generate a lower rate of return.)

risk:

The chance that an original investment might lose value

round lot:

Generally 100 shares, the basic trading unit for stock

S

safety:

Value Line's measure of stock volatility (magnitude of beta), measured from 1 to 5, 5 being most volatile

securities:

A financial that indicated the holder owns a share or shares of a company (stock) or has loaned money to a company or government organization (bond)

Securities and Exchange Commission (SEC):

The federal agency that regulates the sale of securities

security analyst:

A person who specializes in evaluating information regarding stocks and bonds

shareholder:

See stockholder

shareholders' equity:

The sum of preferred and common stock equity held by shareholders

Standard & Poor's 500 index (S&P 500):

A well-known, value-rated index of 500 major US companies: 400 industrial firms, 20 transportation firms, 40 utilities firms, and 40 financial firms

stock dividend:

A dividend paid in shares of stock as a substitute for cash (Stock dividends allow dividends to make money on themselves.)

stock split:

The splitting or dividing of shares to reduce the price needed for the formation of a round lot (To illustrate, in a 2-for-1 split, when 1 shares splits into 2, an investor would receive one additional share for each he formerly owned.)

stockbroker:

A broker who buys and sells stocks and other securities for his customers, charging commission

stockholder:

A holder or owner of shares of stock; also referred to as shareholder

stop-limit order:

An order placed with a stockbroker to buy or sell at a certain price or better during a limited period of time

stop-loss order:

An order placed with a stockbroker to buy or sell a designated stock once a designated price has been reached (This order limits the amount an investor can lose on that investment.)

T

technical analysis:

The analysis of historical trends of price, volume, and other related market indicators to aid in predicting future trends; commonly includes tables and graphs

timeliness:

Value Line's measure of a stock's price performance for the upcoming year

total assets:

The sum found by adding property, plant, and equipment asset values to current asset values

total debt to total assets:

The ratio found by dividing short- and long-term debts by the total assets of the firm (This ratio measures a company's financial risk, showing how much of the firm's property has been financed by debt.)

total liabilities:

The liabilities found by adding current liabilities to long-term debts

trading range:

The range of prices within which a stock is normally traded

transaction costs:

The costs that are brought about by the buying or selling of securities, including broker commissions and the difference between dealer buying and selling price (called a dealers' spread)

Treasury bill (T-bill):

A certificate representing a short-term loan to the federal government for periods not exceeding one year

Treasury bond (T-bond):

A certificate representing a long-term loan to the federal government for periods exceeding ten years

Treasury note (T-note):

A certificate representing a median-term loan to the federal government for a duration of between two and ten years

U

V

valuation:

The process of determining the current value of stock or other assets

Value Line index:

An index representing 1700 equally-weighted companies from the NYSE, AMEX, and the over-the-counter markets

W

Wilshire 5000 equity index:

A stock market index composed of approximately 7000 securities, including most issues from NYSE, AMEX, and the over-the-counter markets (This index formerly consisted of only 5000 securities.)

X

Y

yield to maturity:

The return expected on a bond held until the maturity date

yield:

The value found by dividing the amount of interest paid on a bond by the price, thus measuring the income from a bond (The term also refers to the dividend from stock divided by its price. Yield, however, is not a measure of total return since it does not include capital gains or losses.)

Z