HOW TO COMPUTE CAPITAL GAIN TAX ON SALE OF SECURITIES IN PAKISTAN INTRODUCED THROUGH FINANCE ACT 2010

The capital gains arising on or after 1st day of July 2010, from disposal of securities held for a period of less than a year, is chargeable to tax.

It is pertinent to note here that there is no tax charged if securities are sold after a holding period of 12 months.

Securities definition

For the purpose of computing capital gain the securities means share of a public company, voucher of Pakistan Telecommunication Corporation, Modaraba Certificate, an instrument of redeemable capital and derivative products.

The rules for computation of “Capital gain tax on sale of securities” have been issue through SRO 112(1)/2011 on February 12 2011.

Scope of tax

Every investor, who invests money in securities (shares, options, futures, swaps, etc.) in Pakistan, is liable to pay tax on any gain arising from sale / disposal of such securities.

However, if such securities are sold after a period of 12 months from the date of acquisition then no tax is payable.

Reporting to FBR

Every investor other than individual investor is required to e-file statement of advance tax on capital gain on the prescribed formats within seven days after the end of each quarter with the tax authority having jurisdiction in the case.

Liability of payment of tax

The liability to pay the due tax on capital gain shall lie on the investor who held the securities during the period for which tax on capital gain is to be paid and, in case of any benami accounts, on the investor who de facto owns the securities carried in such accounts.

Maintenance of records.-

Every investor is required to maintain in particular the following accounts and records separately for each of his brokerage accounts regarding his securities business which sufficiently enable for verification of the discharge of his obligations under the rules:

(a) Fortnightly ledger statements of the investor’s brokerage account or each brokerage account if there are more than one account whether in the investor’s own name or any benami accounts, generated by his broker;

(b) Fortnightly CDC statements of the investor’s CDC sub account or each CDC sub account corresponding to each brokerage account, if there are more than one brokerage account whether held in the investor’s own name or any benami accounts; (c) Record of security holdings and their value carried in the investor’s brokerage account as on 30th June of each year;

(d) Record of cash carried in the investor’s brokerage account as on 30th June of each year;

(e) Record of funds deposited in the investor’s brokerage account; and

(f) Record of funds withdrawn from the investor’s brokerage account.

Acquisition of Securities

(1) A security may be acquired through purchase, exchange, bonus issue, right issue, gift, bequest, inheritance, leverage schemes and derivative contracts.

(2) A security may be acquired in the electronic book entry form or in the form of physical certificate.

(3) A security may be acquired through the trading platform provided by a stock exchange or through off market transactions.

(4) In case of securities other than units of an open mutual fund, broker’s bill for the purchase, broker generated computerized ledger statement of the investor’s brokerage account, CDC statement of the investor’s CDC sub account and payment of cost of acquisition through cheques shall be supportive evidence of acquisition of securities.

(5) In case of units of an open end mutual fund, certified statement of investor’s account provided by the asset management company shall be supportive evidence of acquisition of securities.

Disposal of securities

(1) A security may be disposed of through sale, gift, exchange or transfer by the security holder in any other way.

(2) A security may be disposed of in the electronic book entry form or in the form of physical certificate.

(3) A security may be disposed of through the trading platform provided by a stock exchange or through off market transactions.

(4) In case of securities other than units of an open mutual fund, broker’s sale proceeds or difference bill, broker generated computerized ledger statement of the investor’s brokerage account, CDC statement of the investor’s CDC sub-account and proof of payment through cheques shall be supportive evidence of disposal of securities.

(5) In case of units of an open end mutual fund, certified statement of investor’s account provided by the asset management company shall be supportive evidence of disposal of securities.

Holding period

(1) Securities held for a period upto a maximum of 182 days and for a period upto a maximum of 365 days shall be taken as held for 6 months and 1 year respectively.

(2) In case of short positions, holding period shall be the period intervening between the date when a security is sold short and the date when the security is purchased to cover the short position.

(3) In case of futures contracts, holding period shall be the period intervening between the date of entry into a futures contract and the date of exit from such contract.

Computation of capital gain or loss

(1) Capital gain or loss arising on the disposal of any security is to be computed on the basis of First In First Out (FIFO) inventory accounting method.

(2) Capital loss arising on disposal of securities in any tax year is to be set off against capital gain arising from the disposal of securities during that tax year to determine the taxable capital gain arising from the disposal of securities.

(3) Capital loss arising on disposal of securities in any tax year is not allowed to be carried to a subsequent tax year.

Computation of capital gain or loss on derivatives.-

(1) In case of long position in deliverable futures contracts, capital gain or loss is to be computed as the difference between cost of acquisition of securities underlying the futures contract and the consideration from disposal of those securities to close the long position at or before maturity of the contract.

(2) In case of short position in deliverable futures contracts, capital gain or loss is to be computed as the difference between the consideration from short sale of securities underlying the futures contract and the cost of acquisition to purchase those securities to close the short position on or before maturity of the contract.

(3) In case of cash settled futures contracts, capital gain or loss is the cash payment which the investor respectively receives from or makes to the other party to such contract to settle the contract on or before maturity of the contract.

(4) In case of options, capital gain or loss is the difference between exercise price of the options and the consideration from disposal of the securities underlying such options.

(5) In case of contracts of right, capital gain or loss is the difference between cost of acquisition of right shares underlying the contract and the consideration from disposal of those shares.

Capital loss adjustment disallowed in certain cases

(1) Capital loss adjustment as provided in rules 13D and 13E is not admissible in the following cases, namely:-

(a) Wash Sales where capital loss realized on disposal of a specific security by an investor is preceded or followed in one month’s period by purchase of the same security by the same investor, thus maintaining his portfolio.

Explanation.- Wash sale is sale of a security at loss and repurchase of the same security soon before or afterwards the sale so as to realize an unrealized loss to make it claimable as a set off against capital gain. The security sold in a wash sale is repurchased with the aim to re-acquiring it at or near its sale value in order to maintain the risk return profile of portfolio;

(b) Cross trades where coordinated reshuffle of securities between two related accounts of the same investor, between two related accounts of the related investors, between two membership cards of the same broker or between two related brokerage houses is undertaken and securities accumulating unrealized losses are sold to related accounts to artificially realize capital losses in one account without actually selling the securities to an outsider and the artificial losses so realized in an account are then used to minimize capital gain tax liability on the capital gain realized in the same account; and

(c) Tax Swap Sales where the investor having realized loss (as in the case of a wash sale) on a particular security does not repurchase the same security but chooses another similar security in the same sector thus not only minimizing or eliminating altogether liability on account of tax on capital gain, but also maintaining the portfolio broadly at the same risk return profile

Liability of broker

(1) Every broker or stock exchange’s member, before closing the brokerage account of an investor, is now required to obtain from an investor a tax clearance certificate from the concerned tax authority to the effect that the investor has no tax liabilities outstanding against him.

(2) Any broker or stock exchange’s member who closes an investor’s brokerage account without obtaining a tax clearance certificate and the investor disappears from the market without satisfying the tax authorities that he has no tax liabilities outstanding against him, such broker is liable to discharge such investor’s outstanding tax liabilities to the satisfaction of tax authorities.

Read more: “Understanding capital gain taxes and planning – By Thomas Bowen“

Incorporating a Company in Pakistan

Step 1

Seek the availability of a name proposed for the company from the Registrar of Companies.

Time to complete: 1 day

Cost to complete: PKR 200

The company may propose one or more names, in order of preference. The name should not be inappropriate, deceptive, or designed to exploit or offend any religion. It should neither be identical to nor have any close resemblance to any existing company name. The availability of the name can be checked online by searching existing company names. Certain guidelines prohibit the association of the company name with state sponsorship with the national leaders and the like. The official confirmation (or denial) of the name availability is received by email in 24 hours. This confirmation satisfies name search requirements if the name search fee of PKR 200 is paid into the bank account of the regulatory authority.

Step 2

Pay the fee for procedures 1, 3, and 4, and obtain bank receipt/ copy of treasury challans

Time to complete: 1 day

Cost to complete: no charge

The company pays stamp duty to the provincial government. A copy of the original treasury challan in the amount of the registration and filing fee must be deposited with the Habib Bank Ltd. or the State Bank of Pakistan. The amount is payable under the following headings and account numbers at the stated banks: –

Account 1200000, Receipts from civil administration and other functions. 

Account 1210000, Receipts from general administration. 

Account 1213400, Economic regulations (receipts under the companies ordinance).

The company picks up the treasury challan forms at the bank counter and completes them for payment purposes, pays the amount due to the official accounts, and obtains a copy of the form. The bank sends another copy to the relevant departments.

Step  3

Obtain stamp paper on which the Declaration of Compliance will be drafted.

Time to complete: 1 day

Cost to complete: PKR 100

Formerly, the original copy of the memorandum and articles of association had to be stamped according to the Stamp Act of the relevant province of Pakistan in which the company proposed to be registered. Stamp duties vary from province to province. The Stamp Act prescribes the adhesive stamps to be affixed to the first page of the documents before they are executed. The unsigned copy of the memorandum and articles of association is submitted to the Stamp Office of the relevant provincial government agency with the proof of payment to the Treasury bank account. The documents are returned, duly stamped, the same afternoon. The following fees are paid in Sindh: 

Memorandum of association without articles of association: PKR 2,000. 

Memorandum of association with articles of association: PKR 1,000 if authorized capital is less than PKR 500,000;

PKR 2,000 if authorized capital is more than 500,000: Under the Sindh Finance Act, 2006, since July 2006 the rates of stamp duty for the memorandum and articles of association for the Provinces of Punjab, Sindh, Balauchistan, and the Northwest Frontier Provice have been rescinded. However, under the Stamp Act, the fee of PKR 100 for the declaration of compliance on nonjudicial stamp paper still applies.

Step  4

Register the company at the Registrar of Companies.

Time to complete: 3 days

Cost to complete: registration fee + PKR 200 (filing fee per document) 4 documents + PKR 50 for the Certificate of Registration The following company incorporation documents are required for a private company: –

Form-1, Declaration of compliance. 

Form-21, Identifying the location of the office. 

Form-29, Particulars of directors, secretary, chief accountant, auditors, and others.

Note: Form 1 is to be signed by (a) an advocate entitled to appear before any High Court in Pakistan or the Supreme Court; (b) a qualified chartered accountant (member of ICAP or ICMAP) practicing in Pakistan, or (c) a person named in the articles of association as a director or other officer. Also to be submitted with these documents are the subcriber’s national identity card and four copies of the memorandum and articles of association, with the signature of each member (in presence of a witness) and with a special stamp affixed. It is not mandatory to hire a lawyer or accountant to incorporate a company, but doing so is generally preferred for ease of accomplishment. Any initial subscriber to the memorandum of association has to declare that all the formalities of company incorporation are completed before the certificate of incorporation is issued.

The fee of incorporation was reduced recently. Fee schedule for company registration: – Nominal share capital under or at PKR 100,000: fee is PKR 2,500. – Nominal share capital over PKR 100,000: fee is PKR 2,500, along with an additional fee to be determined based on every PKR 100,000, or part thereof, of nominal share capital. The additional fee is PKR 500 for the first PKR 100,000 up to PKR 5,000,000 and PKR 250 after the first PKR 5,000,000. In any case, the total company registration fee must not exceed PKR 10 million.

Step 5

Make a company seal

Time to complete: 2 days

Cost to complete: PKR 1000

The company seal is prepared after the certificate of incorporation is obtained. It is affixed on significant documents according to the provisions of the articles of association.

Step 6

Apply for a national tax number (NTN) and register for income tax.

Time to complete: 2 days

Cost to complete: no charge

Companies can check the status of their national tax number (NTN) within 24 hours of application. Since 2002, NTN are issued with a continuous valid term. Companies no longer need to renew their NTN. Income tax is paid on filing the return, which is due in 6 months from the end of the company’s financial year (usually in December). In addition, the Income Tax Department charges a fee of 2.5% for the workers welfare fund at the time of its income tax assessment. The company is also supposed to act as a tax withholding agent for the state and deduct and deposit tax on most payments made in connection with its business activities. For this purposes, the company must file monthly returns with the tax authorities. Every company must obtain the NTN by providing proof of registration, the memorandum and articles of association, the bank account number, the NTN of its directors, and an attestation of the registered business address. All required documents must be submitted to a station by a Class-I of Gazette Officer or an officer of a bank. A company can start its business activities without first obtaining the NTN, but the number is generally required by all the registering authorities: Chambers of Commerce, the Import-Export Regulatory Authority, the utility authority, and the like. The NTN branch (centralized for the entire country) at Islamabad allots a uniform number. The required form, along with the duly-verified documents must be submitted to the same NTN Center after the company is incorporated. The center quickly processes the application and issues the NTN in a week. The certificate is sent to the applicant’s registered address. If it is not delivered at the postal address, it can be obtained from the NTN center over the phone, and its status is communicated instantly. If undelivered, the NTN certificate can be collected from the specified office of the Central Board of Revenue (distinct from the NTN Center).

Step  7

Register for sales tax

Time to complete: 12 days

Cost to complete: no charge

The Central Board of Revenue (CBR) has simplified the registration process for sales tax by providing two methods to file Form ST-1:

1) Complete Form ST-1 and file it by courier with the registration wing of the Sales Tax Directorate. Application forms may be downloaded at www.cbr.gov.pk.

2) Complete Form ST-1 at a local registration office. The form is available at all facilitation counters of local registration offices. To ensure that applicants can monitor the process, applications must be sent by mail with acknowledgment of return receipt due. The same procedure must be followed for deregistration (Form ST-3) and for change of registration (Form ST-2). The local registration office sends the completed application forms to the Central Registration Office in the CBR. Note that the forms must be completed in capital letters with black ink. In either case, there is no need to enclose additional documents with the application form. The Central Registration Office, with online access to the NTN database and the National Database and Registration Authority(NADRA) database, must verify the details the application with database. On verification, the Central Registration Office must generate and issue a registration certificate to the applicant. The system was designed so that it can correct minor mistakes automatically without bothering the taxpayers. Registration status may be checked online at www.cbr.gov.pk.

Step  8

Register for the Professional Tax with the local tax authority

Time to complete: 7 days (simultaneous with the previous procedure)

Cost to complete: no charge

In practice, taxpayers do not usually register for the tax voluntarily unless the tax authority prompts them to do so. Companies are not charged local taxes except for professional taxes. A manufacturer owning fixed assets might have to pay certain local levies on its fixed assets. There is no registration for the latter. Professional tax is an annual tax and is paid irrespective of paid up capital or turnover in smaller companies. The department generally obtains the list from the Registrar for the issuance of payment challans. Before a challan is issued, a pro forma notice is served to the company, asking for details used for the assessment. There are no registration fees for the professional tax, which is not deducted at the source but rather paid into the bank account of the concerned department after assessment and issuance of the challan.

Step 9

Register with the Employee Social Security Institution

Time to complete: 11 days (simultaneous with the previous procedure)

Cost to complete: no charge

Employment tax or social security registration is not mandatory but is subject to notification in the Official Gazette. The Social Security Institute (SSI) is managed by the provincial government and levies employers, whether incorporated or not, at 7% of wages, up to PKR 3,000 per month. According to the Workers’ Children (Education) Ordinance of 1972 if at any one time during a year an employer employs 10 or more employees, it must pay to the provincial government an education cess of PKR 100 per worker per year. The levy is used to provide free education for two children of every worker employed by the company.

Step 10. Register for old age benefits with Employees Old-Age Benefits Institution (EOBI).

Time to complete: 11 days (simultaneous with the previous procedure)

Cost to complete: no charge

The provisions of the Employees’ Old-Age Benefits Act, 1976, automatically apply to every industry or company in which 10 or more persons are employed by the employer, directly or through any other person, or were so employed on any day during the preceding 12 months. The act shall continue to apply to every such industry or company even if the number of persons employed by the company is, at any time after the act becomes applicable to it, reduced to fewer than 10. The per-month contribution was increased to PKR 240 for employers and PKR 40 for employees as of July 1, 2006, as announced by the government in Finance Act, 2006. This increase resulted from the increase in the minimum wage from PKR 3,000 to PKR 4,000.

Step 11

Register with Pakistan Shops and Establishment Ordinance, 1969

Time to complete: 7 days (simultaneous with the previous procedure)

Cost to complete: PKR 10

Registration of establishment and fee for registration:

(1) Every establishment, other than a one man shop, and factories employing clerical staff within the factory premises, shall be registered with the Deputy Chief Inspector for the area within which such establishment is situated. For the purposes of this section, a one-man shop means a shop run by an employer or by any member of his family without engaging an employee.

(2) An application for the registration of an establishment shall be made by the employer on Form A and shall be accompanied by a Treasury challan under Head [9][XXXVI-Miscellaneous Departments-G-Miscellaneous-(S)-Receipts under the West Pakistan Shops and Establishments Ordinance of1969] for an amount depending on the number of workers: –

1 to 5 workers: fee is PKR 2.

6 to 10 workers: PKR 3 

11 to 20 workers: PKR 5. 

More than 20 workers: PKR 10.

(3) An application for establishment registration shall be made within 3 months of the ordinance coming into force (for establishments existing at the time) and within 2 months of setting up the establishment or the application of the ordinance to it (if an establishment is set up after the ordinance comes into force or if the provisions of the ordinance are subsequently applied to it).

(4) On receipt of the application and the fees specified in Subsection 2, the Deputy Chief Inspector shall, on being satisfied about the correctness of the application, register the establishment in the Register of Establishments to be maintained in Form B and shall issue a registration certificate to the employer in Form C.

(5) The registration certificate shall be prominently displayed by the employer at the establishment and shall be renewed every 2 years on depositing the fee prescribed in Subsection 2.

GST IN PAKISTAN

IMPLEMENTATION OF REFORMED GST IN PAKISTAN.

Pakistan is in dire need of increasing its tax revenues by implementing a broad-based modern form of sales tax on goods and services. The Sales Tax Act, 1990, was originally designed on the basis of accepted value added taxation doctrines but due to political compromises and revenue exigencies, it increasingly became distorted and narrow-based because of ever-expanding exemptions, special regimes, multiplicity of rates and several other deviations from international best concepts and practices. Resultantly, not only the tax base of sales tax and income tax has been eroded but also lack of documentation of the national economy has proved a big hindrance in the development of effective tax policy options.

2. Under the existing constitutional framework, the Federal government can impose taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed. The Federal government has been levying excise duty on services. After passage of the 18th Constitutional Amendment, taxation of services now wholly falls within the domain of Provincial governments.

3. Presently, apart from sales tax on the supply and import of goods, Federal excise duty is chargeable on communication (including telecom) services, certain categories of advertisements, insurance services other than life, marine, health and crop, banking services, franchise services and services provided by property developers/promoters, stockbrokers and port/terminal operators. Besides, Provincial sales tax is chargeable on services provided by hotels/clubs/caterers, custom agents, ship chandlers and stevedores, courier services and advertisements on TV & radio. Except franchise services, Federal excise duty and Provincial sales tax on all the aforesaid services is being collected under GST mode with backward and forward cross-crediting (inter-tax adjustment) with Federal sales tax.

4. Tax-to-GDP ratio on account of the said sales taxes has stagnated on lower side although internationally, the standard rate of 17 percent sounds on higher side. The principal reason of lower tax to GDP ratio of sales taxes has been widespread and unbridled concessions and waivers on both local supply and import stages including zero-rating on several categories of domestic supplies, besides non-coverage of the services sector in general.

5. The consultations with tax professional circles have over the passage of time convinced that there is an overdue need to thoroughly reform and revamp the whole existing sales tax system to bring it closer to international standards. The new GST system will change the mindset of the public at large as well as of the tax machinery and will strengthen government’s efforts to formally depart from excise-style of sales taxation on goods and services.

6. The GST Bill, 2010 will replace the present Sales Tax Act, 1990. While the issues of collection and administration of sales tax on services are being separately negotiated with the Provinces in the light of recent NFC award, a provision has been included in the Federal Bill to integrate Provincial sales tax on services with the Federal sales tax on goods as and when the Provinces authorize FBR to collect and administer sales tax on services.

7. Under the new GST law, exemptions have been kept intact in respect of basic food items including wheat, rice, pulses, vegetables, fruits, live animals, meat and poultry etc. Edible oil chargeable to Federal excise duty will remain exempt from GST as before. Exemptions earlier available for philanthropic, charitable, educational, health or scientific research purposes or under international commitments/agreements including grants-in-aid will also continue. Moreover, life saving drugs, books and other printed materials including newspapers and periodicals have been kept exempt.

8. Local consumption of sectors like textile (including carpets), leather, surgical and sports goods has however, been subjected to tax. Similarly, defence stores, stationary items, dairy products, pharmaceuticals (other than lifesaving), agricultural inputs, agricultural machinery and implements, aviation/navigation equipments including ships & aircrafts etc. have also been proposed to be taxed. Acquisition of capital goods will be facilitated through expeditious adjustment/refund of input tax involved therein.

9. GST will be chargeable only on value added component of each stage of the supply chain. Due to the provision for set-off of the tax paid at earlier stages in the chain, net tax incidence remains as a single stage levy. Due to automatic input tax adjustment facility, businesses are attracted towards voluntary registration so that they may avail such adjustments and improve their cash flows. For this reason, GST always promotes documentation and encourages self-compliance.

10. Other salient features of the new GST system are as follows.

GST will replace the existing regimes of sales tax and excises on services.

GST will apply on both at import and local supply stages.

Standard rate of 15% has been proposed instead of the present rate of 17% or multiple other rates going upto 25%.

There shall be no fixed tax, reduced tax, enhanced tax, retail price-based tax or special tax scheme under the new GST system.

A uniform enhanced annual exemption threshold of Rs.7.5 million (which is presently Rs. 5 million) shall be applied to keep small businesses including small traders/retailers/cottage industry out of mandatory tax compliance.

All exports shall be zero-rated.

Input tax adjustment of both direct and indirect constituents shall be allowed on “totals” basis (excluding entertainment and non-business use passenger vehicles).

Sales tax on goods and services where so authorized by the Provinces shall be mutually adjustable so that double taxation does not occur.

No general zero-rating shall be admissible on any commercial form of domestic supply or on any local consumption.

The GST system will work purely on “self-assessment and self-policing” basis.

Cash flow of businesses shall be facilitated through expeditious centralized (Electronic) refund payment system.

Tax compliance shall be encouraged through transparent and fair audit system with increased use of modern information technology.

Adjudication, appeal and alternative dispute resolution (ADR) systems have been provided as before.

FBR will issue simplified rules to regulate the GST procedures and processes.

The GST Bill 2010 shall take effect from such date as may be notified by the Federal government.

The new GST system will be applied in FATA/PATA, the Province of Gilgit-Baltistan and AJ&K in due course.

11. The proposed GST system will certainly not generate any sudden increase in revenue yield. It will however, increase the overall tax-to-GDP ratio from the present below 10% to about 12% in next 3-5 years. Pakistan has a strong potential to implement such value added tax type sales tax because of the reason that besides having a properly-reformed collection infrastructure, it has a long-operating sales tax system and substantial hidden sales taxation on inputs of exempt outputs (exempt supplies are input taxed) is already being borne in the aggregate national consumption.

12. The proposed GST system is expected to operate without any serious inflationary impact. It will rather promote economic equity and enable the country to direct national resources towards more productive goals of national development. Reformed GST is also likely to progressively minimize the grey component of the national economy and facilitate fair income redistribution. It will eventually cast healthy impact on income tax receipts and enhance fool-proof tax culture in the country.

Unclaimed Dividends etc.

Questions for today

1. What is the treatment of uncliamed dividend at time of fully buyback of shares by directors from minority share holders?

2. What is the treatment of uncliamed dividend at time of voluntary winding up of company?

3. What are the rules regarding investment in companies by ICP and NIT?

Ans: Section 432 Companies Ordinance

Unclaimed dividends and undistributed assets to be paid to Companies Liquidation Account. -(1) Where any company is being wound up, if the liquidator has in his hands or under his control any money of the company representing unclaimed dividends payable to any creditor or undistributed assets refundable to any contributory which have remained unclaimed or undistributed for six months after the date on which they became payable or refundable, the liquidator shall forth with pay the said money into the State Bank of Pakistan to the credit of the Federal Government in an account to be called the Companies Liquidation Account, and the liquidator shall, on the dissolution of the company, similarly pay into the said account any money representing unclaimed dividends or undistributed assets in his hands at the date of dissolution.

Loan to Directors by Private Limited Companies

Q: Can a Private company grant loan to its directors?

Ans: A private limited company can give loan to its director(s) but it will be taxed as Dividend in the hands of the recipient. Upon repayment of loan by such director(s), the refund of income tax paid on dividend (loan treated as dividend) can be claimed. References from law are as under:

• Section 195 of the Companies Ordinance, 1984

• Section 2 (19) (e) of the Income Tax Ordinance, 2001

• Section 170 (1A) of the Income Tax Ordinance, 2001

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Public Provident Fund

KNOW ALL ABOUT PPF (PUBLIC PROVIDENT FUND) FAQ

People who are interested in liquidity or small-term gains would not be very keen about PPF because the duration for the investment is 15 years. However, the effective period works out to 16 years i.e., the year of opening the account and adding 15 years to it. The contribution made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate. It is that time of the year that most of us would have already made our decisions as to where we will make our investments or would at least have had the chance of looking at different investment instruments. At one point in time or the other we would have come across ‘Public Provident Fund’ as an effective investing instrument. But how much do we know about Public Provident Fund or, PPF?

What is the Public Provident Fund (PPF)?

The PPF is a long-term, government backed small savings scheme of the Central Government started with the objective of providing old age income security to the workers in the unorganized sector and self employed individuals.

What is the interest rate offered through PPF?

Currently, the interest rate offered through PPF is around 8%, which is compounded annually. Interest is calculated on the lowest balance between the fifth day and last day of the calendar month and is credited to the account on 31st March every year. So to derive the maximum, the deposits should be made between 1st and 5th day of the month.

What is duration of the investment?

People who are interested in liquidity or small-term gains would not be very keen about PPF because the duration for the investment is 15 years. However, the effective period works out to 16 years i.e., the year of opening the account and adding 15 years to it. The contribution made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate. The account holder has an option to extend the PPF account for any period in a block of 5 years after the minimum duration elapses. The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.

What is the minimum and maximum amount of deposit?

The minimum deposit that you can make into a PPF account in one whole financial year is Rs. 500. The maximum is Rs. 70, 000.

Who can open a PPF account and where?

A PPF account can be opened by an individual (salaried or non-salaried). An individual can open only one PPF account to which he contributes. A PPF account can also be opened in the name of your spouse or children. It can be opened with a minimum deposit of Rs. 100 at any branch of the State Bank of India (SBI) or branches of it’s associated banks like the State Bank of Mysore or Hyderabad. The account can also be opened at the branches of a few nationalized banks, like the Bank of India, Central Bank of India and Bank of Baroda, and at any head post office or general post office.

What are the tax benefits from PPF?

The amount you invest is eligible for deduction under the Rs. 1, 00,000 limit of Section 80C. On maturity, the entire amount including the interest is non-taxable.

Is it possible to withdraw the amount deposited at any time during the tenure?

Yes. You can take a loan on the PPF from the third year of opening your account to the sixth year. So, if the account is opened during the financial year 2009-10, the first loan can be taken during financial year 2011-12 (the financial year is from April 1 to March 31). The loan amount will be up to a maximum of 25% of the balance in your account at the end of the first financial year. You can make withdrawals during any one year from the sixth year. You are allowed to withdraw 50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower. For e.g., if the account was opened in 2000-01, and the first withdrawal was made during 2006-07, the amount you can withdraw is limited to 50% of the balance as on March 31, 2003, or March 31, 2006, whichever is lower.

Excel links

Q: Please tell me the way that I could know the method to know that which cell is not linked to anyother cell in the excel file. For instance there is a figure in the cell B3 and B4, figure from B3 is going to A1 (i.e. A1 is linked to B3) and figure from B4 is not going anywhere (i.e. no cell is linked to B4).

This was the small example. My requirement is to check more than 2000 unlinked cells, so the shortcut is required.

Ans: You can use the formula auditing technique i.e. trace precedents & dependents for a specific cell.

Moreover, if you want to check the link or formulas on a specific spread sheet, use the Ctrl + ~ (symbol is situated along with 1 on the top most right side of the keyboard) by pressing the both keys at the time, you will see the cells containing formula or link appeared. Press the same keys to get the sheet into original condition.

FBR’s Circular letter # C.No.3(9)ST-L&P/2010 dated September 14, 2010

Federal Board of Revenue has issued circular letter # C.No.3(9)ST-L&P/2010 dated September 14, 2010 where the last date for payment of sales tax/FED and filing of return both have been extended uptill September 25, 2010.

You can download this circular at the link below:

extensionaugust2010

NOSTRO and VOSTRO Bank Accounts

The difference between nostro and vostro account

These are latin words, meaning “Our account with you” and “Your account with us” respectively.

 

These are opnened by banks in the foreign countries for import/export payments and inward/outward remittances.

 

Suppose if ABC Bank in Pakistan open an account with XYZ Bank in New York. Then for pakistani bank it would be Nostro Account and for New York bank it would be Vostro account.