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Friday, February 29, 2008

Earning Rs 5 lakh? Save up to Rs 45,000

Income tax payers will feel happier after this Budget. Presenting the Union Budget for 2008-09 in the Lok Sabha, Finance Minister P Chidambaram today raised the basic exemption limit from Rs 1.1 lakh to 1.5 lakh for all male assesses. Also, the limit for women assessees has been hiked from Rs 1.45 lakh to 1.80 lakh and for senior citizens from 1.95 lakh to 2.25 lakh.

The reason: tax collections have been going up in the last few years. And the numbers speak for themselves. The tax to gross domestic product (GDP) has risen from 9.2% in 2003-04 to 12.5% in 2007-08.

The rise in the exemption limit basically implies that a person who was paying a tax of Rs 4,120 annually on his income of Rs 1.5 lakh will not be paying anything at all. Similarly, women assessees would save Rs 6,695 and senior citizens would save Rs 6,180 on income of Rs 1.8 lakh and 2.25 lakh, respectively.

Though this may sound like a small relief, when one goes through the numbers, income earners up to Rs 5 lakh are likely to save between Rs 40,000-45,000. However, the incremental saving over Rs 5 lakh income is just another Rs 5,000. For instance, an individual earning Rs 25 lakh, the savings is Rs 49, 852, Rs 49, 286 and Rs 43,621 for male, female and senior citizen, respectively.

Interestingly, Indian taxpayers will now be better off than those in the US. Says Kaushik Mukerjee, executive director, PricewaterhouseCoopers, "The finance minister has increased the threshold for personal tax exemption by about 35%, which is about $4,000. This is more than the basic threshold in the US where the ceiling is $3,400. However, we are yet to reach the levels of Australia ($5,500), UK ($11,000) or Singapore ($15,000). We were ahead of China already where the annual threshold in China is about $ 1400." Though this hike is substantial in relative terms, Mukherjee feels that it may take some time to catch up with countries like Australia, UK and Singapore.

Many also expected that the education cess of 3% should have also gone, but the FM did not announce any such moves. Also, the surcharge of 10% on the individual income of over Rs 10 lakh stays.

Also, the much-awaited relief on banking transaction tax will now be removed from April, 2009. This tax, 0.1% on transactions of Rs 25,000 on a single day, was introduced in the 2005-06 Budget. This created quite a stir among the consumers who felt that they were being tax again on the same income.

On the whole, the idea of FM seems to be to put more money in the hands of the consumer, which would give them more spending power. Given that there are worries of a slowdown in the two-wheelers and car segment, a little more cash at hand would definitely help consumers.

The new IT slabs, effective from the next fiscal year, would be as follows:


10% on income of Rs. 1.50 lakh to Rs 3 lakh;


20% on income of Rs 3 to Rs 5 lakh; and


30% on income of Rs 5 lakh onwards.

Posted by Srivatsan at 9:30 AM

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Understanding Short Term Trading

Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.

Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.

Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.

Types of Moving Averages

1) Simple Moving Average (SMA)

SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.

2) Exponential Moving Average (EMA)

EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.

The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.

A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.

In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.

Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.

Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.