(MENAFN- Khaleej Times) Q: My son, who has completed his education, is starting his consultancy firm in India. He is not sure how long he will continue and he may shift his base outside India at an opportune time. He needs a car for professional use. I told him to buy a car but he wants to take a car on subscription basis. What does this mean? Will he get the benefit of tax deduction?
A: Some automobile manufacturers are giving their cars on a subscription basis. This option is offered to those who want a car for a short term. Generally, cars are leased to customers where the lease period is minimum two years. A subscription route is offered where the car is given for a shorter period to a customer on a fixed monthly rent which covers the cost of service, repairs, taxes and insurance. Most young professionals and businessmen prefer this route, rather than buying a car which blocks their capital that can otherwise be used for carrying on their profession or business. Buying a car by taking a loan from a bank or finance company generally is more expensive.
Under the subscription route, the automobile company offers the car at a fixed monthly rent depending upon the model of the car. However, there is a limit of a certain number of kilometres per month that is covered in the monthly rent. After that limit is reached, the company charges a fixed rate per kilometre. The advantage is that the professional or businessman would be entitled to claim the monthly amount paid to the automobile company as business expense for computing his taxable income if the car is entirely used for his business or profession.
Q: My company specialises in manufacturing silos for storage of grains. We want to set up a unit in India. Is there enough scope for this type of business?
A: The government, as part of its food procurement policy, has put tremendous emphasis on construction of steel silos in order to modernise grain storage. The target of the government is to have a capacity of 10 million tonnes. At present, only 670,000 tonnes capacity has been created. The government wants to promote the setting up of steel silos in different parts of India on the public-private partnership model. This is to ensure that the food grains meant for public distribution can be stored without affecting the quality of the product which deteriorates considerably when grains are stored in gunny bags.
Silos are to be set up along the railway lines for convenient storage and transportation of food grains. Therefore, by 2023, silos with large capacities for storage are expected to come up. A substantial amount of rice and wheat will be stored in the steel silos. For example, during the last financial year, 33.8 million tonnes of wheat and 34.1 million tonnes of rice were procured by the government through the Food Corporation of India. Due to the lack of modern silos, there is substantial wastage of food grains currently. Hence, the prospects for this business are immense. Incentive is given by way of hundred percent deduction of the capital expenditure incurred in setting up and operating warehousing facilities for storage of agricultural produce from the taxable income of the warehouse owner.
Q: My father, who is a senior citizen, wants to make a safe investment but at a rate of interest which remains fixed. He has been advised to put his money in the 7.75 per cent savings bonds. He is a resident of India and will turn 80 later this year. Please advise me on the merits and demerits of investing in these bonds.
A: The rate of interest of 7.75 per cent is reasonably attractive and it will remain fixed during the period of seven years for which the bonds are issued. This is a positive factor because rates of interest are now declining in India. The bonds are available on tap and the application for the bonds is to be made in the form of a bond ledger account at the designated branches of banks which are authoried.The minimum amount is Rs1,000 and there is no monetary ceiling on the amount which can be invested. Your father can earn interest either every year at the aforesaid rate or in cumulative form. The cumulative value of Rs1,000 at the end of seven years will be Rs1,703.
The bonds are not transferable but nomination facility is available for a sole holder of the bonds. The demerits of these bonds are that they are not tradeable in the secondary market. Further, these bonds are not eligible as collateral for obtaining loans from banks, non-banking financial companies and other institutions. The interest earned will be fully taxable, but if your father is going to turn 80 this year, the first Rs500,000 of taxable income is exempt from tax.
The writer is a practicing lawyer, specialising in tax and exchange management laws of India.
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