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[Official] The Doubts thread for Economy

The Estimates of value additions are based on
1.Index of Industrial production(11P) 2.Annual Survey of Industries(ASI) 3.National Account Statistics 4.Central Statistical organisation(CSO)
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Comments

  • What is revenue Neutral rate and Non rebatable tax?
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  • Revenue neutral rate is the tax rate at which tax income remains the same. This is crucial in case of GST since states are worried that they might lose a significant chunk of taxes.

    Non rebatable tax (not sure but my guess) is tax which won't get refunded (income tax) in contrast to taxes like VAT that do get refunded.
    I don't like to reply to idiots and if you think I am referring to you, you are probably correct.
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  • There are rebatable benefits in the Income Tax as well. The closest to a non-rebatable tax, sum toto, is the Fringe Benefit Tax.
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
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  • @Neanderthal @mango_dolly
    can you please clarify what is the impact of inflation and interest rates(separately) on debtor and the bond holder.
    Thanks.
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  • Inflation in short-term encourages investment in the bond markets because there are some assured returns. However, if the inflation rates are very high, it may lead to negative returns. Therefore, there is a demand for inflation-indexed bonds. Debtors stand to gain when there is high inflation as the 'true' value of the amount to be repaid will be lower in effective terms than the sum borrowed.

    Higher interest rates on bonds encourages bond-holders to invest in the debt markets and discourages debtors from taking loans. This is pretty simple, innit @Gaujian ?
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
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  • edited July 2014
    Thanks!!
    If I am already a debtor and the IR falls , will I gain or lose? the debtor can refinance his debt at lower rates so I think he ll gain.
    Also, since bond prices move inversely to IR, the Bond holder will also gain!
    am I missing something here @Neanderthal
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  • edited July 2014
    Thanks!!
    If I am already a debtor and the IR falls , will I gain or lose? the debtor can refinance his debt at lower rates so I think he ll gain.
    Interest rates are fixed by central bank - RBI in our case.
    Banks then, taking into consideration its margins etc, decide on the interest rate which it will offer to its customers. However I think RBI has capped the max. rate banks can offer. But the moot point is that, interest rate rise and fall has to be tracked by banks, else they will lose on competition (becoz some other banks will lower its rate and customers will flock there).

    Some debts also have fixed rate, so irrespective of rise/fall of IR by central banks, debtors obligation does not change. These type of rates usually gives peace of mind to debtors but is usually higher than the floating rates.
    Indian Foreign Service | Career Diplomat
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  • Also, @Neanderthal @mango_dolly
    I just read in Sri ram's notes that GAAR is meant for Both domestic and foreign investors, while I remember reading something that you guys said on some other discussion that it is only meant for foreign investors??

    ''Tax experts note that GAAR provisions can be applied to practically any transaction that leads to a tax saving. So if an Indian company restructures its business units in a way that leads to tax savings, Indian tax officials could potentially question whether the restructuring was done simply to avoid taxes.''

    This is from a newspaper article.

    So i think its meant for both only.
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  • GAAR is specifically to check round tripping, innit? So, it is applied to investments from abroad. These can be made by Indian investors acting as foreign investors. If the statement in the question uses the word 'only'- beware. Otherwise, it's a fair generalization.
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
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  • cool! Thanks!!
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  • What are Advance Tax Inflows, Advance Tax Outflows ? And what impact does these have on Liquidity ?
    Economic Survey says:
    i. Advance tax outflows also contributed towards the increase in liquidity stress in the system in September 2013.
    ii. Advance tax inflows tightened liquidity conditions in December 2013 and March 2014
    @Neanderthal @woman
    ..............
    Also Jaitley blames APMC act for Hoarding, Inflation. When Central govt. can delist fruits,vegetables from it, why can't it delist other commodities that are causing inflation ?
    CSM-2014
    CSM-2015
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  • @neandertal..dolly ..women and others..

    found these new uncoded (till now) terms in budget..please provide your inputs..

    what is arms length tranfer pricing?
    what is real estate investment trust.(rites)?
    what is advance pricing agreement?
    advance tax inflows and outflows?
    "i am the guy doing my job,you must be the other guy."
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  • Arm's length principle of transfer pricing states that the price charged by one related party for a good/commodity from another related party should the same as that which would have been charged if the parties weren't related.

    REITS are trust funds- much like debt instruments- where investors can pool their funds and this can be used to develop the sector. There are returns associated with the growth of the sector.

    Advance Pricing Agreements and Transfer Pricing Agreement are almost the same. The taxpayer and the tax authority get into an ex post-facto agreement on a transfer pricing methodology used by the taxpayer for a set of transactions during a particular period of time. It assures the taxpayer that undue tax burden will not befall upon him and the tax authority of transparency in transfer pricing and appropriate tax revenue.

    The centre usually does not, and should not, transcend into matters of the State Govts. APMC Acts are enacted by the states and the centre's actions- although well conceived and statutorily allowed- are seen as a dilution of the principle of federalism. Thus, the centre does not punch beyond its weight often times and urges the states to take proactive decisions.

    I am not aware of advance tax inflows/outflows. Maybe others can help.

    @KD123 @mrlobo
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
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  • Hi!
    Since both CRR and SLR reduction increase the liquidity in the system, what is the difference in their impacts? For example if I reduce CRR by 1% or SLR by 1%, will the impact be same?
    I know its not , but cant figure out the reason!
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  • edited July 2014
    SLR changes reflect the government's borrowing ability. Although it may infuse liquidity in the system, that's not its basic goal. CRR changes are aimed at changing the liquidity levels in the economy, primarily.
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
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  • Thanks!
    also, does SLR have a cap? I know the floor was done away with.
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  • SLR is capped at 40%
    History will be kind to me for I intend to write it.
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  • edited July 2014
    Arm's length principle of transfer pricing states that the price charged by one related party for a good/commodity from another related party should the same as that which would have been charged if the parties weren't related.

    REITS are trust funds- much like debt instruments- where investors can pool their funds and this can be used to develop the sector. There are returns associated with the growth of the sector.

    Advance Pricing Agreements and Transfer Pricing Agreement are almost the same. The taxpayer and the tax authority get into an ex post-facto agreement on a transfer pricing methodology used by the taxpayer for a set of transactions during a particular period of time. It assures the taxpayer that undue tax burden will not befall upon him and the tax authority of transparency in transfer pricing and appropriate tax revenue.

    The centre usually does not, and should not, transcend into matters of the State Govts. APMC Acts are enacted by the states and the centre's actions- although well conceived and statutorily allowed- are seen as a dilution of the principle of federalism. Thus, the centre does not punch beyond its weight often times and urges the states to take proactive decisions.

    I am not aware of advance tax inflows/outflows. Maybe others can help.

    @KD123 @mrlobo
    Are you sure that Arm's length pricing is the same which you have put down? Because, i think arm's length pricing is just the buying and selling of products (shares/assets) between two unrelated entities where each party acts in it's own interest i.e there are no discounts/favours for any party.

    Also,I think APA and Transfer pricing have a narrow difference.Transfer pricing can have such issues where a related co. sells it's shares/assets at discount rate to favour the other entity.APA have been brought in to make the transfer pricing rational i.e to make sure that two related entities use the same pricing agreements as used by unrelated entities.
    Correct me if i am wrong, please.
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  • @Gaujian CRR mandatory reserve requirement for banks to keep cash reserves with RBI(below 4%)and it does not earn any interest
    whereas SLR - banks park their surplus funds with RBI mostly by purchasing Govt securities(normally above 20%). SLR would be normally high so that banks can bear Govt s fiscal deficit.Govt borrows from bank to bridge fiscal deficit.
    RBI reduces CRR to increase money supply in the system-Liquidity management Tool
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  • Are indian residents are eligible to buy USD in FX market? So that they can make some quick bucks by selling USD in FX market when dollar appreciates and rupee depreciates simultaneously.Based on speculation that rupee will depreciate at some point of time ,Can we keep with ourselves (esp NRI-coming to india) and earn profits?
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  • edited July 2014
    @andy133
    I remember reading what I've written. If you have alternate sources for the definitions, please share them for my benefit as well. Thanks much.
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
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  • ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
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  • Okay ,so ALP is what you mentioned (as per oecd). I remember reading it differently,also have the source but then not as relevant as oecd.
    But yes, the difference between transfer pricing and APA remains (which i mentioned in my previous reply)-even owcd says so.
    Thanks for the link :)
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  • I said 'almost the same' which you concur with @andy133 , and you spelt it out clearly by clarifying the 'narrow difference'. I wasn't getting technical per se. :)
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
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  • I said 'almost the same' which you concur with @andy133 , and you spelt it out clearly by clarifying the 'narrow difference'. I wasn't getting technical per se. :)
    Okay sire :).
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