Tuesday, August 20, 2013

See how Falling Rupee hurts and changes your way of life !!

Interest rates

With a weak Indian rupee, it may be difficult for the RBI to cut interest rates at the monetary policy meeting next week. India’s dependency on foreign investors to bring inflows in order to bridge current account deficit is one of the key factors that will be considered for interest rate changes.


A weak rupee can weigh down your chances of studying abroad. Since students borrow education loans in local currency and spend in foreign currency, you will have to shell out more rupees to buy the dollar which would make accommodation, food and cost of education abroad costly.

If you are planning to travel while the rupee is weak, you may want to reconsider as air fares will be expensive considering an increase in fuel surcharge. Also, eating out when you are traveling overseas will turn out to be costly because you will end up spending more rupees.


Depreciation of rupee will impact loan seekers in a big way. If you apply for a car loan, you will have to pay more depending on where the vehicle is assembled and the components imported by the automobile company.

Oil prices

Rupee depreciation may prompt oil companies to hike petrol and diesel prices. India is highly dependent on importing oil and companies will have to shell out more money to import crude in dollars


A weak currency will increase the price of imports which will translate into an increase in the prices of consumer products. Depreciating rupee will also cause an increase in inflation.


A falling rupee makes imports more expensive in terms of rupees. India is a major importer of oil, gold and iron ore among other things, and more money spent on imports will show up in inflation data which in turn will lead to increase in electronics, fuel prices and consumer products.

On the bright side, rupee depreciation will help increase India’s export competitiveness especially with other emerging Asian markets like China and Korea. But, a weak rupee alone may not boost the country’s exports.

Considering India’s reliance for raw materials from overseas, a weaker rupee affects the profits of companies. While IT and pharma sector gain from a weak rupee, it might be trouble for aviation.

Its good news for a few IT companies operating in India because most of the countries tech firms gain revenue from the US, a weak rupee can help them earn relatively more. Pharmaceuticals companies in the doing business in the country will gain when rupee depreciates because they export more than they import. On the other hand, aviation sector will be disappointed with a weak rupee because most of their earnings are in rupees while they spend in dollars.

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Tuesday, August 13, 2013

Here is how you are charged at Restaurant...!

A simple thing made complicated
We have an uncanny ability to screw simple things and make it complex. Taxes and charges on seemingly simple stuffs like food and drinks are one such thing where customers are taken for granted. Let’s understand few terms that we see on our food bill often but do not understand.
Service charge
This is charged by the restaurant for the services rendered to you. This money goes to the restaurant. The establishments are free to charge any amount as service charges as there are no guidelines provided by the tax authority. The charge varies from 5% to 10%. Few restaurants don’t charge it. This is equivalent to the tips people usually give to waiters. If you are charged service charge in the bill, don’t pay tips as this charge is supposed to be shared among the staff.
Most of us don’t bother about it even when we feel the charges are higher. One reason is that we don’t think anything can be done about it. Secondly, we don’t want to spoil our evening because of this and argue with restaurant manager. However, the ground rule is that if the menu mentions service charges, you have to pay. If it doesn’t, you can question it.

Service tax
Many people confuse service tax with service charges. Service tax is the tax levied by the Government on the services rendered by restaurants. Service tax is same in all states. It is 12.36% on the 40% of the bill. The bill includes your food and drink and the service charge. The restaurant must be air-conditioned for the service tax. The problem here is that most of the customers are taxed at the full bill and not on the 40% of the bill as directed.
To make things simple, service tax should be 40% * 12.36% = 4.94% on the total bill. Hence whenever you see service tax on the total bill exceeding about 5%, you can question it.
VAT (Value Added Tax)
There is another tax called VAT (value added tax) that is state specific. The rates can be as low as 5% and as high as 20% depending upon the states. Moreover, VAT for food items and drink are different. Many restaurants might club food items and drink and charge a flat rate on the total bill. In such cases, it is good to ask for separate bills for food and drinks. This should clearly show the different VAT for both the items.

Let’s see how service charge, tax and VAT work with an example. Suppose you have dined in an AC restaurant and the price of food items is summed to Rs 900. You will be asked to pay service charges (goes to the restaurant) and VAT and service tax (goes to Government)

Bill of food item
Service charge (assuming 6%)
Sum Total
Service tax to be levied on (40% of sub-total)
Service tax (at the rate of 12.36%)
VAT @ 12.5% of the sub-total
Total amount to be paid

Many times, restaurants charge the highest rate on the total bill. This is general complaint by almost all the customers.
Source from Yahoo!

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