INVESTOR GUIDANCE

Interest on NRE taxable
Q: For RNOR status is interest is taxable on NRE deposit? (Deposit start date was last year when status was NRI. At maturity, status is changed to RNOR) Is Interest is taxable on FCNR deposit ?

Graphic: Weekly stock movement

AVIATION NOTES

Indian Airlines, A-I resolve row
There is now better coordination between Air-India and Indian Airlines than it was in the past. This change in attitude has come about as managing director of the two airlines Sunil Arora has impressed upon commercial directors and other officials that they should supplement each other’s interest instead of functioning on cross purposes.

ROUND-UP

Forex reserves cross $ 92 b
Mumbai, November 8
Foreign exchange reserves of the country continued its unabated rise and stood at a new record high of $ 92.598 billion during the week ended October 31, showing a gain of $ 706 million from a week ago.

• Karan Bilimoria wins award

• FII net buyer

New Delhi, November 8
Riding on the boom powered by a consistently soft interest rate regime, multi-million dollar real-estate and hospitality major the Eros group has firmed up elaborate expansion plans, including the development of a super-deluxe residential complex in Faridabad spread across 125 acres.

The $100 million group, which has recently announced a tie-up with Shangri-La Hotels of Hong Kong, will also look into possible tie-ups with more international hotel chains.

“We have plans to provide the city with a super deluxe housing colony. The Lakewood City spreads across 125 acres and each plot is of 1,000 square yards. We are also developing a global business city and an entertainment centre spread over 35 acres”, Chairman of the Eros group J R Sood said in an exclusive interview.

The Eros group has already set up a housing complex — Charmwood Village — having 3,000 residential complexes in Faridabad just off the Delhi-Haryana border.

Mr Sood said the company also has a few projects in the pipeline for the commercial sector. “We have undertaken to develop in Nehru Place a state-of-the-art 19-storey Corporate Tower with inter-linked nine level indoor car parking project for 1,000 cars and buses”, he said.

The company is in “expansion and entertainment mode” in the entertainment and hospitality industry. The company is at present undertaking renovation of two theatres in the Capital “to bring it at par with international entertainment venues”.

On the pending demand that big developers should also be rated, Mr Sood said “it will be a welcome step as it will help separate the chaff from the grain”.

“It will also make the systems more transparent and provide right information to the common user”, he said. Mr Sood projected an upward swing in the real estate sector. “An upward swing is predicted and things will look up for this industry which has seen a long gestation period.

The residential segment is already picking. Although the commercial market is still sluggish, the road to recovery is expected to pick up in the near future”, Mr Sood said.

The Eros group has signed a management contract with Shanri-La Hotels of Hong Kong thus marking the first entry of the Far Eastern international hotel.

Following the agreement, former ITDC-managed Hotel Kanishka in the Capital will now be Shangri La hotel. The Hong Kong based group is planning to set up four or five hotels in the country in the coming years.

Shangri La Hotels and Resorts currently manages 41 hotels in Australia, China, Fiji, Hong Kong, Indonesia, Malaysia, Myanmar, Phillipines, Singapore, Taiwan, Thailand and the UAE.

The Eros group, which also owns the five-star Intercontinental Park Royal Hotel in South Delhi, has acquired Kanishka Hotel for $22 million. In addition, Rs 26 crore has been paid as compensation to the 700 ITDC employees as part of the package.

Mr Sood said the company can look at similar agreements with international hotel chains in the future.

He said current boom in the housing sector is sustainable. In fact, the housing sector is relatively unaffected in the recent years of recession, thereby forcing some experts to say that this is indicative of the sustainability of the upswing.

Interestingly, however, even as the interest rates are consistently coming down and housing loans are becoming more and more affordable, the real prices of houses are not coming down.

Mr Sood said the “cost of raw material is not falling and on the contrary there is a demand for high quality of workmanship, which is not cheap”, he said.

On the growing phenomenon of more and more real estate developers entering the hospitality sector, he said “this is one sector which has a lot of potential despite the swings”.

INVESTOR GUIDANCE

Interest on NRE taxable
A. N. Shanbhag

Q: For RNOR status is interest is taxable on NRE deposit? (Deposit start date was last year when status was NRI. At maturity, status is changed to RNOR) Is Interest is taxable on FCNR deposit ?

— Rakesh Doshi

A: Yes. The interest on NRE becomes taxable from the date of permanent return. The interest on FCNR remains tax-free in the hands of an RNOR. This was the situation before the definition of RNOR got amended and this is the situation now also.

Removal of Karta

Q: HUF consisted of my father CR, my brother RR and myself RJ. Our father was the Karta and passed away in 1989. He has no brother but one sister (married) only. A family arrangement (unregistered) was entered in 1996 in presence of a close relative. This which was signed by all the legal heirs of CR. Now, the new Karta is going back on this arrangement cum settlement. Please tell me whether I can remove him as Karta.

— Jayakumar

A: The rights of a Karta are large and wide. Any member of an HUF does not have the right to challenge the actions of the Karta except on grounds of fraud. A member of an HUF cannot ask for family accounts at any time, even at the time of partition. No member can demand for the resignation of the Karta. However, a male member can ask for dissolution of the HUF.

I feel that your new Karta has committed a fraud by breaching the terms of family agreements arrived at. You may accordingly against him in a criminal court.

GPF withdrawal

Q: I have retired from Central Government, service in June 03. I do not want to withdraw my GPF amount now. Is it permissible?

— B. D. Makkar

A: Normally, this is permissible, unless the rules as applicable to your GPF specifically prohibits its members from doing so. However, please note that from some of the complaints I have received from my readers, it appears that a few ITOs take the stand that once a person retires, his provident fund gets the character of a fixed deposit and therefore, the interest earned after retirement is taxable. I do not subscribe to this view but I feel it is better to withdraw within a reasonable time.

Q: I find that there is lot of confusion in the minds of the investors about the Varishtha Bima Yojana scheme of LIC. Sadly, experts who write articles and the replies to the queries in the periodicals are not free from it either. I give below examples.

TDS provision

1. I read a reply given by Kamalnath Rathi in the Deccan Chronical on Aug 17, 2003 & give below the information which is either not covered or is contradictory to the information in your article on the subject that appeared in the Business Standard on Aug. 2, 2003.

The T.D.S. provisions shall not be applicable to the scheme. The monthly income form the scheme shall qualify for deduction U/s 80L. The income shall be treated as "Income from other sources", and shall not qualify for standard deduction.

2. Mr T.N. Pande writes in the Business Standard of Aug.4, 2003 that - "It is not clear, at present, whether on pension exceeding say Rs. 5000 in a year (as in case of interest), there would be deduction at source ---".

3. 'Anonymous' writes in the "Outlook Money", of 31st Aug.2003, that 1) The LIC has reduced the lockin period from 15 years to 10 years & 2) It also seems likely that tax will be deducted at source for pension exceeding Rs. 5000 in a year.

4. Arati Sharma writes in the Business Standard on March 29 that the pension earned will be tax exempt with an assured income in the range of 9 per cent.

I do understand that experts write on the subject on the basis of the information available at that point of time. But, should the reader not expect that any change required in the statements made earlier because of amendments made or on any other ground, be notified in a subsequent article? Surprisingly, conflicting information on TDS has appeared in different periodicals at the same time.

However, most of the writers have similar view that the scheme is not in the interest of senior citizens. As communicated to you earlier, I hold a different view and I have invested in the Policy, as it meets my needs. I am aware that the scheme would be reviewed after one year. However I read an article in Loksatta on Aug. 18 Nagpur edition to say that the review would include the revision of rate of interest to be paid on the policy. I only hope that any review of the policy next year does not result in the reduction of rate of interest for the existing policies.

I would request you to kindly give the correct position as to - TDS, Benefit u/s 80L and the review of rate of interest to be paid to the existing policy holders under the scheme.

— Sharad Hatekar

A: 1. The authorities have not yet clarified the issues related with TDS and Sec. 80L. However, since now that the pensions have started coming without any application of TDS it can be safely assumed that there is no TDS. I personally strongly feel that the scheme is not under Sec. 80L because there has been no notification issued by CBDT as yet.

2. The review can entail anything and everything, including interest, taxability thereof or even the total withdrawal of the scheme.

There is now better coordination between Air-India and Indian Airlines than it was in the past.

This change in attitude has come about as managing director of the two airlines Sunil Arora has impressed upon commercial directors and other officials that they should supplement each other’s interest instead of functioning on cross purposes.

According to the latest MoU between the two airlines, Air-India will maintain its non-stop operations between Chennai and Kuala Lumpur, in accordance with the existing winter schedule. But Air-India will not increase similar service next year as envisaged.

Indian Airlines will operate daily flight on Delhi-Kaula Lumpur-Singapore and back. It will also operate a second daily frequency between Chennai and Singapore.

On routes other than those that are commonly operated, A-I will not raise any objection, if IA adds fresh capacity. On the commonly operated routes, the carriers will undertake discussions before making any change in schedule.

What has been appreciated by passengers is that free endorsability will be permissible between the two national carriers on certain important routes, which are: Delhi-Muscut; Calicut-Muscut; Kochi-Dubai and Calicut-Kuwait. This facility will allow passengers to alter travel plans without undergoing any inconvenience. The date of implementation will be announced after examining the agreement with general sales agents.