B U S I N E S S

Air-India’s Project Makeover to cost Rs 35,000 cr
Chandigarh, March 18 The ‘Maharaja’ is all set to get its sheen back. Air-India (A-I) — the country’s national carrier — is being turned into a dreamliner with an all-new fleet having ‘state-of-the-art’ aircraft. To compete with the ‘no-frills’ segment, Air-India’s subsidiary, Air-India Express, will fill the slot. To lose Rs 123 cr as interest on advance payments	V. Thulasidas

Aviation Notes

All is not well with aircraft flying on
domestic routes
Two major deals — Jet’s purchase of Sahara and the modernisation of Delhi and Mumbai airports —have plunged into manmade Whirlpool of uncertainty. Jet’s smooth takeover on the plea of ‘monopoly objections’ has spread uncertainty in domestic skies as main players, like.

Comprehensive Company Law Bill on cards
New Delhi, March 18
The government would bring in a new comprehensive Company Law Bill with the focus on promoting greater transparency and good governance in firms, Prime Minister Manmohan Singh said here today. He said the new Bill, to be introduced within the next few weeks, would give the firms greater independence in operation and remove the lacunae in the half-a-century old existing Act.

Rel Petro to set up refinery in SEZ
Jamnagar, March 18
Newly-formed Reliance Petroleum Limited will set up the world's first refinery in a special economic zone that is expected to be completed by December 2008 with a capital outlay of Rs 27,000 crore.

Model-turned-actress Katrina Kaif launches the Kodak Easyshare V570 digital camera in New Delhi on Friday night. The camera, priced at Rs 23,999, is the world’s first dual-lens 4-megapixel digital camera with 39-117 mm optical zoom. — PTI 

	Little solace for poor from health insurance scheme March 18, 2006
	PHDCCI moots north India common economy March 17, 2006
	Ind-Swift, others in Cenvat fraud March 15, 2006
	Deora seeks raise in fuel subsidy March 14, 2006
	Merger of Reliance Info into RCoVL okayed March 13, 2006
	VAT panel to meet Chidambaram March 12, 2006
	49 pc of Spice goes to Telekom Malaysia for $178.85 million March 11, 2006
	GAIL not entitled to marketing margin on gas supply March 10, 2006

Investor guidance

TDS on short-term gains for NRIs is 30 pc
Q: I am an NRI settled in Switzerland and paying my taxes regularly in my country of domicile, i.e., Switzerland. Recently, I have been confronted with many problems and unanswered questions with regard to taxation on my investments proceeds in India.

Air-India’s Project Makeover to cost Rs 35,000 cr
Naveen S. Garewal
Tribune News Service

Chandigarh, March 18
The ‘Maharaja’ is all set to get its sheen back. Air-India (A-I) — the country’s national carrier — is being turned into a dreamliner with an all-new fleet having ‘state-of-the-art’ aircraft. To compete with the ‘no-frills’ segment, Air-India’s subsidiary, Air-India Express, will fill the slot. “Within a matter of month, the pristine glory of the ‘Maharaja’ will be restored. Project Makeover, which will cost Air-India Rs 35,000 crore, will turn it into a premium segment airline when the first of the 68 new aircraft arrives this December.

Chairman and Managing Director of Air-India V. Thulasidas, while disclosing this, said that the aviation sector had become highly competitive and in order to survive there was an urgent need to phase out old aircraft. “Now that we have ordered a fleet of 68 new aircraft, the onus to make the airlines successful is on the personnel. I have made it absolutely clear to the staff that they should either perform or perish.”

Over the next four years, A-I will phase out all its existing aircraft, except six out of its current fleet of 40. This will coordinate with the induction of new aircraft taking the strength of Air-India carriers to 74, all brand new ones, Mr Thulasidas, a former Tripura Chief Secretary and a serving IAS officer, said.

Giving details about the plans for revival of Air-India, Mr. Thulasidas said that while Air-India would be turned into a premium segment airline, its subsidiary, Air-India Express, would fly on the shorter “no-frills’ routes at a cheaper cost.

Air-India, he said, would also diversify into cargo business. Currently just about 10 per cent of cargo business in India is being handled by A-I. He said proposals were being studied to convert some old aircraft into cargo planes.

Mr Thulasidas said he saw a lot of potential in cargo business, especially in the Punjab region, where a lot of perishable goods in the form of vegetables and fruits were being produced.

The new fleet of aircraft, he said, would be of three kinds. The small Boeings 737-800, 18 in number, would be given to Air-India Express for short flights, such as those to the West Asia and the remaining 50 will go to Air-India for long distance flights.

Boeing 777-200 LR, 23 in number will be put on long distance flights between India –US/Canada sectors via Europe. The aircraft will be available for delivery to any airlines towards the end of 2006 and Air India will get its first plane in February 2007. The third kind, Boeing 787-8, also known as a dreamliner, with the latest technology, would roll out of the Boeing factory in August 2008 and A-I will get its first aircraft in September 2008.

Mr Thulasidas said the move of Air-India to offer jobs to Miss India contestants had improved its image.

To lose Rs 123 cr as interest on advance payments

New Delhi: Air-India is expected to spend Rs 123.56 crore in the next fiscal as interest on advance payments to Boeing company for purchasing 50 aircraft, while its subsidiary Air-India Express would incur an expenditure of about Rs 21 crore on the same count for buying 18 planes from the US manufacturer.

Air-India, which signed a purchase agreement with Boeing for 50 planes at a cost of Rs 30,276 crore, would have to pay deposits and advance payments to the manufacturer as per the agreement.

In accordance with the delivery schedule, A-I is expected to incur an expenditure of Rs 123.56 crore in 2006-07 on interest to be capitalised on advance payments to Boeing, the Outcome Budget of 2006-07 and Performance Budget of 2005-06 of the Civil Aviation Ministry, tabled in Parliament, said.

Similarly, Air-India Charter Limited, which operates A-I Express, would incur an outgo of Rs 20.70 crore in the ensuing fiscal on interest to be capitalised on advance payments to Boeing. — PTI

 

Aviation Notes

All is not well with aircraft flying on domestic routes
by K.R. Wadhwaney

Two major deals — Jet’s purchase of Sahara and the modernisation of Delhi and Mumbai airports —have plunged into manmade Whirlpool of uncertainty. Jet’s smooth takeover on the plea of ‘monopoly objections’ has spread uncertainty in domestic skies as main players, like. pilots are unsure of their future, while the delay in modernisation of two airports has far-reaching adverse effects on country’s already topsy-turvy civil aviation.

What is most shocking is that a former Minister of State for Civil Aviation Rajiv Pratap Rudy has gone on record as saying that the modernisation of airports project has come unstuck owing to red-tapism and political bickering. Who is responsible for this? The minister himself. He was not only instrumental in slowing the process but his actions were detrimental to the interest of the national carriers and partial two private carriers.

When Rudy was at the helm of the civil aviation in the country, he was humming a totally different tune to one he is talking about now. The airports must be modernised on war-footing, but the project to upgrade them into world class must be completely transparent. Sadly, it is not so and some political parties are making a capital out of it.

The physical health of aircraft flying on domestic routes is far from satisfactory. Many aircraft are not undergoing regulatory maintenance drill and commanders are flying without adhering to sleep-rest schedule. The mishap at Bangalore airport recently was on account of bumpy landing and poor physical condition of the aircraft. It is time the Directorate-General of Civil Aviation enforced duty and flight limitation timings without any compromise.

The Bangalore-mishap led to closure of the Bangalore airport for hours. It was providence that came to the rescue of the passengers although the aircraft stayed parked in kutcha’ before it was towed away by the authorities.

Strange are the ways of functioning of the Sahara Parivar. It recently sold Sahara Airline, but is planning to float a new company to offer integrated travel and tourism services. How will Sahara Global be different from Sahara Airlines?

Comprehensive Company Law Bill on cards
Tribune News Service

New Delhi, March 18
The government would bring in a new comprehensive Company Law Bill with the focus on promoting greater transparency and good governance in firms, Prime Minister Manmohan Singh said here today.

He said the new Bill, to be introduced within the next few weeks, would give the firms greater independence in operation and remove the lacunae in the half-a-century old existing Act.

Launching the e-governance initiative, MCA-21, by the Ministry of Company Affairs, Dr Manmohan Singh said the government would also expedite the adoption of accounting standards in alignment with the International Accounting Standards so that “we have better disclosure norms on par with global best practices.”

“Our government is committed to formulating comprehensive new company law and the work on the report of Irani Committee has been completed,” he said.

Dr Manmohan Singh said the e-governance would free 7 lakh Indian companies from statutory paper-filing and end inspector raj.

He asked the Ministry of Company Affairs to look into the issues such as limited liability partnerships and make Competition Commission fully functional.

Referring to the commitment in the NCMP to introduce e-governance, he described MCA-21 a major step forward and a milestone in simplifying the way government functions and delivers services to citizens. He said the MCA-21 e-governance plan has been a result of private partnerships.

Rel Petro to set up refinery in SEZ

Jamnagar, March 18
Newly-formed Reliance Petroleum Limited (RPL) will set up the world's first refinery in a special economic zone (SEZ) that is expected to be completed by December 2008 with a capital outlay of Rs 27,000 crore.

Sources in RPL told a group of visiting journalists here that the new refinery would be the world's largest grassroots refinery with a production capacity of 6.6 lakh barrels per day (BPD).

It would be set up near RIL's Jamnagar refinery in Gujarat. With the commissioning of RPL in 2008, the combined production capacity of Reliance Group would be 1.25 million BPD, making it the world's largest refinery.

To facilitate exports, additional port infrastructure would be created at the existing facility at Sikka on the western coast of Gujarat by Reliance Ports and Terminals Limited.

Meanwhile, RIL has entered into commercial farming on a 2,000 acre piece of land at its refinery complex here.

RIL has floated a 100 per cent subsidiary Jamnagar Farms Private Limited, which is looking after the farm operations inside the sprawling 8,000-acre refinery complex.

RIL Executive Director Hital Meswani said the company has decided to do this in a big way. — PTI

 

Investor guidance

TDS on short-term gains for NRIs is 30 pc
by A.N. Shanbhag

Q: I am an NRI settled in Switzerland and paying my taxes regularly in my country of domicile, i.e., Switzerland. Recently, I have been confronted with many problems and unanswered questions with regard to taxation on my investments proceeds in India.

In India, my only sources of income are the following:

Small amounts in savings bank accounts (total interests on these should not exceed a few hundreds of INR).

Mutual fund units in equity funds only (growth option or dividend reinvestment option only)

Equity shares (very small holding; not large amounts).

If I apply the same tax rules and slabs to myself (as for a resident Indian), then - because long-term capital gains on equities/equity funds, as also dividends on equity funds are exempt from tax - then I should be in the “non-taxable” bracket as far as Indian tax authorities are concerned (my only “taxable” income in this scenario, would be the few hundreds of rupees I might earn as interest in my savings bank account). Please note that in general I avoid booking any short-term capital gains (STCG), at least as long as there is a threat of 30 per cent+ TDS.

Given this scenario, I would appreciate information on the following:

(1) For STCG on my NRE Mutual fund holdings (equity funds only) in India, my bank informs me that they will deduct TDS of 30 per cent + surcharge etc (approx 33 per cent). I read somewhere, that there is a contradiction in the law/s here: “This has to be 30 per cent according to old Section 95, but only 10 per cent according to new Section 11(A)”. Could you please give more details? How can I stop my bank from deducting more than 10 per cent or 12 per cent TDS if I should choose to book any STCG?

(2) For Long-term Capital Gains (LTCG) on my NRE mutual fund holdings (equity funds only) in India, my bank informs me that they will deduct TDS of 30 per cent + surcharge etc (approx 33 per cent). Is this allowed or expected of them, given that long-term capital gains on equities and equity funds are completely free of tax in India (at least, for residents)? How can I stop my bank from deducting any TDS on my long-term capital gains? (Note : I am given to understand that “short-term” means up to 365 days; long-term is any period longer than 365 days.)

(3) For interests earned on savings in bank accounts, my bank is deducting approx 30 per cent or more as “withholding tax”. Are they supposed to do this?

(4) I have also obtained an attestation from the tax authorities here in Switzerland , certifying that I am paying my taxes in Switzerland, and I am liable to pay taxes here, on my world-wide assets, including those held in India. Switzerland has concluded a Double Taxation Avoidance Treaty with India. According to this treaty, in all cases, India is not supposed to deduct more than 15 per cent from such an NRI, be it withholding tax or TDS or whatever. Assuming I am able to make my bank in India acknowledge and accept this attestation from the Swiss tax authorities, what effect should I expect that to have, on the TDS and withholding tax rates that the bank so far applies to me? Also, how best to go about making my “Double Tax Avoidance” NRI status actually take effect? The bank is strangely silent to my query regarding this.

(5) If I should change any of my assets (especially my Equity Mutual Funds holdings) to NRO status instead of NRO, what effect should this have on eliminating or reducing the TDS in case of (a) STCG & (b) LTCG?

— Deepraj

A: On short-term capital gains for NRIs though the tax applicable is 10 per cent, the TDS rate in the law hasn’t been changed and it continues to be 30 per cent. This is an anomaly and it needs to be corrected. Some mutual funds have, on the basis of a special order obtained from the tax officer, or based on expert opinion, have started applying the 10 per cent rate on their own. However, if some bank wants to follow the letter of the law, then the correct withholding tax rate is 30 per cent. Your only recourse is to file tax return and claim refund of the excess tax deducted.

On long-term capital gains from equity funds, there is no tax payable and no tax deductible even for NRIs. If your bank is withholding taxes on long-term capital gains from equity funds, it is erring in doing so. Part II to the First Schedule to the Finance Act specifies the TDS rates and the same clearly says that such long-term capital gains are free from withholding taxes.

On NRO interest, again the bank is correct. Interest on NRO accounts suffers TDS @30.6 per cent without any threshold. Only residents enjoy the threshold of Rs. 5,000 on bank deposits above which TDS becomes applicable. If the interest paid by the same branch is over Rs. 10 lakh the TDS will be @ 33.66 per cent (= 30 per cent + 10 per cent surcharge + 2 per cent educational cess).

It doesn’t matter whether you shift from NRE to NRO or vice versa, the same rules will apply. Only that interest on NRE is not taxable, so the same will not be subject to withholding tax.

As far as DTAA is concerned, while it is true that the DTAA overrides the domestic law and income givers should adopt the DTAA rate, the fact remains that DTAAs are highly complex and subject to interpretation. Therefore, issuers do not on their own decide whether a particular DTAA is applicable to you or not. Based on the DTAA, you have to produce a certificate from the Assessing Officer, specifying that such DTAA is indeed applicable in your situation and based on such certificate, the bank will apply the rate specified in the DTAA.

Taxing furniture perks

Q: I am employed in a private sector company. I am living in a rent-free accommodation provided by the company in the colony. For calculation of income tax, my employer is adding 15 per cent of my gross salary (which included the entire bonus, leave encashment and other allowances etc) as accommodation perks. In addition, he is adding furniture perks also separately (accommodation is furnished).

Please let me know is my employer rightly doing the same?

— Prashant Shanbhag

A: Yes, the employer is following the correct procedure. Where the employer owns the accommodation, it shall be 20 per cent of the salary for cities having population over four lakh as per 2001 census and 15 per cent of the salary for other cities. If the accommodation is furnished, 10 per cent of the original cost of the furniture or if the furniture is hired, the actual hire charges shall be added as value of the perks.

Salary includes pay, allowances, bonus or commission or any monetary payment, by whatever name called, from one or more employers, payable monthly or otherwise but does not include a) DA unless it enters into the computation of superannuation or retirement benefits; b) employer’s contributions to the PF; c) exempt allowances and d) any payment and expenditure specifically excluded u/s 17. The only change in the old rule is that, medical allowances and reimbursement for treatment of serious illnesses as prescribed in proviso below Section 17(2vi) have now been excluded.