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RBI may not cut CRR
Market disclosure norms amended
Industry sees hike in interest rates
Escorts eyes joint ventures in Africa
UP woos Intel, Microsoft
Reliance plan
Market Scan
Tax Advice
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RBI may not cut CRR
Mumbai, April 2 CRR is the cash that banks require to keep with the apex bank computed as a certain percentage of its demand and time liabilities. The objective is to ensure the safety and liquidity of the deposits with the banks. Currently, it is pegged at 5 per cent. A 1 percentage point cut in the CRR could infuse Rs 20,000 crore into the banking system, the official said. “CRR is the last resort for the apex bank to maintain liquidity in the system. However, the current trend shows credit growth of the country is at its historical high backed by phenomenal growth in the economy. It is expected that this momentum would continue for another three to four years,” he said. But that does not mean that the RBI has to resort to a CRR cut to match the credit demand, at least immediately, he added. However, a top banker said the CRR cut would provide the banking system to address the credit demand, particularly the long- term ones. He even expects an announcement from the RBI on this issue even before the annual review of the monetary policy. The RBI has to resort to the CRR cut to address the liquidity issue in the short term as a straight forward method since it could not make a further cut in the statutory liquidity ratio, which has reached to the permissible level of 25 per cent. RBI Deputy Governor Rakesh Mohan had earlier stated that the banks needed to maintain statutory liquidity ratio (SLR) holdings in excess of 25 per cent to affectively participate in the liquidity adjustment facility (LAF). The RBI uses instruments like unwinding of the market stabilising scheme, LAF and SLAF to address the liquidity issue on a day- to- day basis. The RBI Governor had earlier said these mechanisms would suffice to bridge the credit - demand mismatch. Admitting the mismatch between demand for and supply of credit, Finance Minister P. Chidambaram has said on record that while deposits had grown at the rate of 16 per cent so far in this fiscal, lending had grown at 30 per cent. Meanwhile, the apex bank had increased the interest rate ceiling on FCNR (B) deposits by 25 basis points last week in an attempt to address the liquidity issue. It had also announced a couple of ‘innovative instruments’ for raising capitals for banks.—PTI
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Market disclosure norms amended
Mumbai, April 2 On rationalisation of disclosure requirements for listed companies, SEBI decided to rationalise the disclosure requirements for rights and public issues by listed companies. The amendments will also ensure that a comprehensive investor grievance mechanism is put in place to redress investor’s complaints satisfactorily. With regard to abridged letters of offer, it has now been decided to permit an issuer company making a rights issue to dispatch an abridged letter of offer which shall contain disclosures as required to be given in the case of an abridged prospectus. The issuer company will now have to provide the detailed letter of offer to any shareholder upon request. On the subject of disclosure of the issue price, the amendments entailed a listed company to fix and disclose the issue price in the case of a rights issue any time prior to fixing of the record date. In the case of a public issue through a fixed price route, the company can now fix and disclose the issue price at any time prior to filing of the prospectus with the Registrar of Companies (ROC), stated SEBI, adding that the prospectus filed with ROC shall have one issue price.— UNI
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Industry sees hike in interest rates
New Delhi, April 2 Public sector banks have already raised interest rate on home loans and NRE deposits, and are likely to further increase the interest rate on corporate loans in the next fortnight. The RBI is scheduled to announce Monetary & Credit Policy 2006 on April 18. Mr S.C. Gupta,
CMD, Punjab National Bank said, “The bank will take a decision on interest rate before April 18.” A survey by the FICCI reveals that 82 per cent of the respondent bankers,
FIs, corporates and other stakeholders see a further hardening of interest rates and 79 per cent hope that the RBI would reduce the cash reserve ratio
(CRR) by 50 basis points. The survey shows that while 73 per cent of the respondents felt that the RBI was right in increasing the repo and reverse repo rates last year due to increase in inflation rate, only 27 per cent felt that it was a sort of anticipatory measure to avoid inflationary pressures. The survey notes that CRR (currently at 5 per cent) was left unchanged in quarterly reviews of the previous credit policy. With the credit deposit ratio reaching a level of 100 per cent, banks are facing tight liquidity situation.
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Escorts eyes joint ventures in Africa
New Delhi, April 2 “Plans are in the pipeline to enter seven new countries in Africa to sell our tractors, some of which should materialise during this year,” Escorts Ltd Head of Exports Division Rajiv Kumar said. The company, which is already present in nine countries of the African continent through exports of completely built units (CBU), is eyeing to sell about 2,000 units this year.The company was looking at an overall revenue of around Rs 250-300 crore this year from its overseas exports. Escorts markets its tractors in the USA, Sri Lanka, Bangladesh and Europe, apart from the African continent.— PTI
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UP woos Intel, Microsoft
Lucknow, April 2 Addressing a select gathering after inaugurating ‘UP IT Expo Infocom 2oo6’ here yesterday, UP Development Council
(UPDC) Chairman and ruling Samajwadi Party National General Secretary Amar Singh said he would soon discuss the matter with UP Chief Minister and SP supremo Mulayam Singh Yadav. Major international and national IT firms are participating in the three-day fair. Mr Amar Singh emphasised that the MNCs should look beyond Noida and Greater Noida in UP.
—UNI
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Reliance plan
New Delhi, April 2 This recharge option comes with Rs 25 talk- time pre-loaded. Customers can make outgoing calls at Rs 1.99 for a local call and Rs 2.99 for all other calls in India.— PTI
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Investment good in sugar scrips
by J.C. Anand Sugar scrips are in great demand as the prices are shooting up. There are two for it. First, in 2004-05 sugar output declined from 13.5 million tonnes in the previous year to 12.6 million tonnes. The Government of India was forced to allow the import of raw sugar though with an export obligation by 2007. The second reason is that with the fossil fuel produce, particularly oil and gas, reaching unprecedented high level, sugar industry is producing substitute fuels and energy sources in the form of ethanol. Bajaj Hindustan, Balrampur Chini and Bannari Amman Sugar are three main leaders of the Indian sugar mills industry. Bajaj Hindustan (with a face value of Re. 1/- per equity share) is now quoting around Rs. 500 per share and has a P/E ratio of 45.7 Balrampur Chini (with a face value of Rs. 1/- per equity share) is priced at Rs. 188/- and P/E ratio of 25.9. Banan Amman’s Rs. 10 face value share is moving around Rs. 1391/- with P/E ratio of 19.9. The market prices of these shares are so high that no fresh investment can be recommended. There are, however, some companies which are at present reasonably priced and can be picked by the investors. One of them is Rana Sugar, a Punjab-based company quoting around Rs. 38 per share with P/E ratio of 8.6. The company is also setting up two sugar mills in UP which will have the capacity to crush 5000 tonnes of sugarcane per day and with facility for co-generation of 20 MW of power. The management plans to raise the capacity of these units to 10,000 units of sugarcane some years later. The Moradabad unit is likely to be operational from October 15 while the Rampur unit will start production from November 15. Rana Sugar paid a dividend of Rs 10 per share for year ended 30.92005. Mawana sugar Ltd, quoting Rs. 125 (for its Rs. 10 face value share) for its 18 months working, has paid a dividend of 11 per cent. The third company Dwarikesh Sugar is another low-priced company with a P/E ratio of 14 for its Rs 10 face value equity share. Mawana Sugar and Dwarikesh Sugar have their units in UP. Rana Sugar is also setting new units in UP. The UP Government has announced an attractive sheme for investment in sugar and sugar-related business. If a company invests Rs. 350/500 crore, an estimated Rs. 100 per tonne of sugarcane will be available to the investing company for 5/10 years, respectively. Sugar industry is likely to have a stable and a good future for at least two to three years.
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No deduction on gift to son from proceeds of capital gain by S.C. Vasudeva Q. I was allotted a 79 sq. yds. plot for shop on 11.11.1993 by the Government at a total cost of Rs 7,55,000 (Rs 6,36,000 as principal + Rs 1,19,250 as interest). i) 10pc on the fall of hammer on 63,600 03.09.1993 ii) 15 pc (to make 25 pc) as per terms 95,400 of bid on 28.09.1993 iii) Paid on 19.08.1994 towards instalment 70,950 due 1994 iv) Paid on 10.10.1994 for 1994 balance 96,000 of instalment v) Paid on 09.10.1995 instalment due 1995 1,55,026 vi) Paid on 17.10.1996 instalment due 1996 1,43,100 vii) Paid penal interest on 18.11.1996 4,235 viii) Paid on 06.10.1997 instalment due 1997 1,31,175 7,59,485 Additional payments made by me 1. On 17.12.1997 as penalty towards 36,000.00 non-construction on time 2. On 14.07.2005 as penalty towards 28,620.00 non-construction on time 3. On 14.06.1998 as development charges 6,360.00 4. 09.10.2005 - as above - 2,973.30 73,953.30 Construction was completed on 20.01.2000. Registration charges paid while acquiring 38,200 Registration processing fee paid on 2,200 08.07.2005 while selling. Registration fee on sale 10,170 (10,000/- +20/-+150/-) (2nd time registration while selling it 50,570 as per deal with the buyer) Valuer has estimated the construction 6,10,500 cost of the shop, including the basement in 2002 at (I have some receipts on purchase of materials such as cement, electricals, sands, shuttering etc., but not formal receipts from contractors etc.) Cost towards water charges during construction 750 Electricity bills paid during and after 88,600 construction/ maintenance of the property:- (Shop was never used and was new for sale.) I have receipts for the electricity bills paid for some period while a few are missing too. Can it be totaled on average basis? Charges to the security guard: @ Rs. 100 p.m. 6,800 w.e.f. January, 2000 to August, 2006 I have sold the above property in 42 lakh August, 2005 for Following expenses were incurred by me while disposing of the said property:- a) Payment to the property dealer: 38,500 b) Publication in newspapers 1,000 c) Miscellaneous expenses on conveyance etc. 2000 (Self certification only - no taxi receipts available) I had, out of the sale proceeds, gifted Rs 25 lakh to my youngest son enabling him to acquire a residential flat in his name as I have already one residential building in my name and acquiring in my name will not give me any concession in long-term capital gains tax. I request for your help on the following requirements:- a. How much longterm capital gains tax I have to invest after gifting Rs 25 lakh to my son out of the total sale proceeds of Rs 42 lakh? b. What are respective legal requirements required to be documented by me and my son for gifting/receiving gift of Rs 25 lakh? c. Can I submit all this information when I fill the income tax return for current financial year or I have to separately file any return in respect of the capital gains tax? d. Can I get concession in the capital gains tax for the electricity bills, water bill, security guard’s wages, property dealer’s service charges, cost of advertisement publication in the newspapers etc. e. Does the LTCGT admit depreciation on the construction cost? If yes, how much? I am a senior citizen. Hence urgent reply as I wish to get rid of LTCAG Tax at the earliest possible. You can also guide me if any other expenses can be adjusted to reduce the burden of LTCG Tax. — S.P. Singh Bhalla, SAS Nagar A. The query lacks few important details. Accordingly, while replying the query certain presumptions have been made. These are: (i) date of possession of plot on which shop has been constructed has been taken as the date on which development charges have been paid. (ii) the date of registration of the plot has also been presumed after the date of payment of the development charges. Accordingly, the indexation of Rs 8,02,533 (7,55,000 + 6,360 + 2,973 + 38,200) has been made from financial year 1998-99 onwards. (iii) the date of construction of the shop has been taken as 20th January 2000; including the basement. Accordingly, the indexation for the construction cost has been made from financial year 1999-2000 onwards. (iv) the registration charges payable on sale are normally paid by the buyer. These have, therefore, not been considered for the computation of the capital gain. On the basis of these presumption, the indexed cost of the plot and the shop works out at Rs 11,36,351 and Rs7,79,996, respectively. The total cost works out at Rs 19,16,347. The consideration of Rs 42,00,000 will be reduced by the expenditure incurred in connection with the transfer i.e. brokerage to the property dealer and publication expenses in the newspaper. The net amount of capital gain would work out at Rs 22,44,153. You are, therefore, required to purchase the bonds for Rs 22,44,200 so as to avail the exemption from the levy of the long-term capital gains tax. The gift to your son is not deductible from the gross consideration. The movable property can be gifted by the exchange of letters regarding the making of gift and acceptance thereof. There is no need to execute any other legal document. The information regarding the sale will have to be included in your income-tax return. The advance tax instalment in respect of capital gains tax should have been paid on 15th September 2005 and 15th December 2005. You could have paid the entire tax by 31st March 2006 together with interest under Section 234C of the Income-Tax Act 1961 (the Act). The expenses in the nature of penal interest, penalty, water and electricity charges and security guards are not relevant for the purpose of computing capital gains tax. Similarly, the amount of conveyance may not be allowed as a part of the expenditure incurred in connection with the sale. Rebate on LTC Q. I want to know the following facts related to Income Tax Act. 1. Whether the amount received as LTC after retirement is taxable or taxfree under Section 10(2) for Financial Year 2005-06. (Assessment Year 2006-07). 2. Whether the interest of NSC VIII issue reinvested is allowed for deduction under Section 80C up to Rs 1,00,000. If yes to what extent (Formally upto Rs 12,000 under Section 80L). — B.L. Arora, Ludhiana A. The amount in respect of Leave Travel Concession or Assistance received by a former employee for himself or his family in connection with his proceeding to any place in India after retirement from services is exempt to the extent of amount actually incurred on the performance of such travel subject to conditions laid down in Rule 2B of the Rules. 2. The accrued interest on NSC VIII issue reinvested is covered for the purposes of computing the total amount of deduction of Rs 1,00,000 allowable under Section 80C of the Act. RBI Bonds Q. I seek your advice on the following: 1. The charitable trust paid certain amount to the HDFC Bank, Panchkula for investment in the Government of India 8 per cent 6 years Saving Taxable Bonds (2003). The trust is registered U/S 12A of the Income Tax Act. The managing trustee while filling the form inadvertently opted for cumulative instead of non-cumulative interest. The mistake noticed on receipt of cumulative bonds instead of non-cumulative. On the basis of the investment guide form containing a provision that option once made generally not changed. The income of such a trust is to be applied for charitable purpose in the same year and accumulation not allowed. On the basis of these circumstances application is made for change of option to non-cumulative. 2. Whether certificate U/S 80G of the Income Tax Act is necessary for such a Charitable Trust to get the RB Bonds. — Piyara Lal Gupta, Chandigarh A. The certificate under Section 80G of the Act is normally issued by a charitable trust to the donor to enable him to get a deduction against his total income in respect of the amount paid as donation to the charitable trust. The deduction allowable is generally limited to 50 per cent of the amount paid which in certain specified cases may also go up to 100 per cent of the amount paid. In my opinion, no such certificate would be required for the acquisition of RBI Bonds.
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