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Consensus
reached on US bailout
Congress nod to $25-b loan guarantees to automakers
Lehman Effect
JLR announces production cutbacks
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Infrastructure development costs to rise: Study
India-EU annual summit today
Kingfisher eyes ATF transportation biz
Tax Advice
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Consensus reached on US bailout
Washington, September 28 After marathon talks into the wee hours of today, congressional leaders from both parties emerged with an agreement that altered key parts of a Wall Street bailout program initially proposed by the Bush administration. The preceding week of negotiations over the rescue package roiled financial markets and altered the course of the US presidential campaign less than six weeks before the election. “We’ve made great progress,” House of Representatives Speaker Nancy Pelosi told reporters after the talks. Treasury secretary Henry Paulson lobbied hard for the package — the largest bailout in the US history - saying it would keep credit markets from grinding to a halt under the burden of bad mortgage-backed bonds created by banks at a time when it looked like home prices had nowhere to go but up. Congress was racing to reach an agreement before Asian financial markets open on Monday to avoid a repeat of last week’s white-knuckle volatility. It was unclear when the House and the Senate would vote on the bailout legislation, or whether last-minute hitches might arise. US President George W. Bush spoke with Pelosi on yesterday and news of a deal was welcomed at the White House. “We’re pleased with the progress tonight and appreciate the bipartisan effort to stabilise our financial markets and protect our economy,” White House spokesperson Tony Fratto said. At one point, lawmakers consulted by phone with billionaire investor Warren Buffett, who last week invested $5 billion in Goldman Sachs and warned that markets were in a “dangerous situation” and on the verge of breaking down. Amid public anger over the bailout, Democrats and Republicans rushed to add safeguards for taxpayers. The proposed legislation would disburse the $700-billion in stages. The first $250-billion would be issued when the legislation is enacted while another $100 billion could be spent if the President decided it was needed. The remaining $350 billion would be subject to congressional review, said a statement issued by Pelosi’s office today. To further protect taxpayers, institutions selling assets under the plan would issue stock warrants giving “taxpayers an ownership stake and profit-making opportunities with participating companies,” the statement added. The plan also would let the government buy troubled assets from pension plans, local governments and small banks. In response to a clamour for limits on executive pay, no executives at participating companies could get multi-million-dollar severance pay — known as golden parachutes — while CEO pay that encourages excessive risk-taking would be limited. An oversight board of top officials, including the Federal Reserve chairman, would supervise the program, while its management also would be under close scrutiny by Congress’ investigative arm and an independent inspector general. The program also calls for “meaningful judicial review of the Treasury secretary’s actions,” the statement said. Finally, the government could use its power as the owner of mortgages and mortgage-backed securities to help more struggling homeowners modify the terms of their home loans. Fear of contagion Turbulent financial markets made the negotiations over the bailout more urgent, as big banks in recent weeks teetered, collapsed and refused to lend money to each other. Investors worried about a contagion effect as the crisis showed signs of spilling into Europe, where Belgian-Dutch financial group Fortis NV fired its interim chief executive after liquidity concerns pushed its shares to a 14-year low. In London, regulators were in talks on the future of troubled lender Bradford & Bingley, raising the prospect that a second British bank could be nationalised. The bailout deal capped a tumultuous week as news out of Washington made a deal look imminent at one moment, and then out of reach the next. Lawmakers announced a deal in principle on Thursday, but conservative Republicans in the House balked, saying taxpayers should not be put on the hook for a private market failure. Negotiations were thrown into further disarray as Republican presidential candidate John McCain suspended his campaign and rushed back to Washington, leading Democrats to charge that he was playing politics with the crisis. Both McCain and Democratic nominee Barack Obama were in touch with congressional negotiators as talks hurtled toward a conclusion yesterday. In the end, House Republicans won support for a provision that would create a privately funded insurance program for mortgage-backed securities, congressional aides said. Democrats jettisoned proposals that would have put money into a trust fund for affordable housing and would have allowed judges to alter the terms of mortgages for bankrupt borrowers, according to aides. —
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Congress nod to $25-b loan guarantees to automakers
Detroit (Michigan): The US Senate has approved $25 billion in loan guarantees for the financially strapped US auto industry, intended to spark a wave of automotive innovation.
The loan guarantees were included in a continuing resolution that included funding for the US government and the wars in Iraq and Afghanistan. President George W.Bush has indicated that he intended to sign the Bill. “We’re very pleased the Congress has chosen to act at this critical time,” said Greg Martin, director (communications), General Motors Corp’s Washington office. GM had been subject of much speculation that it could be forced into bankruptcy. The Bill, which was approved by the House of representatives on Wednesday, are the first loan guarantees for US carmakers since the Congress approved a similar $675 million measure for Chrysler Corp in 1980. Chrysler chairman Robert Nardelli, however, said this week the loan guarantees should not be considered a rescue package for struggling carmakers. “This is not a bailout,” he said. Under provisions of the new legislation, not only US carmakers are eligible for the guarantees but also suppliers and foreign automakers with plants in the US that are more than 20-years-old — Nissan and Honda’s US operations
qualify.
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Lehman Effect
New Delhi, September 28 “In terms of MTM losses of the banking sector, including private sector, stood at Rs 410 crore owing to financial crisis in some of financial institutions. Of this, ICICI Bank alone has MTM loss of about Rs 309 crore,” a senior finance ministry official said here. MTM is based on the market value of underlying securities and keeps varying. MTM is a notional loss but it would be reflected in the balance sheet. Besides, some state-owned banks had exposure in the instruments of these troubled US financial institutions to the tune of Rs 234 crore. “Exposure of a few public sector banks to credit-linked and floating rate notes of Lehman Brothers and other troubled institutions is about $52 million,” he said. In his first reaction after the collapse of Lehman Brothers and the bailout of the largest US insurer AIG, finance minister P.Chidambaram had said India’s financial institutions were on a sound foundation. As far as public sector banks are concerned, in which the government is a majority owner, he had said they didn’t have any “undue exposure”. “In fact, many of them have no exposure at all. Whatever exposure they have are in accordance with the RBI’s prudential guidelines,” he said, adding, ICICI Bank had some exposure, which it has disclosed. The London subsidiary of ICICI Bank had $80-million exposure in the senior bonds of Lehman Brothers. ICICI Bank joint managing director Chanda Kochhar had said the investment by the subsidiary constituted less than one per cent of the total assets of the subsidiary and less than 0.1 per cent of the consolidated total assets of the ICICI Group. — PTI
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JLR announces production cutbacks
London, September 28 The night shift at Land Rover’s Solihull plant has been withdrawn and is unlikely to be reinstated before the end of the year, the company said. The company said from October, production of the Range Rover would be reduced from two shifts to one. The company did not say by how many units a week production was being cut. —
PTI |
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Infrastructure development costs to rise: Study
New Delhi, September 28 The incidence of increase in inputs costs is expected to be in the range of 10-20 per cent of the infrastructure project costs. The survey revealed that 46 per cent of the respondents expected the increase in costs to be absorbed by infrastructure project developers, while 15 per cent of the infrastructure companies expected the cost to be passed on to the clients, in most cases the government. While assessing the impact of increase in input costs, the survey also revealed that 58 per cent of the respondents expected that there would be a renegotiation of prices that may lead to delays in implementation. Assessing the other factors responsible for any delays in project implementation, the CII survey revealed that land acquisition continued to be the top most concern for project developers. The survey also stated that the key reasons for delay in implementation of infrastructure projects and revealed land acquisition, environment clearance and other government approvals to be the top three concerns for infrastructure project developers. Among these three, the survey revealed that 81 per cent of the respondents felt that land acquisition was the most important impediment to infrastructure project implementation.
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Marseilles (France), September 28 Global security, climate change, terrorism and the international financial crisis are set to top the agenda at the summit to be attended by Prime Minister Manmohan Singh and French President Nicholas Sarkozy. France currently holds the EU’s rotating presidency. The action plan being finalised touches upon cooperation in peace and security issues, sustainable development, science and technology and enhancing person-to-person contacts. An agreement for cooperation on civil aviation with France is also on the cards. “The EU and India are pillars of stability in their respective regions. In this respect, they have a major role to play on the international stage to promote peace and security. Also, challenges posed by climatic change and energy security or food crisis plead for this stronger commitment,” EC president Jose Manuel Barroso said in a statement. Besides trade relations - the traditional core area - the summit is expected to spend considerable time on global problems such as financial instability and climate change. The prospects of EU opening atomic trade with India after the Nuclear Suppliers Group approved a waiver to New Delhi is also expected to come up at the discussions. On the financial crisis, the summit is expected to give out a call to quickly address the impact of current problems in the international financial sector. — PTI
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Kingfisher eyes ATF transportation biz
New Delhi, September 28 Besides, the UB Group chairman is also seeking the government’s approval for direct purchase of the fuel from global oil majors. The airline plans to buy the jet fuel directly from global oil companies and take delivery of the product at one of the key ports in the country. In a letter to the petroleum minister, Mallya said: “We are also speaking to Indian oil companies to store and transport the product on our behalf from these ports to various airports where we routinely consume the product.” — PTI
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Tax Advice Q. I was an employee with a limited company and received a gratuity of Rs 2,20,000. The company was covered under the Payment of Gratuity Act, 1972. I retired on May 31, 2008, after a service of 40 years and seven months. At the time of retirement, my monthly salary was Rs 7,900. Is the entire amount of gratuity exempt from tax? — R.S. Kanwar, Sonepat A. According to the provisions of the Payment of Gratuity Act, 1972, an employer is liable to pay gratuity at the rate of 15 days' salary for each completed year of service or part thereof in excess of six months on the basis of last salary drawn by the concerned employee or Rs 3,50,000 whichever is less. The Act further provides that 'month' for the above purpose would be taken as a period of 26 days. The gratuity payable would be, thus, as under: Period of service 40 yrs and 8 mths No. of completed years of service 41yrs Last drawn salary 7,900 A day's salary 7,900/26=303.85 Gratuity payable 303.85x15x41=1,86,867 Gratuity received 2,20,000 Maximum amount exempt u/S 10(10)(ii) of the IT Act 3,50,000 In your case, thus, the exempt amount would be Rs 1,86,867 (being the least of the three sums) and the balance amount of Rs 33,133 would be taxable for assessment year 2009-10 in case your income from other sources, including the above amount, exceeds Rs 1,50,000 for the year ended March 31, 2009. Rent free accommodation
Q. The details of my income are as under: Salary at the rate of
Rs 10,000 p.m. Rs 1,20,000 Dearness allowance Rs 24,000 Bonus Rs 20,000 Ent allowance Rs 12,000 Conveyance allowance Rs 6,000 I am also provided with a furnished accommodation in Delhi. I am making a payment of Rs 1,000 per month towards the house rent. Cost of furniture provided is Rs 48,000. Please let me know the amount required to be added towards the perquisite value of rent free accommodation. — S.K. Chopra, Gurgaon A. The computation of perquisite value of the free furnished accommodation would be as under: Salary for computation of
perquisite (1,20,000+ 20,000+12,000) 1,52,000 15% thereof 22,800 Add: 10% of cost of furniture 4,800 27,600 Less: payment made 12,000 Taxable perquisite 15,600 The above computation is based on the presumption that DA does not enter into the computation of your retirement benefits. Accordingly, the same has been excluded for the computation of the perquisite as above. Further, the conveyance allowance has also been presumed to be exempt from payment of tax as the same is within the limit of Rs 800 per month. The above amount of perquisite will be added to your salary income for the purpose of computing the tax liability. Sale of shares
Q. I had applied for the shares of Reliance Power and I gifted the same to my wife after they were allotted to me. The shares were sold by her. The profit realised on such a transaction should be taxable in the hands of my wife. However, I am advised by my tax advisor that such profit will have to be added to my income. Is this correct? — H.S. Jain, Hansi A. In accordance with the provisions of Section 64 of the Act any income arising from an asset transferred to a spouse without any consideration is required to be clubbed in the hands of the spouse who has transferred such assets. In view, thereof, your tax advisor has correctly advised that the profit arising on the sale of shares would be taxable in your hands. Wealth tax
Q. I am informed that urban land under the Wealth-tax Act is includible in the Wealth-tax Act. What is meant by urban land for the purposes of Wealth-tax Act, 1957? — H.S. Rekhi, Ambala Cantt A. Section 2(ea)(v) provides that urban land is an asset for the purposes of levy of Wealth-tax. It can be agricultural land or a non-agricultural land. The section defines the urban land as situated
in the following areas: 1. Land situated within municipality - land situated in any area that is comprised within the jurisdiction of a municipality and has a population of not less than 10,000 according to the last preceding census of which relevant figures have been published before the valuation date. 2. Land situated in any other area - land situated in any area within such distance (not being more than 8 km) from the local limits of any municipality referred to above, as the Centre having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations may specify. For the above purpose, "municipality" includes municipal corporation, notified area committee, town planning committee, town committee or a municipality known by any other name. |
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