B U S I N E S S

Deflation fears loom large
Mumbai, December 28
Indian economy may go into deflation by the second quarter of financial year 2009-10, as there are fears of inflation going below zero per cent in the face of unprecedented fall in crude and commodity prices.

UTI Mutual Fund to divest 26 pc stake
New Delhi, December 28
The country's oldest fund house, UTI Asset Management Company, is likely to offload 26 per cent stake to a strategic partner in the next three months.

Kingfisher to cut fares from Jan 1
Mumbai, December 28
The country's leading private air-carrier, Kingfisher Airlines, has said that it would effect fare cut across its network from January 1.

Panasonic to shut down three plants
Tokyo, December 28
Panasonic Electric Works, the building materials unit of consumer electronics maker Panasonic Corp, said it will close three additional plants in Japan and cut 800 workers as a slowing economy hits demand.

Market Update
Second stimulus plan may lift bourses
Markets may recover this week (though gains would be capped due to concerns of corporate earnings), on the hopes of further rate cuts by the central bank and a likely second government stimulus package to pump prime the economy, after a sharp slide last week.

Tax Advice
Interest on term deposit under Section 80 C taxable
Q. I have come to know from my friend that the amount invested in Bank Term Deposit for 5 years under tax savings scheme under Section 80C up to Rs 1 lac, the principal amount as well as the interest accrued is taxable at the time of payment of the bank T.D.R.

A worker locks the door on the last day of opening of a Woolworths store in Streatham in south London on Saturday. Administrators began closing the stores of Woolworths — one of Britain's best known retailers — on Saturday. Woolworths collapsed into administration in November and its administrators said earlier this month all its stores would close by January 5, with the loss of 27,000 jobs, unless a last-minute buyer could be found. — Reuters

Deflation fears loom large

Mumbai, December 28
Indian economy may go into deflation by the second quarter of financial year 2009-10, as there are fears of inflation going below zero per cent in the face of unprecedented fall in crude and commodity prices.

"If the current pace in inflation-decline continues, the figure (in WPI-based inflation) may slide below two per cent by end-fiscal," HDFC Bank's deputy head of treasury, Ashish Parthasarathy, said, adding "it may fall further to below zero per cent by Q2 FY'10".

Inflation almost halved to a nine-month low of 6.61 per cent from this year's peak of 12.91 per cent, giving more space to the RBI to signal further cuts in interest rates.

Deflation occurs in an economy when the negative inflation prevails for a long period. In the event of deflation, the Reserve Bank will have to enhance money supply and lower rates further "to support inflation", IDBI Gilts' economist Amol Agarwal said.

Citibank India's chief financial officer Abhijit Sen echoed this view saying that the rapid decline in the headline inflation is likely to continue in the coming months.

"In my view, deflation is a remote possibility in this economy. However, if the inflation continue to fall to much lower levels, this would have an impact on the profitability of banks, as it would affect the credit demand," Sen said.

The sharp decline in inflation has given a headroom for the Reserve Bank to slash its reverse repo rate by 0.5-1 per cent, he said.

"A lower inflation rate has offered the opportunity to the Reserve Bank to explore further monetary policy options, including a cut in the short-term reverse repo rate," Sen said.

Wholesale prices-based inflation declined by 0.23 percentage points for the seventh consecutive time during the week-ended December 13 as manufactured goods and food items became cheaper due to the cascading effect of fuel price cuts amongst other factors.

"(The) declining inflation rate provides more leeway to the RBI to further slash interest rates. I expect a 100 basis points cut in both the repo (short-term lending rate) and reverse repo (short-term borrowing) rates," said Crisil's principal economist D K Joshi.

The RBI had hiked its key policy rates several times till October to hold off skyrocketting inflation rate that rose to a multi-year high of around 13 per cent early this year. However, with inflation now on the decline, the Central Bank has shifted its focus from fighting inflation to supporting economic growth with a series of rate cuts.

It cut the CRR, the percentage of cash banks are required to park with the apex bank, to 5.5 per cent from nine per cent and the repo and reverse repo rates to 6.5 per cent and five per cent, respectively. — PTI

UTI Mutual Fund to divest 26 pc stake

New Delhi, December 28
The country's oldest fund house, UTI Asset Management Company, is likely to offload 26 per cent stake to a strategic partner in the next three months.

The negotiation is at the advance stage and the deal is expected to be closed by February or early March, sources close to the development told PTI.

According to sources, Japan-based Shinsei, with which the fund house has tie-up with regard to global fund management, is being actively considered to be the strategic partner.

Other US and European players, including the second largest fund house in the US America Vanguard Mutual Fund, have also shown interest in picking up strategic stake in the mutual fund, which has seen growth in its asset under management even when the sector is facing redemption pressure.

Last month, UTI Mutual Fund replaced ICICI Prudential for the third spot by witnessing increase in asset under management at a time when assets of the industry shrunk by seven per cent. — PTI

Kingfisher to cut fares from Jan 1

Mumbai, December 28
The country's leading private air-carrier, Kingfisher Airlines, has said that it would effect fare cut across its network from January 1.

"Kingfisher Airlines will begin the New Year on an aggressive note by slashing fares on its network," Kingfisher Airlines chairman Vijaya Mallya said in a statement here today.

He, however, did not specify the quantum by which fares would come down.

The current low prices of Air Turbine Fuel (ATF) allows Kingfisher to pursue an opportunity to significantly increase market share by offering the fine five-star flying experience at reduced fares, he said.

Earlier, Kingfisher had said that it would effect fare cut only after the government classifies ATF in the Declared Goods category.

Another private airline, Jet Airways, had also taken a similar decision on the issue.

The airlines across the board are demanding from the government to classify ATF in the declared goods category. — PTI

Panasonic to shut down three plants

Tokyo, December 28
Panasonic Electric Works, the building materials unit of consumer electronics maker Panasonic Corp, said it will close three additional plants in Japan and cut 800 workers as a slowing economy hits demand.

The company, which sells lighting equipment, built-in kitchen systems and other building products, will carry out the plant closures and job cuts by the year ending March 2011, a Panasonic Electric spokesman said on Sunday.

The latest streamlining measures come on top of two factory shutdowns and elimination of 200 jobs so far in the current business year to March 2009, the spokesman said.

Of total job cuts of 1,000, 550 of them will be full-time positions.

Panasonic Electric Works, owned 51 percent by Panasonic Corp, the world's No.1 plasma TV maker, has not decided which three of the remaining 13 domestic factories will be closed, he said. — Reuters

Market Update
Second stimulus plan may lift bourses
by Lalit Batra

Though, given the grim outlook for the global economy in 2009, it is natural to be fearful, but as we stand at the cusp of the New Year, we stick your necks out and thin that stock markets would bottom out much before the real economy does, therefore, we feel that investors should start cherry picking their investments now.

NIIT Ltd

NIIT Ltd. is India’s premier IT training company. It provides learning solutions for individuals, enterprises, schools, and colleges in IT, banking, finance & insurance, executive management education, and communication & professional life skills. NIIT has a major presence in the retail segment, which caters to the staffing requirements of IT and BPO sectors.

In August 2006, NIIT acquired a US based learning solutions provider Element K. This acquisition is expected to benefit NIIT in many ways going forward. With an increasing trend of corporates outsourcing their training requirements to companies like NIIT, the scope for growth is high.

Keeping in the view the above positives of NIIT Ltd, we feel investment at the current market price of Rs. 23 seems to be a good bet with a three years perspective.

Tax Advice
Interest on term deposit under Section 80 C taxable
by S.C. Vasudeva

A. The amount allowed as deduction under Section 80C of the Income-tax Act 1961 (the Act) in respect of the term deposits for five years and the interest accrued thereon is taxable in case the same is withdrawn by an assessee from his account before the expiry of the period of five years from the date of deposit. The same is taxable in the year of withdrawal and is treated as the income of the assessee for the year in which the amount is withdrawn. However, in case the amount is received by the nominee or legal heir of the assessee on the death of depositor, the principal amount shall not be included in the total income of the nominee or the legal heir of the deceased. It may be added that interest earned on such term deposit is taxable.

Professional fee

Q. I came to know from your answer of my queries that professional income by senior citizen is taxable. From some previous columns I came to know that if the fee is received off and on not regularly is not taxable. If fee is paid regularly month-wise then it is taxable.

Kindly clarify:

Is the tax 20% or 10% if the total income for the financial year 2008-09 exceeds Rs 2,25,000. In the same column, you have stated that consultancy fee is taken as professional fee on which the tax is 10%. What tax I have to pay 10% or 20%?.

— Resham Singh, Chandigarh

A. Your queries are replied hereunder:

i) The professional fee even if received irregularly would become taxable if the total income of the recipient including such professional fee exceeds the maximum amount not chargeable to tax.

ii) The rate of 10% specified in my reply is in respect of deduction of tax at source. Such tax is deductible if the professional fee payable by a person exceeds Rs 20,000. The tax so deducted is adjustable against the amount of tax payable computed on the basis of total income. The specified rate of tax in respect of income exceeding Rs 2,25,000 (applicable to a senior citizen) is 10%. However, this slab rate is applicable up to a total income of Rs 3,00,000. The rate of 20% is applicable for total income between Rs 3,00,001 and Rs 5,00,000.

iii) In case your total income, including professional fee, exceeds Rs 2,25,000, the tax will be computed on the basis of slab rates indicated hereinabove and tax deducted at source on professional fee will be adjusted against the total tax so computed so as to arrive at the net payable amount. I may add that the tax so computed is required to be increased by an education cess of 3%. In case the total income of an assessee exceeds Rs 10,00,000 a surcharge @ 10% on tax is also payable.

Computation of tax

Q. I am an employee in government department. We have a TAN no. in the name of Distt. Health Society. Will you please tell me what is method of calculation of tax who are salaried employee under this society? Is it necessary to deduct the tax of an employee and deposit it into the TAN every month? What are the dates to deposit tax of salaried employee to TAN? What forms it is necessary to give at the end of financial year to employees?

— Lovely Goyal, Mansa

A. The answer to your query is as under:

1. The method of computation of tax deducted at source of the salaried employees is given in the complete detail in circular no. 9, dated 29th September 2008 issued by the Central Board of Direct Taxes.

2. In case the salary, perquisites and allowances given to an employee exceed the maximum amount not chargeable to tax, tax will have to be deducted at source and paid to the credit of the Government of India (i) in case of deduction by or on behalf of the Government, on the same day, (ii) in any other case within one week from the last day of month in which the deduction is made.

A quarterly statement of tax deducted at source is required to be filed in Form 24Q with the tax department on or before 15th July, 15th October and 15th January in respect of the first three quarters of the financial year and on or before the 15th June following the last quarter of the financial year.