The Tribune, Chandigarh, India

PMEAC rules out super regulator

Hyderabad, August 8
The PM's economic think-tank yesterday said it is an exaggeration to talk of any conflict between monetary and fiscal policies, a comment that blunts RBI Governor D Subbarao's comment that central bank's policies are increasingly getting influenced by fiscal compulsions.

At a time when inflation is high, the monetary policy has an important role to play. I think the conflict between fiscal policy and monetary policy are exaggerated. There is a need for coordination between the two. — C.Rangarajan, Chairman, PMEAC

Talking to reporters on the sidelines of a lecture at the University of Hyderabad, PM's Economic Advisory Council (PMEAC) chairman C Rangarajan also said there is no question of a super regulator to supervise the financial system.

"At a time like this when inflation is high, the monetary policy has an important role to play. I think the conflict between fiscal policy and monetary policy are exaggerated. All that it means is there is a need for coordination between the two," he said.

"I think the monetary policy has its own role to play. There has to be some coordination between monetary and fiscal policies," Rangarajan later told newsmen. His comment comes barely two days after Subbarao had said its ability to conduct monetary policy freely has again come under threat due to the influence of the government's fiscal policies. "Like in most countries, in India too, fiscal stimulus was part of the crisis response and monetary policy had to acquiesce in elevated government borrowing.

"Going forward, the challenge for the government is to continue the fiscal consolidation and for the Reserve Bank to regain the space to conduct monetary policy free of fiscal compulsions," Subbarao had said recently.

Subbarao said the world over, central banks' monetary space has come under the dominance of fiscal policies of the governments and our country followed the global trend.

However, Rangarajan yesterday said the talk of conflict between monetary and fiscal policies are exaggerated.

The PMEAC chairman also said there cannot be any super regulator to supervise the financial system. "There is no question of a super regulator. The country has a system of multiple regulators and there is no unified single authority supervising the financial system," he said.

The idea of a super regulator came to the fore after the budget for this fiscal proposed to set up a Financial Stability and Development Council. Later, the issue again came into the limelight when an Ordinance, issued to sort out the disputes between SEBI and insurance watchdog IRDA on controlling Ulips, provided for setting up a joint mechanism to resolve any future jurisdictional issues between the two regulators on hybrid financial products.

Indian ADRs gain $2 bn in a week

New York, August 8
Indian stocks trading on American bourses added nearly $2 billion to their cumulative market capitalisation last week, driven by smart gains in IT majors Infosys Technologies and Wipro.

For the week ended August 6, Indian entities listed on the New York Stock Exchange and Nasdaq added $1.6 billion to their market capitalisation, with Infosys and Wipro together contributing $1.48 billion to the total valuation.

The valuation of IT bellwether Infosys grew by $798 million to $35.34 billion, while that of Wipro climbed by $686 million to $34 billion. — PTI

Tax Advice
Prize money taxable @ 30 per cent
by SC Vasudeva

Q. My 11-year-old has won ‘onetime’ scholarship of Rs 10,000 in a competition organised by HDFC Bank last year (Sep-2009). The Bank has deducted Rs 3,000/- as TDS under Section 194B and deposited with Income Tax Deptt. against her PAN.

Please let me know:

(i) How Rs 3,000/- deducted as TDS can be got refunded from the Income Tax Deptt.

She has a PAN number. The bank has issued Form 16. She has no other income. And father’s income comes under 30% I.T. slab.

(ii) Can Income Tax return be filed by a minor?

— S.C. Goyal

A. The amount received by your daughter has not been treated as scholarship within the meaning of Section 10 by HDFC Bank since the same has not been granted for meeting the cost of education. It seems the tax at source has been deducted on the contention that the amount received by her is in the nature of a winning from lotteries, crossword, puzzles, cards and other games of similar nature. The flat rate of 30% is applicable in respect of such incomes provided the income of the nature referred to above is in excess of Rs 5,000/-. If the income is of the said nature, the question of any refund may not arise as the said income is taxable @ 30% in accordance with the provisions of the Act. A minor can file a return if he or she has taxable income provided his/her income is not to be clubbed with the parent’s income.

Lineal ascendants

Q. Kindly elaborate the following terms appearing under the term ‘Relative’ of the Income-tax Act:

(i) Lineal ascendants or descendants of the individual.

(ii) Lineal ascendants or descendants of the spouse.

— A.N. Sharma

A. Lineal ascendant mean a person who is related in the ascending line i.e. once parents, grandparents, great grandparents. On the other hand, a lineal descendant means a person in the direct line of descendant such as a child or grandchild as contrasted with a collateral descendant such as a niece.

Interest on FDs

Q. Please clarify the following points:-

a) The interest that accrues on Fixed Deposits with banks is to be included in total income on accrual basis or on maturity of F.D.

b) How the interest that accrues on NSC is to be treated. Should the interest be first included in the total income and then be deducted under section 80C from the total income.

— Rajinder Singh

A. (i) An assessee can choose a method of accounting in respect of income from other sources i.e. interest earned on fixed deposits. He can adopt either the cash method of accounting i.e. taxability of interest on receipt basis or accrual system of accounting i.e. taxability of interest accrued for the year. It is advisable to declare the interest on accrual basis so as to take the benefit of tax deducted at source. This procedure also avoids the taxability of a higher amount of interest in the year of receipt.

(ii) The interest accrued on National Saving Certificates is to be included as income from other sources and thereafter a deduction thereof can be claimed under section 80C of the Income-tax Act 1961.

Capital gains tax

Q. I have sold some shares for the first time resulting in some STCG and LTCG I am not absolutely sure/clear about the tax implications of both these capital gains as S.T.T. and 80CC benefits have their bearing differently. My problem is that my income has crossed the tax threshold due to STCG and I am not sure as to how STCG.and benefits of Sec. 80C are to be treated for tax calculation. I am furnishing here below my income/saving details for the F.Y. 2009-10 with a request to please compute my tax liability.

This will enable me to understand the tax liability in case of income crossing the tax threshold due to inclusion of STCG.

I would also like to know as to what will happen if the income remains below the tax threshold even after inclusion of S.T.C.G. (S.T.T. paid).

Secondly, no TDS/Advance Tax has been paid by me this F.Y. suppose, I am required to pay tax at this point of time, then –

1. From which date the tax will have to be paid?

2. What will be the penalty/rate of interest on the delayed payment of tax?

3. What will be the last date of depositing the delayed tax and interest thereon?

— K.S. Kanwar

A. (i) The short-term capital gain on which Securities Transaction Tax has been paid would be taxable @ 15% plus education cess @ 3% thereon.

(ii) The amount of total income excluding short term capital gain would be considered for the purposes of allowing deduction under section 80C of the Act. Since your total income of Rs 2,31,000/- is below the maximum amount on which tax is not chargeable in case of a senior citizen, you would not be entitled to any deduction under section 80C of the Act.

(iii) However, out of short term capital gain of Rs.15,000/- only Rs.6,000/- would be taxable @ 15% plus education cess of 3% thereon. This is on account of a fact that short fall between the total income and the maximum amount on which tax is not chargeable is required to be adjusted against the amount of long term or short term capital gain so as to provide the full relief on the basis of the maximum amount on which tax is not chargeable. The amount payable would work out at Rs 927/-. There is no interest or penalty for non-payment of advance tax as the advance tax payable does not exceed Rs 10,000/- in your case. The aforesaid amount of tax can be paid at the time of filing of tax return.

Market Update
Outcome of US Fed meet to set the tone
by Lalit Batra

Sustained buying by foreign funds and firm global equities boosted the domestic bourses as the BSE Sensex moved past the psychological 18,000 level. The Sensex and the 50-share S&P CNX Nifty scaled two-and-a-half-year highs during the last week.

Monsoon rains have bounced back and provided the much-needed support that the bulls needed to take the Sensex beyond the 18,000 mark. Foreign funds have continued to mop up Indian equities. Foreign funds bought equities worth nearly Rs 2,100 crore in the first four trading days this month. Surprisingly, domestic funds have been net sellers during this while.

Markets will eagerly await the outcome of the US Federal Open Market Committee (FOMC) meeting during the week. The announcement of the meeting will set the tone for the markets. The action may be more in the mid-cap and the small-cap space rather than the large caps.

Prakash Steelage

Given steep pricing and weak fundamentals, investors may not subscribe to Prakash Steelage IPO, which closes this Tuesday (except QIB bidders).

The company is engaged in the manufacturing and trading of stainless steel sheets, coils, plates, welded and seamless stainless steel pipes, tubes and U-tubes.

The demand for stainless steel seamless pipes and tubes is mainly derived from important sectors like hydrocarbon, petrochemical, power generation engineering, sugar, dairy, pharmaceutical, chemicals & fertilisers, infrastructure, automobile and railway. Hence the company's products may find demand from a wide range of corporates. The company faces competition from Ratnamani Metal, Suraj Stainless, Rajendra Engineering and Mechanical Industries.

Though the company has improved its performance during the last fiscal but the same has more to do with the trading income (where the margins are less) than from manufacturing.

The only positive that the issue holds is that the company plans to foray into certain new products like Duplex, Super Duplex and Super Austenitic pipes / tubes (This will aid the corporate in margin improvement). This also has certain risks attached with it.

On the flip side, the company's stock may face poor discounting than peers as the promoters of the company were found guilty of concealment of income. In February 2009, the income-tax authorities carried out search and seizure operations on the company's premises during which the above concealment had come to light. The assessment proceedings for the respective assessment years are still in progress so the tax liability that may arise on this account is at present unascertainable for the company.

The major portion of the capex has already been spent. The company may use part of the proceeds from the issue for repaying the interest-free unsecured loan given by the promoters for funding the capex, which will not reduce any interest burden of the company.

Lastly, the company is offering the shares in the price band of Rs 100 to Rs 110 per equity share (Rs 10 face value) with EPS of Rs 10.2 for the year 2009-10, the price to earnings works out to 9.8 to 10.8 times, respectively, which is much higher than the peers, for example Ratnamani Metals, the largest player in the industry, has price to earning of 7.2.

Defaulter database for market players in the offing

New Delhi, August 8
Market watchdog SEBI is considering setting up a common defaulter database in order to provide a one-stop reference point for all types of market players such as brokerages, mutual funds, merchant banks, portfolio managers and rating agencies.

The move would make it easy for any market intermediary to beforehand identify a client, person or institution, that has defaulted in the past and thus avoid doing any business with the same.

The defaulters database for various segments of the capital market is being proposed to be set up on the lines of CIBIL (Credit Information Bureau India Ltd), a repository of credit history information of all commercial and consumer borrowers in the country for the benefit of banks and other lending institutions, sources close to the development said.

All the market participants, including stock brokers, portfolio managers, depository participants, merchant bankers, underwriters, asset management companies, credit rating agencies, bankers to an issue, depositories and custodians would be asked to contribute the names and details of their individual defaulters to this common database for the benefit of all others, the sources said.

The repository thus created would serve as a reference database of defaulter clients for the entire spectrum of market participants, they added.

The issue is in advanced stage of discussions with the SEBI and follows a related recommendation made by an expert group that was set up to suggest changes in various functional aspects for the market intermediaries.

"The group discussed the need for setting up a reference database like CIBIL to identify the defaulter clients.

At present, there is no database or industry wide mechanism that can help intermediaries in identifying the defaulting clients," a senior official said. — PTI