The Tribune, Chandigarh, India

Premature closure of FDs to draw penalty

New Delhi, January 30
Next time you wish to cash in your fixed deposits, be ready to pay a penalty of as much as one per cent of the investment if money is withdrawn before completion of the maturity period.

In a bid to discourage premature withdrawal of money from fixed deposit accounts, banks have decided to impose a penalty on such transactions to minimise any impact on their liquidity position at a time when rising interest rates are pushing up the cost of funds for them. RBI has left it to banks to decide whether they want to impose any penalty on premature closure of fixed deposits.

As such, the customers are given a return lower than the promised interest rate in case of early withdrawals.

Although some of the public sector banks have already in place a mechanism to impose a penalty on premature withdrawal of money from FDs, a number of others, mostly private sector banks, have not been charging any such penalty in their attempts to lure more customers.

However, the continuous rise in interest rates over recent months have pushed the cost of funds much higher for the banks and premature withdrawal from deposit accounts has put unnecessary pressure on the banks' liquidity position, a senior private sector banker said.

Earlier, the banks used to give only the interest rate applicable to the period for which the deposits have been maintained in case of premature withdrawals and not the full return promised at the time of booking the FDs.

In such a scenario, some of the banks, including the country's second largest private sector bank HDFC Bank, have decided to impose a penalty of one per cent for all premature withdrawals from fixed deposits.

With effect from January 24, HDFC Bank has decided to impose one per cent penalty on premature closures, including for partial withdrawals, it said in a customer circular.

On the other hand, some others such as IDBI Bank will spare new deposits from the penalty clause to lure more customers, but would impose a fine in case of older deposits.

On its part, IDBI Bank has said it would not charge any penalty for premature withdrawal on its various term deposits opened/renewed with effect from January 1.

However, in case the customer wants to prematurely withdraw the FDs booked before January 1, 2011, a penalty of one per cent would be imposed, IDBI Bank said. — PTI

MaRS helping Indian startups grow globally
Sanjeev Sharma in Toronto
Tribune news service

MaRS Discovery District, a large-scale innovation centre based in Toronto, is working with several startups of young Indian-origin entrepreneurs to grow and scale the ventures.

Earl Miller, director, strategic partnerships, MaRS, said the centre was set up to create a unique Canadian model of “convergence innovation” connecting the worlds of science, business and capital with the goal of dramatically improving commercial outcomes for entrepreneurs.

He said the MaRS Centre is the gateway to Canada’s largest concentration of scientific research, anchored by major teaching hospitals, universities and research institutes, adjacent to leading financial institutions.

Among the startups that the centre is mentoring include Tiffinday, founded by Seema Pabari, which delivers meals in tiffins to offices with environmental sustainability.

Bitstrips, founded by Shahan Panth, is a web application which helps to make and share comics. Its website for schools after the first year is being used by many teachers and students the world over. Polar Mobile, founded by Kunal Gupta, is the global leader in enabling businesses to extend their presence across mobile devices by leveraging a proprietary software platform. Polar has over 400 applications across smartphones for customers in the news, sports, entertainment and lifestyle media verticals.

GreenMantra, founded by Pushkar Kumar, recycles waste plastics to produce waxes, lubricants and greases.

Miller said MaRS has worked with more than 1,300 companies to grow and scale high-potential ventures into global market leaders across a range of sectors like life sciences and healthcare, information, communications and digital media technologies, clean tech, advanced materials and energy, as well as innovative social purpose businesses.

The TiE Toronto chapter headed by Suresh Madan, which promotes entrepreneurship, is also collaborating with MaRS.

Diamond units set for boom
Shiv Kumar/TNS

Mumbai, January 30
Diamond cutting and polishing units in Mumbai, Gujarat and parts of Rajasthan are all set for a major boom from February when import of 'rough' stones from Zimbabwe resume.

The Surat Diamond Sourcing Company Ltd (SDSL), which was set up to import rough diamonds directly from producing countries, has an agreement to import $1.2 bn worth of rough stones from Zimbabwe. However, deal was put into cold storage last December after Western countries alleged diamonds mined from conflict zones were being imported under this agreement.

"Diamonds mined from Zimbabwe's Marange fields have cleared the Kimberley Process allowing the rough stones to be imported," an official of the Gem and Jewellery Export Promotion Council said.

According to SDSL officials, the first batch of rough diamonds worth $20 million will arrive in India in the first week of February. "The prices of roughs had gone up after exports from Zimbabwe stopped," Amit Jain, owner of a small diamond polishing unit here, said.

However, a section of the diamond trade felt that there was no real shortage as many enterprising businessmen obtained rough diamonds from the black market. When the restrictions on export of rough stones from Zimbabwe were announced late last year, Indian exporters bemoaned that shortage of labour was a bigger problem.

Some of the bigger exporters of diamond jewellery are, however, relieved as they will now clear examination of their stock by importers from countries that are signatories to the Kimberly Process.

Market Update
Rate hike, high inflation spook markets
by Lalit Batra

Indian markets were under a bear grip in this truncated week, posting losses in three out of four sessions. Though RBI’s credit policy outcome came as per market expectations, it did not turn out to be good for markets. Rising inflation concerns and likely slow-down in economic growth spooked sentiments. The main indices are now below their 200-day moving averages, a key indicator of support levels. The investors were rattled by feaers of persistent FII outflows amid macro-economic headwinds.

The RBI raised repo and reverse repo rate by 25 basis points to 6.25 per cent and 5.5 per cent, respectively, while the CRR was left unchanged. The GDP growth forecast has been retained at 8.5 per cent with upward bias while WPI inflation forecast has been raised from 5.5 per cent to 7 per cent for the financial year.

The earnings season also seems to have been a no event for the market so far, as there have been not many surprises there. The intermediate trend is bearish and the market will look at the forthcoming Budget for any positive clues.

Concerns about high inflation, rising interest rates and fears of slowing corporate earnings may continue to weigh on the bourses in the near term.

IDFC bonds

It is the time of year when all tax payers look for avenues for investment through which they can save on taxes. In this regard, we recommend investment in IDFC Longterm Infrastructure Bonds - Tranche 2 (for those who have not made investment for income deduction under the Section 80CCF in the current financial year).

In 2010, the government introduced a new Section 80CCF under the Income Tax Act, 1961, to provide for income tax deductions for subscription in long-term infrastructure bonds. These bonds offer an additional window of tax deduction of investments up to Rs 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under Sections 80C, 80CCC and 80CCD read with Section 80CCE.

This issue of infrastructure bonds by the IDFC is the second public issue of long-term infrastructure bonds. The total issue is to raise up to Rs 2,930 crore. The issue does not have any minimum size and may be subscribed by any Resident Individual or Hindu undivided family (HUF). Bonds have a face value of Rs 5,000 and investors may apply for two bonds and in miltiples of one bond thereafter. Bonds have two series, series 1 carry 8 per cent coupon, payable annually, with a buyback option. Series 2 also have an 8 per cent coupon rate and the payment of interest is cumulative. Series 2 also have a buy back option after five years one day from deemed date of allotment. Maturity amount of series 2 bonds is Rs 10,800 (10 years from the date of allotment), and buyback amount after 5 years is Rs 7,350. The issue is open for subscription till Feburary 4.

Tax Advice
Leave encashment up to Rs 3 lakh tax-free
by SC Vasudeva

Q. My father retired from PNB as Scale 1 officer on 30/4/2010 in Haryana and received following dues:

(a) Gratuity — Rs 6,21000

(b) Encashment of 240 days of leave - Rs 3,76,000

(c ) PF- Rs 10,00,000

(d) Some amount was transferred into his PF account in the month of April as PF against the revised new scale (arrears for revised salary) & he retired in the end of April month. Is this new PF amount taxable? Please tell from the above dues which amounts are taxable & to what extent. How can my father reduce his tax for the details mentioned above?

— Nitin Jain

A. (a) Gratuity amount of Rs 6,21,000. The amount received in excess of Rs 3,50,000 would be taxable. The increased limit of Rs 10 lakh specified under Section 10(10)(ii) & (iii) of the Income-tax Act 1961 (The Act) is applicable where an employee retires on or after 24th May, 2010. Your father had retired on 30.4.2010 and therefore would not be entitled to the benefit of the increased limit of Rs 10 lakh.

(b) Leave encashment Rs 3,76,000. The amount received in respect of leave encashment is exempt from tax provided such amount does not exceed payment for 10 months leave calculated on the basis of the average salary drawn by the employee during the period of 10 months immediately preceding the retirement subject to a maximum of Rs 3 lakh only. Assuming that the leave salary amount paid to your father has been calculated in the manner specified herein above, the amount received in excess of Rs 3 lakh i.e. Rs 76,000 will be taxable.

Tax-saving FDs

Q. I want a clarification on following two points:

Whether the FDR deposited in the bank under Section 80C can be prematurely withdrawn?

One of my relative has taken premature retirement on medical grounds from the bank under total incapacitation & got ex gratia of Rs 5.50 lakh. Please advise whether any rebate is allowed on this ex gratia & under which section.

— Vijay Kumar

A. (a) The fixed deposits made in a bank in accordance with the requirements of Section 80C of the Act cannot be prematurely withdrawn.

(b) In my opinion, there is no section in the Act which provides for any relief or rebate for the ex gratia amount received by an employee on termination of his employment. The only exemption provided by Section 10C of the Act is in respect of amount received on the voluntary retirement or termination of the services of an employee in accordance with any scheme or scheme of voluntary retirement or in the case of public sector company, scheme of voluntary separation to the extent such amount does not exceed Rs 5 lakh. If your friend is covered within the aforesaid scheme, an amount to the extent of Rs 5 lakh would be exempt from tax.