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Taxation woes cost Indian markets $10-bn investment
Tax Advice
Aviation Notes
personal finance |
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Corporate earnings to dictate trend
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Taxation woes cost Indian markets $10-bn investment
New Delhi, May 6 These investors, who mostly invest through P-Notes (participatory notes) in the Indian markets have either pared their exposure to the Indian securities or have deferred their investments ever since India proposed a new tax policy, the General Anti-Avoidance Rule (GAAR) late in March 2012, industry sources said. While details about the new rule remains elusive, it is feared that it could lead to heavy tax burden for the foreign investors investing through tax-friendly places like Mauritius. Incidentally, most of the overseas entities route their investments into India through such places to take benefit of their tax-friendly regimes. Many hedge funds and ultra-rich investors from abroad are said to prefer P-Notes, which are sold by India-registered FIIs (Foreign Institutional Investors), as it helps them invest without directly going through the rigmarole of various regulatory processes. The PNs account for more than 15 per cent of the total assets held by the FIIs in the Indian markets. However, it is feared that the new rules could lead to a significantly high tax liabilities for FIIs, even if they route their funds through tax-friendly jurisdictions. Besides, the FIIs could be forced to pass on their tax liabilities to their P-note clients, thus adversely impacting their overall returns on investment. Industry sources said that the fear, prevailing in the market since late March, could have led to at least $10 billion worth investments either having withdrawn or deferred by the P-note holders. While there are no official figures for any such impact on the foreign investments, the latest data available with market regulator SEBI shows that the total value of PNs in the Indian markets stood at about Rs 1,65,832 crore (about $33 billion) at the end of March 2012. A further clarity is expected on the GAAR front this week after the Finance Minister Pranab Mukherjee replies in Parliament to a debate on the Finance Bill. — PTI FIIs defer investment plan
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While details about the General Anti-Avoidance Rule (GAAR) remains elusive, it is feared it could lead to heavy tax burden for the foreign investors investing through tax-friendly places like Mauritius
n Many hedge funds and ultra-rich investors from abroad are said to prefer P-Notes, as it helps them invest without directly going through the rigmarole of various regulatory processes
n The P-Notes account for more than 15 per cent of the total assets held by the FIIs in Indian markets
n The total value of P-Notes in the Indian markets stood at about Rs 1,65,832 crore at the end of March 2012 |
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PPF withdrawals not taxable
By S.C. Vasudeva Q. Is premature withdrawal from a PPF a/c taxable? — Sohan Lal A. Any premature withdrawal from a PPF account is not taxable in case the withdrawal has been made in accordance with provisions of the PPF Scheme 1968. Q. I am a senior citizen and retired from Punjab Govt. I am filing I-T returns regularly and pay tax as admissible. During my service, I invested in NSS tax-saving schemes as follows: (a) Deposited Rs 10,000 in March 1993 and credit balance as on March 2011 is Rs 48,237. Interest income year in 2010-11 is Rs 3,365. (b) Deposited Rs 27,000 in March 1996 and credit balance as on March 2011 is Rs 95,627. Interest during 2010-11 Rs 6,672. (c) Deposited Rs 11,000 in March 2000 and credit balance as on March 2011 is Rs 22,570. Interest during 2010-11 is Rs 1,785. I am taking the yearly interest of these deposits in my income and paying tax as admissible. Now I want to withdraw these deposits. Kindly clarify which amount will be added to my income. (a) Credit balance at the time of withdrawal (b) Total interest earned from the date of deposit to date of withdrawal (c) Interest earned in the FY in which the amount is withdrawn (d) Principal amount deposited only — Jagdish Singh A. The balance amount of interest not reported in earlier years for taxability would be included in your income in the year in which NSS are encashed. In other words, the amount invested originally by you in NSS will not be taxable. Q. One of my client's mother-in-law wants to gift some cash amount to her daughter over a period of year in a staggered manner. It would be deposited in my client's wife's savings account. The recipient is a homemaker and the donor is a senior citizen. She is making this gift as a matter of distribution of her various assets between her two children. Please advise what kind of gift deed or written formality should be done from income-tax perspective. — Anish Antani A. Such a gift can be made through a simple letter addressed to her daughter by mother. The gift so made should be accepted by the daughter, which she can do by means of letter accepting the gift. The following points may kindly be noted before making the gift: (a) The gift should be made out of declared sources of mother, evidence in respect of which can be provided if so asked by the tax authorities. (b) It would be advisable to make the gift by issuing a cheque in favour of recipient. It would also be advisable for both of them to obtain PAN so that the transaction of gift comes on record. (c) Income arising to daughter from the amount gifted by her mother shall continue to be treated as income of her mother in view of provisions of Section 64 of the Act.
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Foreign carriers keen on flying from Kolkata
By K.R. Wadhwaney There was a time during, before and immediate after Independence when Kolkata was the country’s most sought-after international hub for flying. The British Overseas Airways Corporation (BOAC), now British Airways, was the first foreign airline to operate flights between India and England. As BOAC’s operations were a grand success, several other foreign carriers initiated operations ex-Kolkata. In the early 1960s, political situation took a sea change. Kolkata became a ‘troubled city’. There were acute ‘power’ disturbances and overall situation was far from conducive for the foreign airlines to continue operations. Gradually, these airlines, including Air India, curtailed their flights before withdrawing operations from Kolkata. Mumbai and Delhi gained importance in the bargain. After decades of lethargy and indifference, the Central and state government came on the same wavelength to help promote civil aviation in the region. The Central government has sanctioned a sum of Rs 2 lakh crore for further modernisation of the Subhash Chandra Bose International Airport in Kolkata. The work, which began about four years ago, is now progressing on war footing. As desired by new West Bengal Chief Minister Mamata Banerjee, the operations ex-Kolkata airport will achieve optimum utilisation before ‘Puja’ in October this year. Minister of State for Civil Aviation Ajit Singh recently stated that the Kolkata airport had a potential to become a hub not only for north-eastern region, but it would be among the best in north-east Asia. Several foreign airlines have envisaged interest in initiating operations from the Kolkata airport, which, according to analysts, will soon regain its glory and importance it enjoyed in the 1940s and 1950s. As Kolkata starts handling international operations, it will be a boom for the civil aviation in the country as needless congestion at Delhi and Mumbai airports will reduce. “West Bengal needs a fillip in the aviation sector and the Centre will offer all possible assistance”, said the minister. Chief Minister Mamata Banerjee said her government had already addressed a letter to the Planning Commission to provide sanction for constructing an airport at Cooch-Behar, where land was available. About constructing an airport at Malada, she said she would secure sanction from the Railways, which had land available for a project like this.
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ULIP regulations and their impact
The changes made in ULIP regulations are pro-customer and will go a long way in making these products more investor-friendly. If the selection of a plan is done carefully, there is no reason to fret as all the policies are designed to protect and safeguard the customers' interests Deepak Yohannan
Minimum insurance cover There has been a mandate for a minimum insurance coverage for all ULIPs. It has been made mandatory for all ULIPs to provide at least mortality cover or health cover except for pension and annuity products. However, according to the new Budget norms of 2012-2013, minimum life coverage of 10 times the annual premium is required for the policyholder to get a tax rebate under Section 80C. Most likely ULIPs would be re-designed and launched to meet this criterion. The minimum insurance coverage provides the actual reason for purchasing life insurance, i.e. providing protection to the individual's life so that if anything unfortunate was to happen to him, his family would still be financially protected. And with mandatory life cover, the customer now gets the twin benefit of life protection and an investment, which is very good from the customer perspective. Lock-in period Earlier, the lock-in period of ULIPs was three years during which one could not withdraw the funds or surrender the plan. It has been now been extended to five years. The old ULIPs were often used as short-term instruments in expectation of quick returns. However, the actuaries had not designed the product to give returns in the short term. Thus, if the customers had held onto the product till maturity, then they got a substantial return. However, if they gave it up in the middle of the term then there was a high surrender charge. By ensuring that the period of investment is at least 5 years, it ensures the commitment of investor to stay for a longer time and only those who wish to stay in ULIP for a longer time would enter in the scheme. The chances of capital appreciation will now be higher. It would be advisable to have at least a 10-year horizon when going in for ULIPs. Cap on charges The total charges of the ULIP have been capped at only 3%, including the agents' commission and other administrative charges by the IRDA. This is basically the difference between the gross yield and net yield of the policy. This means the agents' or broker's commission and all other administrative and operating expenses should not be more than 3% for all the policies with a tenure of less than 10 years and 2.5 % for the policies with tenure more than 10 years. Hence, more amount of premium paid by the investors can be utilised for investment purpose. This is a very positive change and big move away from the prohibitively high charges in the earlier avatar of ULIPs. There have been other small changes in the ULIP regulations which are oriented towards being more customer-friendly like: * Higher surrender value: IRDA has put a cap on the total amount of surrender charge that insurance company can charge from an investor. This change, however, applies only to those who wish to cancel their policies before maturity. So now, if an investor exits before maturity then he/she will get a higher surrender value than earlier. * Minimum return on pension funds: The IRDA has obligated the insurance companies to provide a minimum guaranteed return of 4.5% for ULIP pension plans. This is beneficial especially to senior citizens so that they can at least get higher return than savings account and their money is saved from risky market fluctuations while they enjoy a regular flow of money as pension into their accounts. * Security for loan: Traditional policies could always be pledged as a collateral for a loan but now IRDA has mandated that even ULIPs can be used as a security against a loan to any bank or non-banking financial corporations. They can avail a loan up to 40% of the NAV (Net Asset Value) of the product. The changes made in the ULIP regulations are completely pro-customer and go a long way in making this product more investor-friendly. However, whether the ULIP would be beneficial or not depends entirely on the person himself and his requirement. Thus, the motto for selecting a ULIP should be done carefully after analysing one's requirement and reading all the terms and conditions. If the above process is diligently followed, there is no reason to fret at all since the policies are not designed to deceive the consumers but to protect and safeguard their interests. As a thumb rule, don't jump into ULIPs trying to make money in a short period of time. The writer is CEO of MyInsuranceClub.com. The views expressed are his own.
Corporate earnings to dictate trend
The markets ended weak on Thursday and it was like a bloodbath on Friday. The BSE Sensex lost 303.17 points or 1.77% to close at 16,831.08 points. The NSE Nifty lost 103.75 points or 2.00% to close at 5,086.85 points. The broad markets like the BSE100, BSE200 and BSE500 lost 1.91%, 1.93% and 1.90%, respectively. The BSE Midcap lost 2.24% and BSE Smallcap lost 1.64%. The sectoral indices saw BSEIT gain 2.96% on the back of depreciating rupee. On the losing side, we saw BSE Capgoods lose 5.15%, BSE Auto down 4.78%, BSE Bankex down 3.43% and BSE Metal down 3.03%. In individual stocks, IRB Infra lost 23.55% on the back of alleged involvement of its CMD in a murder case of an RTI activist.
In individual stocks the few gainers included TCS up 6.03%, Hind Unilever up 4.54% and Infosys up 2.13%. The big losers were Hero Honda down 8.88%, PFC (Power Finance) down 8.24%, State Bank down 6.21%, BHEL down 6.10% and Coal India down 6.19%. It is after quite sometime that one has seen so many companies from different sectors lose this kind of value in a single week while the overall fall in benchmark indices is just about 2%. Clearly this shows lack of confidence in the market. The Indian rupee was a big loser and closed at Rs 53.47 to the US Dollar. FII were net buyers in a four-day trading week of Rs 1,300 crore, while domestic institutions were net sellers to the tune of Rs 650 crore. The sharp depreciation of the rupee and confusing statements emanating from the government on the twin issues of 'GAAR' and the tax treaty with Mauritius spooked the markets and kept FIIs confused. The poor response and subsequent withdrawal of the mega issue from Samvardhana Motherson Finance Limited will add to the woes of a struggling market. Going forward further, primary issues tapping the capital markets will have to ensure that there is money on the table for investors or they would not garner subscription and support. This week one would hear the Finance Minister replying to the debate on the Finance Bill and whatever clarifications are expected on the same would be done with. Controversial issues like 'GAAR', P Notes and retrospective amendments to the IT Act etc. would all be addressed satisfactorily or otherwise. The markets would react to these developments and also to the events unfolding in global markets which were all extremely weak on Friday. The markets have become weak and are showing signs of vulnerability. If we are to avoid any major short-term weakness, we need to consolidate and bounce back this week. The BSE Sensex has support at 16,698, then at 16,594, then at 16,353 and finally at 16,255 points. There is resistance at 17,042 points, then at 17,250, then at 17,387 and finally at 17,445 points. The NSE Nifty has support at 5,045, then at 5,022, then at 4,939 and finally at 4,858. The resistance is at 5,152, then at 5,220, then at 5,259 and finally at 5,310. Important and crucial levels have been broken on Friday and the markets need to cross these levels quickly if the downtrend is to be avoided. It is necessary that the markets regain levels of 17,100 on the Sensex and 5,150 on the Nifty at the earliest. The writer is founder of KRIS, an investment advisory firm. The views expressed are his own. market pointers *
Worries of rising high fiscal and trade deficit impacted trading sentiment. The BSE Sensex declined 356.26 points or 2.07% to settle at 16,831.08 for the week ended May 4, its lowest closing level since January 23. The 50-stock S&P CNX Nifty lost 122.15 points or 2.34% during the week to close at 5,086.85. Market fell in three out of four trading sessions during the week. *
In the forthcoming week, focus will continue on corporate earnings. HDFC, Hindalco, Asian Paints, Kotak Mahindra Bank, IDFC, Punjab National Bank, Ranbaxy Laboratories, NTPC, Cipla and Dr Reddy's Laboratories will announce their Q4 earnings. *
The Finance Bill 2012 is scheduled to be debated and passed in Parliament next week. In his Budget 2012-13, Finance Minister Pranab Mukherjee had proposed tax-avoidance legislation viz. General Anti-Avoidance Rules (GAAR). He had also proposed to amend the Income Tax Act, 1961 with retrospective effect to bring into tax net overseas mergers and acquisitions involving domestic assets. On the macro front, the government will unveil industrial production data for March 2012 on May 11.
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Unit Linked Insurance Products or ULIPs, as they are better known, were the top-selling plans for life insurance companies till sometime ago. It allowed the policyholder to get insurance cover and at the same time invest in the markets for better returns. Bad market conditions, high charges and some over-selling resulted in the much-needed changes in this category of products. Let us understand some of the major changes mandated by IRDA (Insurance Regulatory and Development Authority) and how it actually affects the customers.
