Monday, February 25, 2002, Chandigarh, India

National Capital Region--Delhi



Y O U R  M O N E Y

Small savings rate may be cut
HE economic development of developing countries is by and large linked to institutional credit and in the recent years commercial banks have been recognised as institutions that can play a dynamic role in accelerating economic development.

  • The wish list & Expected Measures

How to boost investment in housing
ith the Union Budget 2002 round the corner, real estate needs extra care to strengthen infrastructure for sustainable growth as well as for immediate revival of the sagging economy. 

  • Construction sector needs a boost
  • Housing scene
  • Stamp duty — a major hurdle
  • Reforms suggested

Telecommunications sector
NDIAN telecommunications market is large, under-penetrated and offers tremendous growth opportunities It has grown at a CAGR of approximately 80 per cent in the period March 1997 to March 2001. 

  • The wish list
  • Give boost to investments

Find a niche in the market for your item
While hundreds of small scale hand and machine tool-making units have closed down for one reason or the other , Mr Pushpinder Singh, (40), is among those lucky few who have not only survived but also thrived.

Be cautious, sensex may dip
he Finance Minister has to keep in mind a number of policy objectives while making Budget proposals. The first objective is to provide for more revenues in such a way that the tax structure is rationalised and incentives are provided for an economic an industrial recovery. 


R.N. Lakhotia
Farm income
Q: Please give the following information. (1) Is any kind of income from lands is taxable? If so, what are Rules?

  • House loan

  • Tax rebate



Small savings rate may be cut

THE economic development of developing countries is by and large linked to institutional credit and in the recent years commercial banks have been recognised as institutions that can play a dynamic role in accelerating economic development. Besides, government ownership of banks is a sure-shot way of ensuring that its growing deficits get funded, as these banks continue to pile up government securities in excess of their statutory liquidity ratio requirements. The sector also faces a problem of capitalisation with the large non-performing loans accounting for around 60%. We believe that privatisation of the banking system and opening it up for foreign investment would be a key reform measure. Will the Budget focus on the issues that need to be addressed?

To start with, market participants are hoping that the government will raise the FDI limit in banking stocks and this has attracted buying interest in these stocks. Also, there are expectations of small saving rate being cut which could again mean better deposit growth for the banks.

The wish list & Expected Measures

*The Budget could bring the administered interest rates on small savings in line with the trend seen in interest rates. As banks today compete with small savings for mobilising funds from the public, higher rates of interest on small savings means that they too need to maintain rate of interest at a certain level for attracting deposits. Although the RBI sets the trend for lower interest rates in the economy by reducing the bank rate or cash reserve ratio, banks find it difficult to reduce prime lending rates because spreads get squeezed affecting the interest income. To maintain spreads, if they cut deposit rates, then they lose deposits to small savings offering better returns. The expert committee, headed by RBI Deputy Governor Y. V. Reddy for reviewing the system of administered interest rates, has suggested linking rates on small savings to those on government securities, and keeping tax incentives only on savings with a tenor of more than six years.

* The Budget ‘02 can make an immediate capital infusion for Indian Bank to help the bank meet its CAR and the recapitalisation of other weak banks will be managed through the ARC (Asset Reconstruction Company) mechanism.

* The ARC mechanism will help weak banks to transfer their NPAs to itself. Further, such banks can raise capital from the market based on the stronger balance sheets. The Budget’02 would not make provisions for the ARC, however, it will be externally funded by domestic and foreign public finance institutions like IFC, ADB, ICICI and SBI.

* Some want that authorities should ensure a level playing field and make the existing domestic banks competitive and second, exercise great caution in opening up this sector for subsidiaries / joint ventures.

* The cooperative sector has urged the government to formulate Rs.10,000 crore rehabilitation and recapitalisation package for weak co-operative credit institutions. They have also sought a time frame of four-five years to adhere to the norms prescribed by RBI relating to 8% CAR to be achieved by March2002 and NPA ratio of 10% in the current fiscal 2001-02.

* Some expect that the Budget will possibly provide tax exemption on interest earned by banks with a suitable amendment to Section 10 of the Income Tax Act, 1961 on export finance in the face of slow export revival and the need to scale down the cost of funds for exporters.

* Banks have recommended the government to permit them to float infrastructure bonds to augment their long term resources. They have also urged the government to provide a taxation benefit on the lines of infrastructure bonds of 20% upto Rs 16,000 u/s 88 of the IT Act in respect of long-term deposit certificates.



How to boost investment in housing
R.P. Malhotra

With the Union Budget 2002 round the corner, real estate needs extra care to strengthen infrastructure for sustainable growth as well as for immediate revival of the sagging economy. Existing government policies governing this sector such as irrationally high rate of stamp duty, various hurdles in the resale of property, cumbersome documentation, highly commercialised attitude of the government sponsored housing bodies and ad hocism in the working of government departments dealing in real estate matters and many more are main hurdles in the way of desired growth of the sector in spite of its having tremendous avenues of contribution to the national growth.

Experts have emphasised that the real estate market has the potential, subject to the implementation of suggested reforms, to contribute up to 1.3 per cent achievable and sustainable GDP to the existing GDP of less than 5 per cent.

Construction sector needs a boost

This is the one segment of real estate sector, which unaffected by the global slowdown can generate large-scale employment opportunities-directly as well as indirectly. Besides involving a large number of skilled and unskilled labour directly, more unlimited number of job opportunities shall be generated in the core sectors such as steel, cement etc and over 250 ancillary industries such as bricks, electrical, sanitary and hardware etc, directly related to the construction sector. The employment opportunities enhance the purchasing power of the people thus helping in boosting the economy of the country to a great extent.

Lack of investors interest in the housing sector is mainly attributed to the outdated laws and policies governing the developers and colonisers. Investor/landlord’s friendly, simplified, reformed and balanced rent act, besides providing affordable accommodation on competitive rates, shall also attract private investment. Privatisation of colonisation rather than to float its own government sponsored housing schemes, to provide affordable and quality accommodation at competitive rates to the consumer, under strict supervision of a government agency to watch the overall interest of the consumer, is needed to accelerate the process. Pumping of proportionate share of the public investment in to the construction sector, in shape of soft loans on easy repayment terms, shall prove as a stepping stone in the direction of reforming.

Existing provision under section 80-IB (10) of the Income Tax Act for 100 per cent tax holiday for colonisers/promoters completing their projects of houses of size less than 1500 sq feet covered area over a land of not less than one acre by 2003, may be considered to be extended for a further period of at least five years as this is definitely going to encourage the private investor in a big way.

By giving couple of benefits to the real estate sector, in the last Budget the Finance Minister has tried a bit to lure the investors to invest freely in the real estate. Abolition of the income tax clearance certificate under Section 230A (Form 34A) before sale deed while selling an immovable property, increasing in the income tax rebate limit on interest of the loan of the housing sector from Rs 100,000 to Rs 150,000 and allowing a 20 per cent rebate on the repayment of loan of Rs 20,000 are a few pragmatic steps in this direction.

Housing scene

The housing scene in the country is set to undergo a sea change following the government’s recent decision to allow 100 per cent participation of FDI in real estate, subject to the condition of a simplified procedure, fee from the bureaucratic red tape. To make the offer attractive enough the government will have to look into the review those laws and policies governing the real estate sector, which as such discourage the private investor.

The prescribed limits fixed for different cities e.g., Rs 20,00,000 for the Chandigarh city, under section XX-C of Income Tax Act making the transferor and the transferee of a property to obtain NOC (form 37(I) from the income tax authorities, before transacting an immovable property, also needs to be increased multifold in view of the view of the present value of the real estate in the country. The document rather may also be considered to be abolished, as there exist more rational ways to check the tax evasion and to ascertain the source of amount invested by the investors while transacting a deal.

Stamp duty — a major hurdle

Rationalisation of the existing rate of stamp duty, in view of the present day value of the real estate, which is not only unjustified but affects the economy of the country, is another field of study. In addition to the generation of a huge quantity of black money by way of under value and under hand sales it also amounts to large-scale tax evasion. Mr P. Chidambaram, the then Finance Minister of India, in January 1998, had emphasised that the high rate of stamp duty on the property transaction was the single largest cause of black money generation. He had then urged the state governments to reduce the stamp duty to the modest level of 4-5 per cent so that the evasion could cease to be attractive. Consultations between the Centre and the state governments, to reduce the stamp duty, have been going on since the time of Mr Manmohan Singh a former finance minister. It has been proved beyond doubt that if the tax rates are moderate compliance would be better.

Reforms suggested

* Rationalise the rate of stamp duty and make it uniform all over the country.

* Implement a simplified, reformed and balanced rent act, which shall provide affordable accommodation on competitive rates besides keeping the investor/landlord’s interest in view.

* Formulate and provide a simplified policy for the transfer of property and freehold ownership to the consumer.

* Privatise colonisation. Extend the provision under section 80-IB (10) of income tax act for 100 per cent tax holiday for promoters of low budget houses beyond 2003 for a further period of at least five years.

* Fix appropriate proportion of share of public investment for the housing sector by way of floating soft housing loans to the consumer, developers and the investors.

* Simplify the real estate documentation by removing the unnecessary hassles and ad-hocism in the government departments dealing in the real estate matters.

* Abolish (37(1) or enhance the prescribed limits under section XX-C of the Income Tax Act.



Telecommunications sector

INDIAN telecommunications market is large, under-penetrated and offers tremendous growth opportunities It has grown at a CAGR of approximately 80 per cent in the period March 1997 to March 2001. In this report, we present the telecom industry’s major demands and expected measures to be announced in the forthcoming Budget.

While everyone seems to be focusing on disinvestment and the robust growth in subscriber base, both in cellular as well as basic telephony, there is one major factor, which to a certain extent is hampering growth prospects of the Indian telecommunication industry i.e. the regulatory environment. Though due credit should be given to the regulatory authorities for removing several bottlenecks, there is lot to be done for the industry to evolve as the fastest growing telecom sector in the world, ahead of China.

The wish list

* Customs duty reduction on telecom hardware items should be as per original schedule of IT Agreement and should not be advanced.

* Grant deemed export status to indigenous manufacturers of telecom equipment wherever duty on finished products has been reduced to 5%.

* Telecom software should be treated at par with computer/IT software and made eligible for NIL customs duty.

* 16% CVD now applicable on imports of mobile telephone handsets should be withdrawn. Custom duty on handsets is still on the higher side. The present total duty on cellular handset is at 26.672 per cent (including countervailing duty at 16%). The total duty should be reduced to ‘0’ per cent as it does not have adverse impact on Indian products.

* Radio communication equipment including VHF, UHF and microwave communication equipment is at 50.8 per cent, which is very high even when compared to telecom hardware. This should be eligible for a concessional rate of duty.

* Import duty on all wireless equipment used by safety and security agencies should be reduced to uniform concessional duty of 5%.

* The Finance Act, 2001, brought in Section 80 IA (4) (II) effective from April 1, 2002. The said clause provides for tax holiday if the undertaking has started or provides services after April, 1995, but before March 31, 2003. This should be made effective from April 1, 1996. Further telecom service operators who reported commencement of services before 1999-2000, be allowed to revise their option for availing tax holiday of 10 years out of any of the 15 years.

* Minimum Alternate Tax continues to remain applicable to the telecom service providers. This anomaly should be removed and public telecom service providers should be given the status of undertaking providing infrastructure facilities.

* Presently as per Section 72A of the Income Tax Act, only industrial undertakings are covered under rule 9 C of Income Tax Rules for Conditions for carrying forward or set-off of accumulated loss and unabsorbed depreciation allowance in case of amalgamation. The section should be amended to include infrastructure facility like telecom services.

* Grant of ‘C’ Form facility to Telecom and IT sector so as to avail concessional Central Sales Tax like other registered dealers and Power Sector.

* There is a disparity of 10 per cent higher basic duty being charged from basic services for imported network infrastructure equipment used largely for WLL services compared to concessional duty on similar equipment for cellular, internet or paging services. This disparity should be removed.

* Equipment required for the telecom sector for basic services and long distance services have an extremely high effective duty ranging from 38.74 per cent to as high as 62.86 per cent. The countervailing duty should be removed and zero duty imposed on all such infrastructure equipment not being manufactured in India.

* Customs duties should be removed from handsets required for WLL services and free imports be permitted as it will take time for handsets to be manufactured in India.

* Excise duty on all locally manufactured telecom equipment be pegged at the lowest level of 8 per cent to provide maximum support to both manufacturing and services segments of the telecom industry.

K Service providers sourcing indigenously manufactured telecom equipment be allowed to set off against the service tax payable on the services.

* Service Tax imposed on telecom sector should be suitably replaced with VAT otherwise this sector has to incur a huge tax burden by way of VAT on purchase of capital equipment plus 5 per cent services tax on its revenues, which results in double taxation.

* Several players from the telecom sector have made representations to the government for an increase in the FDI limit in the telecom sector.

Give boost to investments

M The Budget could boost investment in the sector. There are indications that the FDI limit for telecom service companies may be increased in the budget. The FDI cap is likely to be increased from the present 49% to 74%. However the additional stake of 25% will not have any voting rights. The move follows the Department of Telecommunications’ review of its earlier stance of not allowing an increase in the 49% FDI limit. The decision will be taken after reviewing existing laws and considering the guidelines stipulated in the Companies Act. The thinking is that in such a situation the foreign partner in telecom ventures will not be able to exercise management control as the same remains with the domestic partners.

M It is felt that if 25% additional stake is given without voting rights, the proposed amendments would not violate the Companies Act. However the discussions are still at the nascent stage. In case the proposed amendments go through, FIIs will gain substantially. It is believed that FIIs have lined up investments for the telecom sector. This could also boost investment in the sector. According to available data, FDI investments in the telecom sector between August 1991 and November 2000 touched Rs 4,497 crore. Out of this around 49% was invested in cellular services.



Find a niche in the market for your item

While hundreds of small scale hand and machine tool-making units have closed down for one reason or the other , Mr Pushpinder Singh, (40), is among those lucky few who have not only survived but also thrived.

Mr Pushpinder Singh makes floor spring cams, hydraulic parts and other special components for door closures. Though he is an ordinary-looking entrepreneur, he claims to be the only manufacturer in this field here, who is supplying these parts to various units in Delhi. Sharing his experiences he, says:

How did I start my career?

After completing diploma in mechanical engineering from Guru Nanak Engineering College in 1980, I wanted to go abroad. As I could not succeed so I tried my luck in a manufacturing unit. Our family had always opposed my entry in government jobs due to limited chances of growth and difficulty to get over them. Moreover, I had a good exposure at our small family unit in Sahnewal. So in 1987-88, I started my independent unit with family support and personal savings. In 1995, I got a loan of Rs 1 lakh through a district industry centre, under the government’s Prime Minister Rozgar Yozana (PMRY), and started making door closure parts.

As far as this product is concerned, I had not even heard of it. In fact I had gone to purchase nut-bolt making machinery, where I came across some officials from Everite company, who were lamenting that they could not find a single manufacturer in the city to make door closure parts. I decided to accept the challenge, and provided them a design of the product within a week and got the order. My three-month training under Nitcon’s programme also helped to hone my skill.

What are my experiences?

I took almost one year to get a small loan from a bank. The profit margin per unit in the trade had declined over the past few years which had been improved by installing modern machines. Consequently, the production of floor spring cams had increased by more than 10 times with the investment in technical upgradation. My future plan is to purchase a new industrial plot to make full set of door closures.

What is my opinion about the future of small scale units in Punjab?

It is very difficult to predict the future, but the government’s schemes of the rural focal point and the Prime Minister Rozgar Yozana have failed to succeed due to red tapism and complicated rules. Ironically the government is not ready to sanction industrial plots to city units in the nearby rural focal points, where adequate number of the rural youth have not turned up to set up their ventures. Banks ask for guarantees against the provisions of the scheme. I feel only those SSI units can survive which are ready to adjust themselves according to the changing market rules and have the capability to compete with the large scale units.

What are my suggestions for new entrepreneurs?

After getting proper training and experience, new entrepreneurs should try to find out a niche in the market. They should understand that there is high risk but good returns in the self-employed venturers provided one can adapt to the changing market and requirements of large units.

(As told to Manoj Kumar)



Be cautious, sensex may dip
J.C. Anand

The Finance Minister has to keep in mind a number of policy objectives while making Budget proposals. The first objective is to provide for more revenues in such a way that the tax structure is rationalised and incentives are provided for an economic an industrial recovery. The second policy objective is to meet the WTO directives. The third objective should be to develop infrastructure and help ailing sections of the industry to recover.

The corporate sector expects reduction in Corporate Tax. This demand is not likely to be conceded in this Budget for the simple reason that there has been a shortfall of Rs 25,000 crore in tax realisation this year from the Budget estimates. The industry is not doing well and the industrial recession, which is a part of global economic recession, has hit the Budget estimates. The GDP growth rate will not be more than 4.54 per cent and the fiscal deficit will widen to more than 5 per cent.

The Finance Minister has to raise more revenue within the framework of his policy objectives. Assocham has asked the government to exempt income up to Rs 75,000 and to fix 30 per cent tax on income above Rs 2 lakh. It appears that the Budget will retain the present income tax rates while raising the exemption limit by another Rs 5000 or so. The pensioners may, however, get some relief in way of exemptions up to a certain limit.

The Budget may, however, sweep away a lot of exemptions at present available under Sections 80 and 88. Interest rates on PPF may also further be reduced. The government may also waive off income exemption from the Special Economic Zones (SEZ) available to units for 10 years from the date of commencement of production.

Even exemption under Section 80 L for interests accruing from bank deposits may be further diluted. There are also reports that service tax may be extended to another 16 service areas comprising advertising, travel agencies, rating agencies, couriers, chartered accountants, market research agencies, under-writers, management consultants, etc.

Industries needing budgetary support may include the iron and steel industry, hotel and tourism, textiles and exports. Last week Tisco and Sail moved up on stock exchanges in expectation of some relief in the budgetary proposals. This may be in the form of raise in customs duties on steel import and some reduction in excise duties. Soda ash and the caustic industry may also raise for customs duties on imports with a view to preventing dumping of these products.

Customs duties may be scaled down in general to implement WTO policy decisions taken last year. The policy of disinvestment in public sector units will continue. This will not only add to the Budget revenues but also modernise the economy along the lines recommended by the WTO.

Investors have to be very cautious during this pre-Budgetary week, as in the past the stock market is likely to dip in the post-Budget week.



R.N. Lakhotia
Farm income

Q: Please give the following information. (1) Is any kind of income from lands is taxable? If so, what are Rules?

(2) Is income taxable from Intent (Interest) in Banks, etc. as F.D.R.s etc. taxable from the money of lands (i) Harvest Income (ii) Sale of lands, etc.?

(3 What are the rates of taxes for senior citizens and what concessions in interest available for the years.

(a) 2000-2001

(b) 2001-2002

Ram Singh, Sirsa (Hy.)

Ans: Income received from land if it is in the form of agricultural income, then the same will be fully exempt from income-tax. If, however, rent is received just from the vacant land the same will be treated as income from other sources. The interest income from bank FDRs, etc. is taxable after granting deduction u/s 80L to the tune of Rs 9,000 p.a. The income from harvest is exempted. The sale of land normally is taxable as capital gain under the Income-tax law. However, agricultural land in very remote areas would be exempted from payment of income-tax in certain circumstances. The senior citizen gets a special tax rebate to the tune of Rs 15,000. This tax rebate is permissible from the total income-tax payable by the senior citizen on various sources of income.

House loan

Q: I and my wife are working in State Electricity Board and Bank. We have purchased a HIG house built by PUDA. My wife is raising a house loan from her bank with joint name of me. As per wife’s bank, repayment and interest will be deducted from her pay only. I offered her bank that to deduct repayment and interest from my salary also, but they simply refused. Can I give cheque to my wife to contribute the repayment. As we both want to avail tax benefit on repayment of house advance and interest also.

J.K. Handa, Bathinda

Ans: As you and your wife are joint owners of HIG Flat and it is assumed that both of you have financed your property jointly, then you and your wife, if both make repayment of the loan and the interest separately from the Bank Accounts of both the persons, then the interest and the repayment of the Housing Loan would be eligible to be claimed by both. We see no reason on the tax benefits should be available to you only specially when both of you are joint owners of the property and the loan is also raised in the names of both the persons.

Q: I am a M.B.A. student. My father has gifted Rs 6 lakh to me. I have deposited the amount in F.D. A/c of the bank. I have also filled the 15H. Bank now says that they will deduct TDS even if one has filled the TDS.

Kindly advise how to get the refund as this is my only total money, please.

Harsh Sinha, Faridabad

Ans: Once you have submitted Form 15H to the bank the bank should not deduct TDS on the Fixed Deposit interest accruing on the amount deposited with the bank. If the bank has already deducted tax at source then only way left is to file your income-tax return and then to claim the refund of tax deducted at source.

Tax rebate

Q: 1) Whether Income-tax Rebate of Rs 5000 continues to apply in respect of income for the Financial Year 2001-2002 in respect of women.

2) My date of birth is 13-7-1936 and am due to complete the age of 65 years on 13-7-2001. Please intimate whether I am entitled to get the benefits of senior citizen for the purpose of income-tax from the Financial Year 2001-2002 onward or from the Financial Year 2002-2003 onward.

Mrs Sudershan, Amritsar

Ans: The benefit of special tax rebate for a woman tax payer amounting to Rs 5,000 is applicable even for the F.Y. 2001-2002. A lady can claim either tax rebate of Rs 5,000 or if she is a senior citizen then she can claim tax rebate u/s 88B amounting to Rs 15,000. Both tax rebates u/s 88B and 88C cannot be claimed at one time. As you have completed 65 years on 13th July, 2001 you will be eligible to claim tax rebate of Rs 15,000 from the total tax payable by you in respect of entire income of the F.Y. 2001-2002. 


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