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THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS

B U S I N E S S

FM may hike savings limit
More services likely to attract tax

New Delhi, February 25
The common man, pushed to the point of exasperation by rising prices, and the corporate can expect some relief from the Budget 2007-08 to be presented on Wednesday.

Rationalise taxes on jet fuel, plead airlines
New Delhi, February 25
Ahead of the Budget, the airline industry has urged the government to rationalise taxes on jet fuel, continue the exemption on withholding tax (WHT) on leased planes and remove service tax on first and business class air travel.

RBI to pay interest on CRR
Mumbai/Delhi, February 25
The RBI has accepted the demand of banks to pay interest on the cash reserve ratio (CRR).





EARLIER STORIES

 
Former Miss Universe and actress Sushmita Sen unveils “champagne diamond” jewellery by Kiah in Mumbai.
Former Miss Universe and actress Sushmita Sen unveils “champagne diamond” jewellery by Kiah in Mumbai. — PTI photo

World’s smallest chip
Tokyo, February 25
Tiny computer chips used for tracking food, tickets and other items are getting even smaller. Hitachi Ltd, a Japanese electronics maker, recently showed off radio frequency identification, or RFID, chips that are just 0.05 millimeters by 0.05 millimeters and look like bits of powder

Ease norms for allotting spectrum: BSNL to DoT
New Delhi, February 25
BSNL has sought changes in the formula for allocating spectrum on grounds that the system, which gives additional air waves when traffic movement is very high, made it difficult for operators to qualify.
A model presents an outfit from the ‘Kotwara’ collection designed by Meera and Muzaffar Ali in Kolkata on Saturday night
A model presents an outfit from the ‘Kotwara’ collection designed by Meera and Muzaffar Ali in Kolkata on Saturday night. — PTI

Market Update
All eyes on Budget
 by Lalit Batra
It was red all over during the past week as the market declined through the week amidst high volatility. Both Sensex and Nifty edged lower by 5 per cent each.

Tax Advice
Medical reimbursement above Rs 15,000 is taxable
 by S.C. Vasudeva
Q. I am an employee of the Punjab State Electricity Board. My gross salary for this financial year 2006-07 is Rs 3,04,279. I had treated my wife regarding premature delivery in October 2005, and I incurred Rs 60,282. My employer paid Rs 26,391 as reimbursement. My employer has asked me to pay the income tax on this amount after adding with annual gross salary for FY 2006-07. Income tax on this amount is being deducted along with the tax due on my salary on monthly basis. Kindly advise:

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FM may hike savings limit
More services likely to attract tax

New Delhi, February 25
The common man, pushed to the point of exasperation by rising prices, and the corporate can expect some relief from the Budget 2007-08 to be presented on Wednesday.

The fourth Budget of the UPA Government is likely to lay stress on agriculture and announce cut in customs duties on food products to contain inflation, which is hovering around 6.5 per cent.

Besides, the Budget is expected to focus on infrastructure development and may announce establishment of a special-purpose vehicle to utilise part of the foreign exchange reserves to import capital goods.

On the personal taxation front, finance minister P.Chidambaram is likely to increase the limit of exemption for savings under section 80C of the Income Tax Act, 1961, from Rs 1,00,000 to about Rs 1,30,000-1,50,000. This limit was fixed by Chidambaram in 2005-06 after he removed the standard deduction which was available to salary earners.

The finance minister is also likely to extend tax exemption to three-year fixed deposits in banks within the overall limit of Rs 1,30,000-1,50,000. The exemption is currently available to five-year fixed deposits.

The Budget is also likely to either abolish 10 per cent surcharge or cut corporate tax rates by 3 per cent to 27 per cent. Either way, corporates are expected to get a relief of 3 per cent from the Budget, sources said.

The effective rate of tax on corporates works out to be 33.66 per cent, comprising 30 per cent corporate tax, 10 per cent surcharge and 2 per cent education cess.

India Inc is demanding a 5 per cent cut in corporate tax, but it is not likely to be accepted entirely by Chidambaram, sources said, adding that the cut might be limited to 3 per cent only.

Chidambaram is also expected to cut the peak customs duty from 12.5 per cent to 10 per cent in the Budget, in line with the government's commitment to bring down the rate on non-agricultural products to the ASEAN tariff level as also to contain rising prices.

In the 2006-07 Budget, the minister reduced the peak customs duty from 15 per cent to 12.5 per cent.

It would not be surprising if the finance minister, under pressure from the Congress high command and UPA partners, announces a further cut in customs duty on certain sensitive products like edible oil and other food products to check inflation.

Last month, the government had reduced customs duty on cement, steel, maize, edible oil and other capital goods to tame surging prices. On its part, the RBI too has hiked a key short-term lending rate and the cash reserve ratio to curb money supply.

With foreign exchange reserves touching $185 billion, some policy-makers have recommended lowering of customs duty so that ample forex reserves could be used "productively" to check prices, besides forcing the industry to cut prices in the domestic market. The finance minister may increase tax on services to 14 per cent from the current 12 per cent, besides increasing its ambit from 96 services now to mop up additional resources and move toward goods and services tax. — PTI

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Rationalise taxes on jet fuel, plead airlines

New Delhi, February 25
Ahead of the Budget, the airline industry has urged the government to rationalise taxes on jet fuel, continue the exemption on withholding tax (WHT) on leased planes and remove service tax on first and business class air travel.

Observing that aviation turbine fuel (ATF) accounted for about 40 per cent of the total operating costs for airlines in India, the industry has sought reduction in customs duty on ATF, slashing of excise duty to 4 per cent and making ATF a 'declared good' attracting a uniform 4 per cent tax across the country, sources said.

They said the annual fuel bill for the entire industry was estimated to be around $1.7 billion, based on the September, 2006, rates.

Private domestic airlines have also imposed a surcharge for the wastage of fuel due to the air traffic congestion at Delhi and Mumbai airports.

On the withholding tax (WHT) imposed on aircraft and aircraft engines leased from foreign companies, Indian airlines have made a strong plea for continuing the exemption granted on payment of the tax till March.

The industry sources maintained that non-availability of this exemption would significantly increase the fleet acquisition costs of Indian carriers, especially in a market where demand for aircraft was greater than supply.

The airline industry has also pointed out that under international lease agreements, the WHT would have to be paid by the lessee or the airlines, instead of the lessor, thereby increasing their costs.

While countries like Australia and Japan which used to have WHT had repealed it, some others have allowed planning and structural alternatives to minimise these taxes.

The sources said the industry had sought an end to the service tax being now paid by the customers on first and business class air travel in and out of the country on the grounds of putting the Indian aviation industry at a competitive disadvantage.

Maintaining that a 10.2 per cent service tax has been imposed on landing, airport and air navigation fees, sources said this also would reduce the competitiveness of the sector globally.

The International Air Transport Association (IATA) has also taken up this issue with the government. — PTI 

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RBI to pay interest on CRR

Mumbai/Delhi, February 25
The RBI has accepted the demand of banks to pay interest on the cash reserve ratio (CRR).

The RBI will pay interest on the CRR in excess of 3 per cent, an official statement here said. It would pay 1 per cent interest with a retrospective effect from February 17 while 2 per cent interest would be paid on the CRR maintained during December 9, 2006, to February 16, 2007. For the CRR maintained between June 24, 2006, and December 8, 2006, the interest to be paid will be 3.5 per cent, the statement said.

The RBI would also not penalise banks that had failed to maintain the minimum CRR balance of 3 per cent during June 22 to December 8, 2006, the statement added.

The RBI had stopped paying interest on the excess CRR balance from June last year following an amendment to the RBI Act.

Meanwhile, the Competition Commission of India (CCI) has asked the RBI to “unshackle” the commercial banks by allowing them operational freedom in functions like branch expansion and opening of new ATMs.

The sole member of the CCI, Vinod Dhall, recently made a presentation to the top brass of the central bank in Mumbai expressing concern over the lack of operational freedom for the banks that is stifling competition among them.

Drawing a comparison with the insurance sector, which has seen an impressive growth with around 25 new players in short span of time, the CCI said because of excessive regulation only two new banks could open in the past 10 years.

As per the existing norms the banks are required to seek RBI’s permission for every small operational matter not to speak of opening new branches, their location and size.— Agencies

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World’s smallest chip

Tokyo, February 25
Tiny computer chips used for tracking food, tickets and other items are getting even smaller. Hitachi Ltd, a Japanese electronics maker, recently showed off radio frequency identification, or RFID, chips that are just 0.05 millimeters by 0.05 millimeters and look like bits of powder

They're thin enough to be embedded in a piece of paper, company spokesman Masayuki Takeuchi said yesterday. — AP 

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Ease norms for allotting spectrum: BSNL to DoT

New Delhi, February 25
BSNL has sought changes in the formula for allocating spectrum on grounds that the system, which gives additional air waves when traffic movement is very high, made it difficult for operators to qualify.

The spectrum allocation formula is based on two main parameters, the number of subscribers and the traffic in terms of how many calls are being processed. As per the formula, traffic movement has to be 40 milierlang (me).

“We have suggested to the government to make this to 30 me. I will talk to the telecom secretary over the difficulties in attaining the current criteria,” BSNL chairman and managing director A.K. Sinha said.

He said it was not possible to attain the value of 40 me as prescribed by DoT according to the new norms released last year and this was hurting all operators.

“One erlang means one circuit is busy the entire one hour. Earlier, we had designed for 25 me. Now, we are designing our lines for 40 me. But that does not mean all people will talk for that much duration,” he said.

“If all the circuits are busy till 40 me situation is achieved and then spectrum is given, that situation will never come,” he added. — PTI

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Market Update
All eyes on Budget

 
by Lalit Batra

It was red all over during the past week as the market declined through the week amidst high volatility. Both Sensex and Nifty edged lower by 5 per cent each.

The market is expected to stay cautious in the run-up to the Budget. Then, the market will take directions depending on the announcements made in the Union Budget this Wednesday.

Panacea Biotec

Investors with a three year perspective may buy Panacea Biotec at the current level of Rs 445. Panacea has reported strong topline and operating margin numbers, a trend that is expected to continue for the next couple of years. The initiative of the government to eradicate polio in the country and Panacea’s strong presence in this segment will be the key topline drivers. Besides, the compnay’s efforts to lay emphasis on other vaccines should also be construed as a positive development.

Key growth area-OPVs

Panacea Biotec is one of the six companies in the world to have received WHO pre-qualification for OPV (Oral Polio Vaccine) and the company’s supplies are chiefly to UNICEF which supplies these vaccines to the Indian region. Recently, the company has also started catering to the international markets such as Ethiopia, Maldives, Nepal, Somalia and Yemen to supply these vaccines through UNICEF. It must be noted that 2008 has been set as the target year by which polio has to be eradicated globally. Besides, a country will be declared polio free if it does not report a single polio case for three years from the year in which the number of polio cases is reduced to nil. Till such time, the vaccination for polio would continue, consequently ensuring revenue growth for Panacea Biotec from this segment. In 2006, the world confirmed around 1,977 cases of polio against 350,000 in 1988.

De-risking revenues

Panacea Biotec has entered into a host of collaborations, alliances, in-licensing agreements and joint ventures with various companies to enhance its product portfolio and reduce its dependence on oral polio vaccines in the long term. Though these alliances are not expected to contribute significantly in the medium term, their relevance is expected to increase from a long-term perspective once the contribution from OPVs begins to reduce.

High entry barriers

The vaccines segment is highly technology intensive, having longer gestational periods. Also, it is not easy to make generic versions of the same. Hence the entry barriers are high leading to lesser competition and higher margins. The only risk to my recommendation is the revenue growth from the non-OPV segment.

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Tax Advice 
Medical reimbursement above Rs 15,000 is taxable

by S.C. Vasudeva

Q. I am an employee of the Punjab State Electricity Board. My gross salary for this financial year 2006-07 is Rs 3,04,279. I had treated my wife regarding premature delivery in October 2005, and I incurred Rs 60,282.

My employer paid Rs 26,391 as reimbursement. My employer has asked me to pay the income tax on this amount after adding with annual gross salary for FY 2006-07. Income tax on this amount is being deducted alongwith the tax due on my salary on monthly basis. Kindly advise:

Is this reimbursement of indoor treatment exempt?

Is the difference between actual expenditure and passed for payment i.e. Rs 60,282 - 26,391 = Rs 33,891 counted toward any relief for tax. — Vipen Kapuria, Patiala

A. In accordance with the provisions of Section 17 of the Act any sum paid by the employer in respect of any medical expenditure actually incurred by the employee on his medical treatment or treatment of any members of his family so however that such sum does not exceeds Rs 15,000 in the previous year is not chargeable to income tax. The board must have given you the benefit of Rs 15,000 plus some additional benefit on account of your past savings in respect of medical expenditure. The balance amount is definitely taxable.

The difference between the amount incurred by you and the amount received from the board is not allowable as deduction under the provisions of the Act.

ULIP proceeds

Q. I joined ULIP in 1991 for a target amount of Rs 60,000 and the annual contribution was Rs 4,000 for a period of 15 years. Now, it has matured in February 2006, and I have received a cheque of Rs 1,60,661.14. The statement of account provided by the UTI shows Rs 29,031.45 as long-term capital gain and Rs 4500.01 as the short-term capital gain. How much will be my tax liability?— Ashok Kumar, Panchkula

A. The tax liability in your case would arise in respect of long-term capital gain of Rs 29,031.45 as well as in respect of the short-term capital gain of Rs 4,500.01. This is on the presumption for the dividend by the UTI was declared in your income tax return for the years for which ULIP had been subscribed for.

I-T threshold limit

Q. Please advice what is maximum limit of non-taxable income for a person with 75 per cent locomotor impaired permanent disability for 2005-06, and 2006-07. — R. Parsad, Sundernagar HP

A. The maximum amount up to which tax is not chargeable in all cases except women and senior citizens is Rs 1 lakh. In case of a person who is a senior citizen being of the age of 65 years, the maximum amount upto which tax is not chargeable is Rs 1,85,000. In case of women who are not of 65 years age, the maximum amount upto which tax is not chargeable is Rs 1,35,000. A person with 75 per cent permanent disability is entitled to a deduction of Rs 50,000 from the total income under Section 80DD.

Arrears of pension

Q. The Punjab Government has ordered to revise the pension of their retiree before 1996 from 01.01.1996. My present pension is Rs 16,220. I will get Rs 1,000 per month as arrears thus, total will be Rs 1,7220 per month and Rs 2,06,640 per annum. If 10 years’ arrears are added to pension of 2006-07 it will be 1,000 X 12 X 10 = 1,20,000 + 2,06,640 = Rs 3,26,640. How can I reduce income tax liability after taking advantage of depositing Rs 1 lakh in tax savings schemes.

I have also requested my pay office to issue me revised salary Form 16 for each year i.e. 1996-97 till 2005-06 so as to enable me to submit revised income tax return separately for the past years.

Kindly advise whether 1) Tax or revised salary Form 16 to be calculated at old tax deduction rate vogue in 1996-97 till 2004-05 financial years or 2) New income tax deduction rate 2006-07 allowing benefit of Rs 1 lakh under Section 80C be applied on the balance amount. — Tajinder Singh, Chandigarh

A. It would not be possible for you to revise the return for all 10 assessment years for which the arrears are being paid because the return can be revised for any omission or wrong statement made in the return. Further, the revision can be made before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. You can thus revise the return for assessment year 2005-06 (financial year ending 31.03.2005) upto 31.03.2007. In any case the receipt of arrears of pension cannot be considered as omission or a wrong statement in the return of income. You should make a claim under Section 89 of the Act, which provides that where an assessee is in receipt of a sum in the nature of a salary, being paid an arrears due to which his total income is assessed at the rate higher than that at which it would have otherwise been assessed, the Assessing Officer shall on an application made to him in this behalf, grant such relief as may be prescribed. 

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