SPECIAL COVERAGE
CHANDIGARH

LUDHIANA

DELHI



THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS

B U S I N E S S

FM to tax firms on ESOPs
New Delhi, March 3
The Fringe Benefit Tax (FBT) on Employee Stock Options (ESOPs) proposed in the Union Budget will be payable by the company and will also apply to the ESOPs not cashed, Finance Minister P. Chidambaram said today.

ICICI Bank creates insurance, MF arm
Mumbai, March 3
Private sector banking leader ICICI Bank today decided to set up a holding company for insurance and mutual fund businesses and may list the new venture on the bourses next fiscal to fund capital needs.

Lending Chinese colour
A vendor sells colours for Holi at a roadside stall in New Delhi
A vendor sells colours for Holi at a roadside stall in New Delhi. It is a different Holi this year as imported colours from China are finding many takers due to lesser cost causing heavy losses to local manufacturers. — AFP

Corus to be delisted
Jamshedpur, March 3
Anglo-Dutch steel giant Corus will be delisted from the stock exchanges and become a subsidiary of Tata Steel next month after its shareholders approve the Indian company's takeover proposal.

Petrochem park clears hurdle
Chennai, March 3
The Madras High Court has cleared the way for establishment of a petrochemical park by the Tamil Nadu government on over 7,000 acres of land in North Chennai, subject to environmental clearance by the Centre.


Bottles of Absolut Vodka are displayed at a shop in San Francisco, California
Bottles of Absolut Vodka are displayed at a shop in San Francisco, California, on Saturday. The government of Sweden, which has owned the Swedish made Absolut Vodka for 90 years, has put the number three premium spirit in the world up for sale with an estimated price tag of $5.7 billion. — AFP

EARLIER STORIES

 

EPF Board to meet on March 10
New Delhi, March 3
Prospects of higher interest rate for four crore members of the Employees Provident Fund has brightened as the interest rate offered by the scheduled banks is around 9 per cent.

Aviation Notes
Houston route after A-I gets big planes
Eversince Independence, Indian civil aviation has seldom shone brightly. This is because it has unfortunately not been given the needed freedom to grow. Politicians keep changing and keep meddling in the highly-sophisticated industry.

Investor Guidance
Rs 50 lakh cap for capital gains bonds
Q: I have sold some property and have earned capital gains. The Budget mentioned a ceiling on the capital gains bonds. Does this mean an investor cannot invest more than the specified amount?

 

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FM to tax firms on ESOPs

New Delhi, March 3
The Fringe Benefit Tax (FBT) on Employee Stock Options (ESOPs) proposed in the Union Budget will be payable by the company and will also apply to the ESOPs not cashed, Finance Minister P. Chidambaram said today.

“What has been stated (in the Budget) is that ESOP is a fringe benefit and will be taxed. The rules have not been worked out and the method of calculation has not been prescribed. It is only a policy announcement,” the minister pointed out.

Asked whether the company or the employee would be required to pay FBT on ESOPs, he said: “It is a fringe benefit and obviously will be on the company.” Would it apply to ESOPs given before the Budget and not encashed?

“Of course, it will. The gain is taxed only when the ESOP is exercised. When the ESOP is not exercised, there is no gain at all,” he told PTI in an exclusive interview here.

A combative Finance Minister strongly defended his Budget and shrugged off criticism, notably by the corporate sector.

In a strong defence, Chidambaram said that the government had “done its best, in fact, its very best” for the first time in recent years to spread the gains of the growth to a much larger section, especially the sections which have been neglected.

He said the petroleum ministry’s proposal for issuing smart cards for providing subsidised LPG and kerosene and improvement in delivery services for the farmers were major reforms measure.

Chidambaram said some more items would be included for coverage under the Annual Information Returns (AIR) scheme but declined to go into details.

In a veiled warning to cement manufacturers, who have raised the prices after the Budget, Chidambaram today cautioned against their acting as a cartel.

“I hope they are not acting as a cartel. But if they are, it will be a very unfortunate situation. I am still hopeful that they will moderate the prices.” — PTI

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ICICI Bank creates insurance, MF arm

Mumbai, March 3
Private sector banking leader ICICI Bank today decided to set up a holding company for insurance and mutual fund businesses and may list the new venture on the bourses next fiscal to fund capital needs.

ICICI Holdings will be a wholly-owned subsidiary and all investments of the country’s top private bank in ICICI Prudential Life Insurance, ICICI Lombard General Insurance, ICICI Asset Management Company and ICICI Trust Ltd will be transferred to this new company.

The decision was taken by the bank’s Board of Directors that met in Jodhpur. The new company would be incorporated by June 1, subject to necessary approvals.

“We have received Board’s approval and would now obtain the approvals of Reserve Bank and Insurance Regulatory Development Authority to transfer the investments in the four companies to ICICI Holdings,” ICICI Bank Joint Managing Director Kalpana Morparia, who will head the new firm, told reporters here.

The new entity may also consider public listing of its equity shares in future to meet a part of its future capital requirements of ICICI Life and ICICI General.

ICICI Bank will retain majority stake in the new company.

The bank currently holds approximately 74 per cent in ICICI Life and ICICI General. The bank also has 51 per cent stake in ICICI AMC and ICICI Trust. These investments would be transferred to ICICI Holdings at the book value in the books of ICICI Bank (currently about Rs 1,950 crore).

“We are planning to bring an IPO between April and December 2007 as both our general and life insurance companies need more capital for growth. There is also a limit to the investments the bank can make into parabanking,” she said.

Morparia also did not rule out the possibility of raising a part of the capital from the overseas market.

As per rules, the company would have to make an issue of minimum 10 per cent shareholding and the capital could be raised locally or in the overseas market, she added.

When asked the amount ICICI Holdings plans to raise, she said though both insurance companies need capital to sustain growth, exact capital requirements were yet to be finalised.

“In the next few months we would firm up our plans on the capital required for both the general and life insurance business,” she said. — PTI

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Corus to be delisted

Jamshedpur, March 3
Anglo-Dutch steel giant Corus will be delisted from the stock exchanges and become a subsidiary of Tata Steel next month after its shareholders approve the Indian company's takeover proposal.

Tata Sons chairman Ratan Tata, who would also head the European company after the transaction is completed, said today an integration committee would be formed to oversee the merger of the newly acquired company.

Speaking to reporters after a meeting with Corus chairman James Leng here, Tata said the committee, headed by him, would be formed soon and would comprise representatives from both Corus and Tata Steel.

He said Corus shareholders would consider Tata Steel's $11.3 billion offer to acquire Corus at an extraordinary general meeting (EGM) on March 7.

Once the shareholders approve the proposal, Corus would be delisted from the stock exchanges and would function as a subsidiary of Tata Steel from April, he said.

Leng arrived here last evening on his first visit to take part in the centenary celebrations of India's first steel plant and held discussions with Tata and other top officials.

After the EGM on March 7, Corus would join the Tata Steel family, Leng said.

Tata said post-integration, Tata Steel and Corus would operate like a single company.

The Tata group chairman reiterated that the decision to acquire Corus was correct, as the Anglo-Dutch steelmaker was a big brand in the European market and shared equal values with Tata Steel.

The Tata group chief also said Tata Steel was looking for overseas acquisition for supply of iron ore and coal. He said the company was looking for coal blocks in Australia, in addition to the acquisition of five per cent stake in a coal company there. — PTI

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Petrochem park clears hurdle

Chennai, March 3
The Madras High Court has cleared the way for establishment of a petrochemical park by the Tamil Nadu government on over 7,000 acres of land in North Chennai, subject to environmental clearance by the Centre.

Giving the order on a batch of petitions challenging the acquisition of land for the park, among other things, a Division Bench comprising Justice P.D. Dinakaran and Justice PPS Janarthana Raja held that the acquisition was justified as only 311 acres were wetlands.

Besides, the government had already identified sites, about 35 km from the city with rail, road, sea and air connectivity, for rehabilitation of affected families, the Bench observed.

The state government in 1997 had decided to set up the park at a cost of Rs 30 crore over 7,156 acres of land spread over four villages near suburban Ennore in the north of the city. — PTI

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EPF Board to meet on March 10
Tribune News Service

New Delhi, March 3
Prospects of higher interest rate for four crore members of the Employees Provident Fund has brightened as the interest rate offered by the scheduled banks is around 9 per cent.

The EPF Board is meeting here on March 10, in the midst of the budget session, to finalise the interest rate to be paid to its members in the current fiscal.

At its last meeting, the Central Board of Trustees of the EPF had rejected finance ministry’s proposal to invest 5 per cent of the EPF money in equity market to jack up its internal resources.

The meeting had skipped the contentious issue of deciding the rate of interest for its subscribers and postponed it for the next meeting to enable labour minister Oscar Fernandes to discuss the matter with Finance Minister P Chidambaram.

The ministry had suggested that 0.5 per cent of the EPF money should be invested in equity market, but the EPF Board decided not to make investments in the stock market because of its volatility.

The Board, however, permitted investment in the national savings certificates and post office term deposits. It also permitted term deposit receipt with private sector banks subject to a limit of 5 per cent of the deposit base.

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Aviation Notes
Houston route after A-I gets big planes
by K.R. Wadhwaney

Eversince Independence, Indian civil aviation has seldom shone brightly. This is because it has unfortunately not been given the needed freedom to grow. Politicians keep changing and keep meddling in the highly-sophisticated industry.

During the last 25 years, the powers that-be have been placing most of the unhatched eggs in Delhi and Mumbai airports. They have been unable to realise that these two metropolitan cities are merely part of this country and not vice-versa.

Both these airports are congested and cramped beyond repairs. The only possible way to decongest them is to open wings around Agra and beyond the slums of Sahara. Imagine international flights operating directly around Agra, which houses this country’s most prestigious and revenue-earning monument!

It is great that in the Consultative Civil Aviation Committee, 21 Members of Parliament have been inducted to suggest and recommend ways and means to help industry to shine. Some among them have been keen on aviation and flying for years and their presence should help industry wear a new look. A majority of MPs are of firm belief that opening of Indian skies in all directions from Amritsar to Kanyakumari will quicken the pace of progress and Indian aviation can rub shoulders with leading airlines in the world.

In the recently held meeting, many members expressed reservations about Air-India cancelling or delaying flights not realising that such actions caused a lot of inconvenience to ordinary paying passengers. Dr Najma Heptullah, an experienced member, was up in arms about AI cancelling Montreal to New York flight. Similar kind of sentiments were expressed by another member Tarlochan Singh who, a widely travelled MP, felt that such cancellations brought nothing but negative publicity to Air India.

Dr Heptullah, among several suggestions, emphasised that Air-India should start operations between India and Houston, which hosts a huge Asian community. While emphasising the importance of operation of this flight, she said that Pakistan’s operations on this route were mighty successful and so would be India’s.

To this suggestion the airline CMD V.Thulasidas said that he had taken a note of the suggestion and operations would be initiated as soon as the wide-bodied aircraft was available.

The consensus in the aviation circles was that Air-India often started operations to new destinations without doing adequate home-work and thereby fails to translate operations into success.

Tarlochan Singh suggested that Chandigarh Airport should be developed for the good of Punjab, Haryana and Himachal Pradesh. Actually upgradation of the Chandigarh Airport will lead to reduction of pressure on Delhi. Chandigarh needs to be upgraded to the status of the international airport.

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Investor Guidance
Rs 50 lakh cap for capital gains bonds
by A.N. Shanbhag

Q: I have sold some property and have earned capital gains. The Budget mentioned a ceiling on the capital gains bonds. Does this mean an investor cannot invest more than the specified amount?

— Gopal Arondekar

A: Yes. The limit is Rs 50 lakh on capital gains bonds under section 54EC. The limit was first brought in earlier to the Budget by way of a specific notification. However, now the limit has been worked into the Section itself so that separate notifications are not needed to be issued each year. What this basically means is that an investor will not be allowed to invest more than Rs 50 lakh in each financial year in these bonds.

Budget relief

Q: What has been the change in personal income tax rates in the Budget? In the budget speech, the FM mentioned that there is a benefit of Rs. 1,000. Can you please explain the same?

— K. M. Ranteria

A: There has been an increase of Rs. 10,000 in the basic exemption limit. Therefore, the new basic exemption slabs are Rs 1.10 lakh, Rs 1.45 lakh and Rs. 1.95 lakh for non-senior males, ladies and senior citizens, respectively. For the first two categories, this translates into a benefit of Rs 1,000 in the tax payable whereas for the senior citizens, it means Rs 2,000 tax saved. However, education cess was also increased by 1%, thereby almost nullifying the benefit. In fact the break even point is precisely Rs 5,10,000, Rs 5,20,600 and Rs 8,93,000 for non-senior males, ladies and senior citizens respectively. In other words, people earning lesser than the above amounts would be benefited and those earning more will be paying more tax. However, even for those who are benefited, the benefit is extremely marginal.

Minimum alternate tax

Q: What are the changes as far as MAT is concerned in Budget 2007?

— Rohit patil

A: MAT, which stands for minimum alternate tax is, 10 per cent of ‘book profits’. Which means this is the least amount a company has to pay as tax. The Income Tax Act lays down the way to compute such ‘book profits’. Till last year, the book profit could be adjusted for incomes and expenses related to Sec. 10A and 10B. However, Budget 2007 intends to take Sec.10A and 10B out of the purview of MAT benefit thereby increasing the computed book profit to that extent.

The impact, including surcharge and cess would be 11.33 per cent. Therefore, those companies (especially the SMEs in the IT sector) whose effective tax rate was less than 11.33 per cent would be directly affected.

Section 80-IA

Q: What are the changes as far as Budget 2007 is concerned as far as Sec. 80-IA is concerned?

— Rohnish Engineer

A: There was some confusion in the markets regarding whether Sec. 80-IA was cancelled or not. As a background, Section 80-IA, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, Industrial Parks and SEZs. The government has clarified that the purpose of the tax benefit was to encourage private sector participation in development infrastructure and not for companies who were merely executing the civil construction work or any other works contract.

Thus, in a case where a company itself makes the investment and executes the development work it will be eligible for the 80-IA deduction. In contrast to this, a company or a developer who merely enters into a contract with another company i.e., the undertaking or enterprise referred to in section 80-IA for executing the works contract, will not be eligible for the tax benefit under section 80-IA.

This amendment is retrospective in nature and will be effective from 1st April, 2000

Rebate on education loan

Q: I have taken a loan for my son for his Masters degree. Does Budget 2007 grant me any benefit in this regard?

— Samir Shah

A: Deduction of interest payable on loan taken for higher education under Sec. 80E was available only to the individual taking the loan. This was a problem since students who themselves availed of a loan rarely had taxable income and parents who took the loan for their child did not get the deduction. Now, the issue has been resolved by Budget 2007 making the deduction applicable even in case the loan is taken for the higher education of the individual’s spouse and children.

Note that the deduction is only available for interest and not for the main principal component. Also, the loan has to be taken from a financial or charitable institution. Loans from employer or from private sources are not allowed any benefit.

Interest and TDS

Q: What are the changes as far as tax deducted at source is concerned in Budget 2007? Also, could you elaborate on the provisions in the Budget regarding medical insurance?

— V. V. Narvekar

A: Bank and Post Office interest was subject to TDS over Rs. 5,000. This limit has been doubled to Rs 10,000.

Deduction in respect of medical insurance premium under section 80D has been increased to Rs15,000 from Rs 10,000 for non-senior taxpayers whereas for senior citizens, the limit has been enhanced from Rs 15,000 to Rs 20,000. Also, premium payments made by electronic mode, credit card etc. will be allowed.

The authors may be contacted at wonderlandconsultants@yahoo.com

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BRIEFLY

Trading extended
Mumbai, March 3
Trading on the BSE and the NSE would be suspended for 45 minutes every day from March 5 to March 19 due to disruption in satellite services. According to a BSE official, the satellite via which trading on the two exchanges are conducted would come directly across the face of the sun between 11.45 am and 12.25 pm. The VSAT terminals connecting the two exchanges would be switched off during this period as the sun's radiation would interfere with the signals from the satellite. The two exchanges have, however, extended trading hours by 45 minutes to compensate for the lost time. — TNS

Titan’s export hub
Dubai, March 3
Titan industries is planning to make the UAE its major export hub to increase the company's reach in various overseas markets. The company would be expanding the brand's regional and global reach with new regional market forays and a wider watch collections, S Ravi Kant, chief operating officer of the company's international business division said here. "Dubai is vital to our global expansion strategy as it is a fashion showcase and re-export hub," he said. — PTI

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