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THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS

B U S I N E S S

Bank plan in postal dept’s envelope
Kolkata, June 16
The Department of Posts (DoP), which also provides savings bank services to millions of Indians, is planning to launch a full-fledged bank under the name of Post Bank of India.

Forex reserves to fund growth
Coimbatore, June 16
Union Finance Minister P. Chidambaram today expressed confidence that GDP growth would touch 10 per cent in the current fiscal.

EPF panel may meet on July 2
New Delhi, June 16
Under pressure from Left parties not to lower the interest for its four crore subscribers, the EPFO Board is likely to meet on July 2 to have a fresh look at its coffers to take a final decision on the rate for 2006-07 and 2007-08.

Aviation Notes
Indian’s loss was private airlines’ gain
Indian’s three-day flash strike was totally illegal. The strike, engineered by the Air Corporation Employees’ Union (ACEU), caused immense inconvenience to innocent flyers, dented Indian’s image and provided subtle advantage to private carriers, whom some politicians and bureaucrats are secretly trying to help gain decisive advantage on national and international routes.

VAT on Kashmiri shawls under review
Srinagar, June 16
Finance Minister of West Bengal Asim Dasgupta, who is also chairman of the empowered committee of state finance ministers, is here to attend the sixth committee meeting.

Investor Guidance
Pros and cons of fixed maturity plan
Q: Recently, I had been reading about the attractiveness of fixed maturity plan (FMP) over bank’s fixed deposits. I was earlier planning to invest bulk of my retirement proceedings in FDs for safe and assured returns (I have substantial exposure in the equity market already as I had been a habitual long-term investor in the stock market since 1974).

A woman uses the boot of her Volkswagen Beetle car to sell goods at the weekly market of Bautzen, Germany, on Friday.

Boot booth

A woman uses the boot of her Volkswagen Beetle car to sell goods at the weekly market of Bautzen, Germany, on Friday. She devised this novel way as she did not have the money to purchase one of the usual market booths. — AFP

Managing Director and CEO of India’s ICICI Bank K. V. Kamath talks to mediapersons in this file photo.
Managing Director and CEO of India’s ICICI Bank K. V. Kamath talks to mediapersons in this file photo. In the run up to the largest-ever share sale by an Indian entity at home and abroad, ICICI Bank on Saturday announced a price band of Rs 885 to Rs 950 for its upcoming domestic public offer to mop up Rs 8,750 crore. The domestic follow-on public offer opens on Tuesday. — AFP

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Bank plan in postal dept’s envelope

Kolkata, June 16
The Department of Posts (DoP), which also provides savings bank services to millions of Indians, is planning to launch a full-fledged bank under the name of Post Bank of India.

Minister of State for Communications and IT Shakeel Ahmed here Saturday that his ministry had initiated talks with the finance ministry in this regard.

He said there are 1,55,000 post offices in the country with a major presence in the rural areas. The financial services division of the post department has 162 million account holders and is currently managing funds worth Rs 37,500 billion, Ahmed said.

The postal network offers a number of financial services but passes on the entire money collected to the finance ministry for a fixed commission. If the post department hives off the financial services arm as a full-fledged banking unit, then it will be able to keep the money collected and take investment decisions.

Ahmed said the concerned ministries were working on the functioning and regulatory mechanism of the proposed entity.

“We will have to sit with the finance ministry and RBI (Reserve Bank of India) to formulate the modalities of the operation of the proposed entity,” he said.

The DoP has launched a number of financial services, including a money transfer facility through a tie-up with Western Union.

Financial services have been contributing a major chunk of the department’s revenues and are offering relief at a time when it is reeling under accumulated losses of about Rs 10 billion, recorded last year.

The DoP has also taken up with the finance ministry the issue of lower interest rates for post office products as compared to those of banks, Ahmed informed.

As part of plans to revive the DoP Rs 60 billion will be invested with the 11th Five-Year Plan to technologically upgrade and connect post offices with a centrally placed data centre, the minister said.

The government has also removed the ban on recruitment of manpower and opening of new post offices imposed in the last Five-Year Plan, he said.

Ahmed was in the city on the occasion of the launch of a tie-up between HDFC Bank and the West Bengal Circle of DoP.

As per the tie-up, HDFC Bank will offer loans against postal securities such as National Savings Certificate (NSC) and Kisan Vikas Patra in the state. — IANS

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Forex reserves to fund growth

Coimbatore, June 16
Union Finance Minister P. Chidambaram today expressed confidence that GDP growth would touch 10 per cent in the current fiscal.

Speaking after inaugurating a plant for manufacturing defence-oriented products near here, the finance minister said the government’s confidence in the reforms was the main reason for the growth.

Separately, in an interview to CNBC-TV18, a private business channel, he said the government would soon start using foreign exchange reserves for setting the country’s creaking infrastructure right by creating a company for the purpose within the next three months.

“We will set up in the next two to three months, the special purpose vehicle (SPV) that I had promised,” Chidambaram said

The SPV will borrow forex reserves from RBI and co-finance external commercial borrowings (ECBs) for import of machinery by Indian firms, he said. — PTI

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EPF panel may meet on July 2

New Delhi, June 16
Under pressure from Left parties not to lower the interest for its four crore subscribers, the EPFO Board is likely to meet on July 2 to have a fresh look at its coffers to take a final decision on the rate for 2006-07 and 2007-08.

While trade unions affiliated to Left parties have been demanding that the 8.5 per cent rate be retained, the Central Board of Trustees (CBT) of the EPF has expressed its inability to do so, saying it would be left with a deficit of Rs 450 crore.

The government finds itself in a tight spot as Left supporters insist that with banks raising their interest rates, the EPF interest rate should not be slashed further.

While the interest rate for 2005-06 was fixed at 8.5 per cent, the EPFO Board will be meeting amid rising deposit rates in the system. Commercial banks are already offering up to 10.5 per cent interest rate on fixed deposits.

"The meeting is most likely on July 2. The decision I cannot foretell but the CBT would deliberate on all the relevant issues, including the interest rates," Union Labour Minister Oscar Fernandes said here today. — PTI

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Aviation Notes
Indian’s loss was private airlines’ gain
by K.R. Wadhwaney

Indian’s three-day flash strike was totally illegal.

The strike, engineered by the Air Corporation Employees’ Union (ACEU), caused immense inconvenience to innocent flyers, dented Indian’s image and provided subtle advantage to private carriers, whom some politicians and bureaucrats are secretly trying to help gain decisive advantage on national and international routes.

The strike made Indian suffer heavy losses. This was a minor mishap. The major loss was that many dedicated and loyal flyers with nationalistic flavour chose to change their loyalty to private operators who, in any case, are providing better service on ground and in air.

One private airline, gaining in stature and popularity, meets the passenger at arrival gate and helps him until he boards the flight.

In the illegal strike run-up, the authorities cannot be considered unblemished. ‘Wage’ is a vital consideration for every worker. For 10 long years, the authorities have failed to differentiate between ‘shirkers’ and ‘workers’. The wage agreement, frozen for a decade, should have been implemented before merger plans. Air India had done it while Indian was procrastinating resulting in this uncalled for strike. The ACEU officials struck when the ‘iron was hot’.

Between 1997 and 2007, the Indian (Airlines) worker lost pride in working for the national carrier. He cannot be blamed for this. He has been driven to the wall because of wage freeze and minimum opportunities for career progression.

An average Indian clerk or official is so demoralised that he does not want to put his best foot forward.

While distributing wages within 18 months, instead of four years, the authorities have to see to it that workers of both airlines are treated equally keeping seniority and ability in mind. It should be remembered that if a merger is brought about with ‘open mind’, it would be successful otherwise there may even be more strikes in future. Neither Indian nor Air-India can afford to face this ordeal.

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VAT on Kashmiri shawls under review
Tribune News Service

Srinagar, June 16
Finance Minister of West Bengal Asim Dasgupta, who is also chairman of the empowered committee of state finance ministers, is here to attend the sixth committee meeting.

After chairing the meeting of empowered committee at the SKICC, he said yesterday that the committee reviewed the representations of various federations for exemption of a few items from the VAT regime.

The committee would look into the request on merit and exemption of VAT on shawls, woodcarvings, wool tops and other items would be actively considered.

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Investor Guidance
Pros and cons of fixed maturity plan
by A.N. Shanbhag

Q: Recently, I had been reading about the attractiveness of fixed maturity plan (FMP) over bank’s fixed deposits. I was earlier planning to invest bulk of my retirement proceedings in FDs for safe and assured returns (I have substantial exposure in the equity market already as I had been a habitual long-term investor in the stock market since 1974).

I am looking for safe (without too high expectations) returns on my retirement proceedings.

I have a few queries and shall be greatly obliged if you can kindly answer them.

1. What is the range of indicative returns from the present FMPs?

2. Is the tax rate of 10 or 20 per cent (depending on indexation) the ceiling rate on these instruments? Is it so even if I come under the highest tax bracket (30 per cent)?

3. What are the FMP schemes available from the reputed fund managers in the market? How do I approach them?

4. Is there a fixed time of entry, or, I can enter any time?

— Parameshwaran

A: 1. The indicative return currently on a short term FMP is around 8.5 per cent to 9 per cent per annum while that on a longer-termed FMP is around 9.5 per cent. But this changes along with the interest rate environment.

2. With regards to your next question, in the case of longer termed FMP (over one year), you should always choose the growth option as the tax rate in this regard is 10 or 20 per cent with indexation regardless of income tax bracket. For short-term FMPs, you should always choose the dividend option as then you are liable to distribution tax rate of 14.1625 per cent flat regardless of the tax bracket. Else, short-term gains as per your tax bracket would be payable.

3. Almost every fund house nowadays comes out with FMPs. The issue typically is open for a short time, say three to four days. So the best person to intimate about the same is your financial adviser who is expected to have this information. For the mutual funds, it is not possible to convey this to the investor as this would entail advt expenditure which, at least, in the case of FMPs they can ill-afford.

4. As mentioned above, there is a fixed time of entry when the scheme is open — once it shuts down, you can only exit (that too at a steep load).

MF abroad

Q: Can an individual resident in India invest in mutual fund abroad, which deals in commodity market?

— Dalvi

A: Up to $1,00,000 per calendar year may be invested by a resident in any financial asset. It needs to be an upfront investment and not payment of margin money. As long as this condition is satisfied, the same is allowed.

Two properties

Q I had two housing properties in Ahmedabad. I have taken loan on both these properties.

First property-self occupied

Annual interest accrued on loan is Rs 2,10,000

Second property-rented

Annual interest accrued on loan is Rs 26,000

Nav (After local tax + 30 per cent deduction) Rs 16,800

Net loss from house property Rs 9,200

Gross Taxable Income 2006-07 Rs 4,50,000

Can I claim set off of Rs 2,10,000 + Rs 9,200 = Rs 2,19,200 as loss from house property for A/Y 2007-08 or shall I claim set off of Rs 1,50,000 (maximum allowed for self-occupied property) as loss from house property and carry forward the balance amount as loss for coming years.

— Somnath

A: You can claim set off of Rs 1,50,000 (for first property, limited to 1,50,000 irrespective of the amount of interest) plus Rs 9,200. So, the total loss that can be claimed is Rs 1,59,200.

Premium policy

Q. I have purchased a single premium policy where the premium is Rs 50,000. What is the tax status thereon?

— Jayant

A: In the case of single premium policies, any premium over and above 20 per cent of the sum assured will not be eligible for deduction. Simultaneously, if the premium amount is indeed over 20 per cent of the sum assured, the maturity proceeds will be taxable. The reason for this is that policies that have a single premium which is over 20 per cent of the sum assured are considered more as investment vehicles than insurance proceeds.

Repair of house

Q: I have taken a loan from my employer for the repair and renovation of my father’s house. What are the tax benefits available to me?

— Prashant

A: Tax benefits on interest on housing loan as well as on principal payments are only available to the owner of the property. As you are not the registered owner, you would not be eligible for the tax benefits.

Gift from brother

Q. I am staying with my brother in a flat, which is owned by him, in a society. Now he plans to gift it to me. What are the possible effects of society transfer fee, stamp duty and income tax while signing the agreement?

— Krishna

A: The transaction will entail execution of a gift deed and the same needs to be registered under the Registration Act, 1908. As it is a gift, the transaction will not entail any capital gains incidence.

Business income

Q: Ever since I retired six years ago, I have not taken up any job. Now at 62, I have a contract work offer. The company will deduct contract tax (5.5 per cent) on the monthly payment. What is my tax responsibility?

— Janardan

A: What you will be earning will be considered professional/business income. From this, you can reduce the expenses actually incurred by you for earning this income (such as travel expenses, stationery and other similar expenses). The balance will be added to your other normal income and you will have to pay tax on that total income depending on which slab you fall in. The amount deducted at source by the payer of the income will be reduced from the tax and the balance will have to be paid by you as advance tax.

However, there is the aspect of service tax that you will have to consider. As a consultant, you are rendering a service and if your income is above Rs. 8 lakh, 12.36 per cent service tax would be payable by you.

The authors may be contacted at wonderlandconsultants@yahoo.com

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