Business standard and Business line updates 29-3-2013

RBI defers Basel- III norms for forex derivatives

PRESS TRUST OF INDIA Mumbai, 28 March The Reserve Bank of India (RBI) today postponed the implementation of Basel- III regulations for the currency derivatives segment to next January, pending resolution of norms regarding trade settlement, even as it said the new capital adequacy requirements could kick in from Sunday. "In view of the shift in the start date of Basel III implementation, all instructions applicable as on January 1, except those relating to the credit valuation adjustment (CVA) risk capital charge for over- the- counter derivatives, would become effective from April 1, with banks disclosing Basel III capital ratios from the quarter ending June 30, 2013," the apex bank said in a notification this evening. The CVA is the difference between the risk- free portfolio value and the true portfolio value that takes into account the possibility of a counter- partys default. In other words, CVA is the market value of the counter- partys credit risk. Giving the rationale behind the delay, the central bank said as the introduction of mandatory forex forward guaranteed settlement through a central counter- party has been deferred pending resolution, the CVA risk capital charges would be effective from January next. It is to be noted that RBI wants all lenders to settle currency forwards though one clearing house, which some foreign lenders are opposed to, due to lack of clarity in rules.

New interest rates on PPF, other schemes

PRESS TRUST OF INDIA New Delhi, 28 March The Reserve Bank today notified a0.1 per cent reduction each in interest rates on the Public Provident Fund ( PPF) and the Senior Citizen Savings Scheme (SCSS), to be effective from the financial year beginning April 1. The rate of interest on PPF has been lowered from 8.8 per cent to 8.7 per cent. The rate of interest on a fiveyear SCSS has been reduced to 9.2 per cent from 9.3 per cent for entire 2013- 14 financial year, it said. RBI said the new rates will come into force from April 1, following government’s memorandum on March 25, which advised on the rate of interest on various small savings schemes for the financial year 2013- 14. RBI said banks should bring this content to the notice of their branches operating PPF and SCSS accounts. It also said the new rates should also be displayed on the notice boards of their branches for information of the PPF and SCSS subscribers. Following the government’s decision earlier this week, millions of small savers and PPF account holders will earn less on their post office savings schemes. However, the government kept unchanged rates on savings on deposit schemes and on fixed deposit of up to one year run by post offices at four per cent and 8.2 per cent, respectively. Further, post office Monthly Income Schemes ( MIS) of five- year maturity will earn an interest of 8.4 per cent. The National Savings Certificates ( NSC), having maturity of five and 10 years, will attract 8.5 per cent and 8.8 per cent interest, respectively, down 0.10 per cent each. Revision in interest rates follows a decision taken by government last year to link small savings returns with market rate.

Debt tribunals  e-governance

http://www.thehindubusinessline.com/industry-and-economy/info-tech/tcs-wipro-mahindra-eye-rs-200cr-debt-tribunal-deal/article4554899.ece

Business standard news updates 26-3-2013

Banks initiate crackdown on wilful defaulters

MANOJIT SAHA Mumbai, 25 March Government- owned banks have started cracking the whip on wilful defaulters, with the finance ministry asking them to recover dues from the top 50 defaulters as the first step. Banks have been asked to furnish the information of the top- 50 immediately. Wilful defaulters are those borrowers who have defaulted on loan repayment to banks despite having adequate cash flows and a healthy net worth. The ones who have not utilised the funds borrowed for specific purposes and diverted those for other purposes have also been categorised as wilful defaulters by the Reserve Bank of India ( RBI). The finance ministry has asked chief executives of public- sector banks to take approval of their boards and begin proceedings for penal measures. The ministry has also asked banks to lodge formal complaints against the auditors of the borrowers with the Institute of Chartered Accountants of India, if they find the auditors were negligent or deficient in conducting the duty. The ministry’s directions have come against the backdrop of a rise in “ compromises” made by banks in writing off loans. According to data compiled by the ministry, the reduction in banks’ non- performing assets (NPA) due to compromises made during write- offs was 33 per cent of the total reduction as of Decemberend, compared with 31 per cent as of March- end. The total NPA reduction by public- sector banks as of December- end was ₹ 41,672 crore. The ministry has also mandated banks not to provide any additional facility to these companies and institutional financing for floating new ventures. Following the ministry’s directive, banks have formed committees —comprising chairmen, executive directors and government nominees — to update their respective boards on the matter. “The finance ministry has also directed us to obtain all necessary powers to recover dues from such defaulters,” said a senior executive of a public- sector bank. The move has come within days of Finance Minister P Chidambaram’s comments on the corporate sector’s wilful defaulters. He had said after a meeting with chiefs of public- sector banks last week: loans. Banks and to conduct a committee. To recover dues from 50 top defaulters; finance ministry wants proceedings fast- tracked UNDER STRESS Govt banks’ stressed assets as % of gross advances Bank [1] Dec 2011 [1] Dec 2012 Central Bank of 4.9 India 18.1 Punjab National 8.85 Bank 15.47 Oriental Bank of 8.86 Commerce 14.74 Punjab & 4.49 Sind Bank 14.36 Indian Overseas 10.52 Bank 14.29 Andhra Bank 6.36 14.14 UCO Bank 4.06 13.78 Indian Bank 7.69 13.72 Allahabad Bank 5.63 13.67 Bank of India 7.75 12.25 IDBI Bank 3.03 11.48 State Bank 7.82 of India 10.47 Bank of Baroda 5.34 10.04 All public 6.67 sector banks 11.59 Source: Finance Ministry

Interest rate on small savings, PPF lowered

BS REPORTER New Delhi, 25 March The government today reduced the interest rate on Public the Provident Fund ( PPF) from 8.8 per cent to 8.7 per cent. The new rate will come into effect from April 1. It also lowered the rate on other small savings schemes, with maturity of two years or more, by 10 basis points. This includes fixed deposits ( FD) and recurring deposits ( RD), as well as National Savings Certificates ( NSC). A one- year time deposit will now fetch the investors an interest at the rate of 8.2 per cent, against 8.3 per cent earlier. Fiveyear NSC and 10- year NSC will give a rate of return of 8.5 per cent and 8.9 per cent, respectively. The senior citizens savings scheme will offer the highest rate of interest at 9.2 per cent. Monthly Income Schemes of five- year maturity will earn an interest of 8.4 per cent. Interest on savings deposit and one- year term deposit remains unchanged at 4 per cent and 8.2 per cent, respectively. Based on the decisions taken by the government on the recommendations of the Shyamala Gopinath Committee for Comprehensive Review of National Small Savings Fund, the interest rates for small saving schemes are to be notified every financial year, before April 1 of that year. The committee had recommended benchmarking small savings returns with the market rate. Planning Commission Deputy Chairman Montek Singh Ahluwalia justified the move saying the returns remain favourable to depositors in real terms, as inflation is lower than it was two years ago. “I dont believe that interest rate for savers through the post office system can be delinked completely from the interest rate system in the country. If you want low rate environment, you cannot say, ‘ I want higher interest rate for savers and low interest rate for borrowers’. They have probably moderated a little bit in line with the softening of interest rates,” Ahluwalia said on the sidelines of the Skoch summit. The Reserve Bank of India cut the repo rate by 25 basis points in its last monetary policy review. SCHEMING IT LOW Rate of Interestwef Apr 1, Apr1, Scheme 2012 2013 Savings deposit 4.0 4.0 1- yr time deposit 8.2 8.2 2- yr time deposit 8.3 8.2 3- yr time deposit 8.4 8.3 5- yr time deposit 8.5 8.4 5- yr recurring 8.4 8.3 deposit 5- yr SCSS 9.3 9.2 5- yr MIS 8.5 8.4 5- yrNSC 8.6 8.5 10- yrNSC 8.9 8.8 PPF 8.8 8.7 Source: Finance ministry

Sebi plans stronger surveillance systems in 2013- 14

PRESS TRUST OF INDIA New Delhi, 25 March The Securities and Exchange Board of India ( Sebi), plans to put in place a stronger and more effective surveillance system in the next financial year 2013- 14, by way of greater checks against money laundering and an overhaul of its regulations for various market entities and trade activities. The measures proposed to be taken include enhanced surveillance of derivatives market, first- stage monitoring by brokers, stronger audit mechanism for market entities and review of anti- money laundering and terror combating funding norms. Besides, Sebi also plans to bring in guidelines to address conflict of interest for credit rating agencies, introduce regulatory framework for foreign intermediaries soliciting business from investors in India and put in place a centralised KYC framework for the entire financial sector. The proposed steps are part of Sebi’s budget proposals for the year 2013- 14, which have been approved by its board and would be implemented during the course of the year. One of the top priorities identified by Sebi for 2013- 14 would be “ protecting the integrity and safety of the market through a stronger and more effective surveillance mechanism and by strengthening the inspection process of intermediaries”, a senior executive said. Sebi is also planning to strengthen its manpower in the next financial year, besides making greater efforts towards training and skill building of existing staff members. The regulator would also strengthen its data warehousing and business intelligence system (DWBIS), the project which has been initiated in phases to generate reports to identify, detect and investigate aberrations and market abuses that undermine market integrity. In its budget proposals, Sebi also said it was necessary for the intermediaries to maintain high levels of compliance with the stipulated norms. To provide the services to the investors at their door step and to promote a balanced securities market, Sebi is also working on enhancing the physical proximity of Sebi offices to investors and intermediaries. While 10 new local offices are expected to be functional by the end of this month, six more are proposed to be opened during 2013- 14. Enthused by a significant increase in receipt of grievances due to its mass media campaign in 2012- 13, Sebi plans to further strengthen the campaign in the next financial year. Sebi also said it would restart the process of putting in place a unified filing and dissemination platform, called Sebi Unified Platform for Electronic ReportingDissemination ( SUPER- D), to make available information filed with it in user- friendly and analysable form for investors and various stakeholders. To enhance the scope of its activities to more comprehensively monitor compliance with listing requirements, the project was proposed in 201112, but the tender process was discontinued in 2012- 13. The project is now proposed to be completed in 201314. Sebi said it was necessary to carry out continuous review of policy by administering, supervising and inspecting market infrastructure institutions to ensure proper functioning in accordance with laws so as to develop and maintain a risk- free and fair market place. The steps proposed in this regard include introduction of pre- open call auction and post- close call auction, policy on trade annulment, review of policy on block deal window, straight through processing for retail trades and steps to develop corporate bond market. Other proposed measures include norms on utilisation of depository investor protection fund and reporting of client collateral collection and utilisation to clearing corporations. The proposed steps are part of Sebi’s budget proposals for the year 2013- 14, which have been approved by its board and would be implemented during the course of the year

Business standard news updates and legal digest 25-3-2013

Realtors under Sebi scanner for fraudulent investment schemes

PRESS TRUST OF INDIA New Delhi, 24 March Suspecting investor frauds in the projects being launched by numerous real estate developers, capital markets regulator Securities and Exchange Board of India ( Sebi) is probing them for possible violations of collective investment scheme (CIS) regulations. A CIS entity typically raises funds from the public to invest the money in a project or investment scheme proposed with the capital collected from apool of investors and the returns are shared on pro- rata basis at a later stage The regulator has been flooded with complaints of investors being duped by real estate companies promising huge returns in projects proposed to be developed from scratch through public money, prompting it to launch probe against 50- 60 such developers, a senior official said. Most of these companies are operating in the northern and western states, while some of them are also active in West Bengal, Assam and other parts of the country, he said.

One travel allowance can be extended

Ihadn’t expected I would answer questions on leave travel allowance ( LTA) at a college reunion. But, as things panned out, I ended up doing just that. When one of my friends said he was rushing to plan a trip by March 2013, as he did not want to lose the LTA exemption, he caught everyone’s attention. When I explained the deadline was December 2013, not March 2013, some of those present wondered whether they could plan two holidays in case they hadn’t taken any in the last block — 201013. The answer was ‘ yes’. Isaid LTA could be availed of twice in a four- calendar- year period, for self or family ( spouse, children and dependent parents). In case of air travel, the LTA exemption would be valid for travel in the economy class of a national carrier, through the shortest route. For other modes of travel, exemption would be valid on the air- conditioned first- class train fare through the shortest route, in case the end- points are connected by rail. If not, it is also valid on the first- or deluxe- class fares of public road transport, if there is a recognised mode of public transport. A friend who is a passionate driver and frequently takes trips in his car across the country was sceptical on whether tax rules would recognise travel by personal vehicle. Again, the answer is ‘ yes’. However, to discourage false claims, some employers don’t allow this. According to law, exemption is allowed on all modes of travel and is restricted to the actual expenses on travel — fuel and toll charges. Of course, if required, the bills for these would have to be presented as proof for verification by tax authorities. Some employees claim such exemptions in their tax returns, in case an employer doesn’t allow these exemptions. For travel to multiple places, exemption would be based on the cost of travelling to only one destination. Usually, one selects the farthest destination. Another friend, who said he had not taken a leave in the last three years, wanted to know whether he could take one or two leaves by December 2013. And, if he took a single leave, would he lose the other? He was happy to know there was a ‘ carryover’ concept, according to which an unutilised LTA could be carried forward and claimed in the first year of the next four- year block. This means in the 2014- 17 block, anyone with a leftover LTA claim would be entitled to three trips. As I knew my friend was planning to join another organisation in the near future, I clarified LTA could be claimed for multiple trips from both the employers, if the concession was unutilised. Of course, the norm for the total number of trips would have to be adhered to and employers would ask for a declaration of the number of trips the exemption was being claimed for. Some friends planning to go abroad were disappointed at the fact that exemption was available only for travel within India. That, too, for travel alone, not accommodation, food or sightseeing. What if a person entitled to an LTA doesn’t get leave and his/ her family travels without him? Unfortunately, to avail of an LTA, an employee has to be part of the trip. As we started planning our next reunion, travel plans changed. The friend rushing to plan a trip keeping in mind the March 2013 deadline postponed his plans. Another decided to avail of the ‘ carryover option’. And, many of us expressed hope the law would be changed to include foreign trips and hotel expenses as well. If you don’t use the two LTA exemptions by December 2013, one can be availed of in 2014- 17 LTA EXPLAINED: |You will get LTA allowance twice in ablock of four years |Allowed for domestic travel, by train, flight or road |Not allowed for foreign travel |2010- 2013 block is getting over in December 2013 |You are allowed to carry over one allowance to the next block |Even if you leave one company without using the LTA, it can be claimed from the next firm PRAMOD ACHUTHAN The writer is Tax Partner, Ernst & Young LTA can be claimed for self or family (spouse, children and dependent parents). But you have to travel with them to claim it The exemption is available only for travel within India

Former regulators cold to the idea

SUPER- REGULATOR FOR FINANCIAL SECTOR MSARASWATHY& RAJESH BHAYANI Mumbai, 24 March The proposal of the Financial Sector Legislative Reforms Commission (FSLRC) to have a unified regulator for the financial sector has not gone down well with former regulators of various financial sectors. Former regulators and industry experts are of the view that a super- regulator would not be able to do justice in addressing the varied problems that each of the financial sector faces. A government- appointed panel, chaired by retired Supreme Court judge B N Srikrishna, on Friday proposed a unified regulator for markets, insurance, commodities and pensions. The panel, whose proposals could change the financial landscape of India, also suggested five additional agencies, including an appellate tribunal that would subsume the Securities Appellate Tribunal ( SAT). The panel gave its report to Finance Minister P Chidambaram, who said the report would be made public in three to four days, after he discussed it with the Prime Minister. CS Rao, former chairman of the Insurance and Regulatory Development Authority (Irda), said this proposal might not help at a time when some countries that had adopted asuper regulator model are turning back to the original regulatory structure of individual regulators. He added that, in small nations, like Singapore, it could be feasible, where this model would help avoid overlaps. " In a large country like India, you need expertise in each field. This proposal would lead to a situation where people at the lateral level would have very little background of the segment ( example: insurance or stock markets) that they are working for. In some situations, a stock market expert could be working on insurance issue or vice versa," he said. Some others differ. G N Bajpai, former chairman of the Securities and Exchange Board of India ( Sebi) favoured a consolidated regulator for all financial services. “As FSDC is already existing, the concept of aconsolidated regulator has already been accepted in India. In any case, that’s the need of the hour.” His opinion is significant as at present, different regulators for different financial services leave room for regulatory arbitrage as distributors for these different products are the same. Distributors sell all products -- be they life or non- life insurance, MFs, bank products or security market products. Different regulators and different rules framed by them only create confusion for investors/ customers. Rao said, “ Some have a view that the unified regulator model would help remove inter- regulatory disputes. But, I believe that to deal with this issue, we need to have alternate mechanisms in place, rather than having asuper regulator.” BC Khatua, former chairman of commodity derivatives market regulator, the Forward Markets Commission thinks the commodity market needs a different treatment as it is still not mature and need to be nurtured. He said, “ Commodity market is also a fundamentally different market from equity, insurance or pension segments. The basic intent of the commodity market is risk management and investment is incidental,” he said. However, he has a different view for integration of regulatory practices in commodities. He said, “ We have a separate regulator for commodities and for warehouses, and both should be consolidated under one regulator as commodity exchanges in any case recognise warehouses. In future, warehouse receipts will be traded on the same commodity exchanges as negotiable instruments.” The approach paper had also said there was a need for separating the adjudication function from the mainstream activities of a regulator, to achieve greater separation of powers. This, said a former financial sector regulator, would curb the independent regulatory powers of the financial sector regulator. Lack of clarity could also be an issue, said some ex- regulators. J Hari Narayan, former Irda chairman, said the proposed model would lead to further confusion in the system. “ The proposal lacks clarity. It has been adopted from the English model, which has its own faults. Dilution of regulations seem to be the purpose behind this proposal,” he said. EXPERT VIEW “Commodity market is also fundamentally different from the equity, insurance or pension segments. The basic intent of the commodity market is risk management and investment is incidental. While other markets are basically investments for higher returns, in commodities, higher prices hurt consumers, while lower prices affect farmers and manufacturers, as the case may be” BC KHATUA Former FMC chairman “In a large country like India, you need expertise in each field. This proposal would lead to a situation where people at the lateral level would have very little background of the segment ( example: insurance or stock markets) that they are working for. In some situations, a stock market expert could be working on insurance issue or vice versa” CS RAO “FSDC is already existing. So, the concept of a “The proposal lacks any clarity. It has been adopted from the English model, which has its own faults. Dilution of regulations seems to be the purpose behind this proposal” JHARI NARAYAN Former Irda chairman

LEGAL DIGEST

Failure to nominate arbitrator The Supreme Court last week held that if a party to an arbitration agreement failed to appoint an arbitrator despite the demand of the opposite party, it forfeited the right to appoint one. After an application is made to the Chief Justice for appointment of an arbitrator the inactive party cannot come up with his nominee, the court stated in the judgment, Deep Trading Company vs Indian Oil Corporation. In this case, the corporation granted dealership of its oil products to the former firm. Later, the corporation suspended its supplies alleging violation of the terms. The firm wanted arbitration on the dispute. At first, the corporation did respond. But when the dealer moved the Allahabad Chief Justice under the Arbitration and Conciliation Act, the corporation named one of its executives as arbitrator. The Chief Justice, therefore, did not appoint an arbitrator. The dealer moved the Supreme Court. It stated that the corporation had failed to act as required under the procedure agreed upon by the parties and despite the demand by the dealer to appoint the arbitrator, the corporation did not make appointment until the application was made under the Act by the dealer. Under such circumstances, the corporation has forfeited its right of appointment of an arbitrator. The Chief Justice should have appointed an arbitrator. Therefore, the Supreme Court remanded the matter to the high court Chief Justice. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> UP pleas on urban land dismissed The Supreme Court has ruled that a land holder is entitled to notice before take- over of surplus urban land. The “ deemed vesting” of surplus urban land under the Urban Land ( Ceiling and Regulation) Act would not amount to taking de facto possession unless the land holder had voluntarily surrendered the land. The owners must be given notice before taking possession under the new Act of 1999. Dismissing nearly a 100 appeals moved by the UP government against the judgments of the Allahabad High Court, the Supreme Court further stated that requirement of giving notice is mandatory. Though the relevant sections use the word ‘may’ it has to be understood as ‘ shall’ in this context. Otherwise, “ it might result in the land holder being dispossessed without notice,” the Supreme Court said in the judgment, State of UP vs Hari Ram. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Summons for invalid cheque In a case of bounced cheque, the magistrate who issued summons to an accused person cannot recall his order due to lack of territorial jurisdiction, the Supreme Court has held in the case, Iris Computers Ltd vs Askari Infotech Ltd. The judgment of the Karnataka High Court was held to be contrary to law. In this case, a complaint was filed for issuing cheque without sufficient funds under Section 138 of the Negotiable Instruments Act. The magistrate issued summons to the accused person. He moved an application questioning the maintainability of the complaint due to lack of territorial jurisdiction. The magistrate then recalled his order issuing summons. The payee moved the high court for quashing the magistrate’s order of recall of the summons. The high court rejected the petition. On appeal, the Supreme Court allowed it and ruled that the magistrate was not justified in recalling his summons order. It asked the magistrate to take the complaint and proceed with the prosecution. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Tax on scientific research The Delhi High Court last week directed the income tax authorities to reconsider the claim of the Centre for Development of Telematics that it was a ‘ scientific research association’ entitled to exemption from tax. Section 35( 1)( ii) of the Income Tax deals with two categories of institutions. One category is that of a ‘ scientific research association’ which has as its object undertaking of research and the other category is that of a university, college or other institutions which undertake some amount of scientific research. The centre was aggrieved as it has been placed in the second category. While it receives certain royalty and consultancy charges, those are ancillary to its sole object of undertaking scientific research, it argued. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Designs registered abroad A full bench of the Delhi high court has stated that only a previously registered Indian design can be a ground for cancellation of subsequently registered design in India, and a design registered in a foreign country cannot be aground for seeking cancellation of a design registered. The full bench dealt with Section 19 of the Designs Act 2000, as a division bench felt that some high court decisions were wrong. Therefore it referred the question to the full bench in the case, Reckitt Benkiser India Ltd vs Wyeth Ltd. It was called upon to examine Section 19 dealing with cancellation of design registered in India on account of a design previously registered here. What happens if the design is registered abroad, in a Paris Convention country? The full bench has not given a ready answer, but said the facts and circumstances have to be considered. “ Each case has to be necessarily judged by putting the subject design with the articles side by side with the prior publication material and only after thoroughly scrutinising the same any finding can be given,” the court said. MJ ANTONY THINKSTOCK

Business standard news updates 24-3-2013

Govt scraps sub- limits for FII investment in debt

BS REPORTER New Delhi, 23 March Initiating the much- needed reforms for foreign investors in the debt market, the government today said it would merge the existing sub- limits and, instead, have overall caps for only two broad categories — government securities and corporate bonds. The change would become operational from April 1. Addressing the National Editors’ Conference here, Finance Minister P Chidambaram said the ceiling of $ 1 billion for qualified foreign investors (QFIs) and $ 25 billion for foreign institutional investors (FIIs) in corporate bonds, besides $25 billion for FIIs in long- term infra bonds, would be merged —retaining the overall cap for corporate bonds at $ 51 billion. He added, the sub- limits for FIIs in government securities ($ 10 billion) and dated securities ($ 15 billion) and other categories would be merged to retain the overall cap of $ 25 billion. This means the overall ceiling for investment in G- sec and corporate bonds would not change, at least for now. Chidambaram announced these measures “ to encourage greater foreign investment in rupee- denominated debt instruments and help develop rupee debt markets”. Besides these, he said the government was “steadily and surely” working on next generation of reforms to bring the economy back on the high- growth path, and exuded confidence the food security Bill would be passed in this Budget session of Parliament. The entire limit in G- sec, as well as corporate bonds, would be available to all eligible classes of foreign investors — FIIs, sovereign wealth funds and QFIs. The room created by unifying the categories would replace Sebi’s current auction mechanism to allocate debt limits for corporate bonds by the “ on tap” system, currently in place for infrastructure bonds. To allow large investors to plan their investments, the government would review the foreign investment limit in corporate bonds when 80 per cent of the limit was exhausted, he said. The limit on government bonds would also be enhanced, when needed, on the basis of demand from foreign investors, macroeconomic requirements and the offshore- onshore balance. The annual increase in the government bond limit would remain within five per cent of the central government’s gross annual borrowing, excluding buybacks. “The removal of sub- limits will offer a lot of operational ease to foreign investors,” said Jyoti Rai, head ( marketing), SBI SG Securities Services. A sub- limit for investments in short- term instruments of initial maturity of less than one year, such as treasury bills and commercial papers, would be decided on the basis of FIIs’ holdings in these instruments, so that the existing investments are not hit. These sub- limits would not be reopened for review until the ratio of India’s short- term external debt on residual maturity of up to one year slipped below 25 per cent of total external debt, the finance minister said. ECONOMY 2 > >There should be some states in general category as well: FM Govt working on next- gen reforms, slowly and gradually: FM “There were a number of sub- divisions. To rationalise, it is proposed to merge the existing sub- limits and create only two broad categories” PCHIDAMBARAM Finance minister

Bengal govt to bring new legislation to curb chit funds BS REPORTER Kolkata, 23 March In an effort to control the proliferation of chit funds, the West Bengal government is planning to introduce a new legislation to crackdown on such companies and ponzi schemes. The new legislation will be an updated and stronger version of the West Bengal Protection of Interest of Depositors in Financial Institutions Bill, passed unanimously on December 23, 2009. The Bill, which proposes a life term for convicts, however, is still awaiting Presidential assent since January 2010. “The earlier Bill was prepared in 2008. The entire base of collecting money and investing money has changed drastically since 2008. The state government is trying to recast the Bill. The new Bill will have more teeth, so that there could be a proper regulation,” West Bengal finance secretary HK Dwivedi said. “Right now, economic offences wing of state finance department are pursuing all the complaints. The state will go hand in hand with the Centre on the issue. Also, steps are being take to create awareness in small towns and rural areas about risk involved in the promise of high returns,” he added, while speaking at an investor awareness programme of the ministry of corporate affairs. Later speaking on the issue, “ The Centre is looking into the issue, we would also encourage state governments to take necessary action against these firms. These firms are currently misusing the loopholes in law. If state starts taking action, Centre is ready to provide all kind of assistance,” Minister of Corporate Affairs Sachn Pailot said during the event later. Incidentally, Reserve Bank of India had earlier directed the government to take action againsst mushrooming chit funds in the state. Opposition too have been mounting pressure on Trinamool- Congress government on the issue. Leader of Opposition Suryakanta Mishra, had recently alleged that some multi- level marketing companies siphoned off about ₹ 15,000- 16,000 crore from the people in the state in the past few years and have invested in real estate and media organisations. Also, small saving collections in the state have lost the edge to high- yielding saving instruments like chit funds. According to Gautam Deb, leader of CPI( M), the small savings and post office collections in West Bengal during the April- October period were merely ₹ 194 crore, against the targeted amount of ₹ 8,370 crore. an investor awareness programme, in Kolkata on Saturday PHOTO: SUBRATA MAJUMDER Commerce min prepares paper on SEZ concerns BS REPORTER Chennai, 23 March The Union ministry of commerce has prepared a comprehensive paper on the concerns of the promoters of and companies in Special Economic Zones ( SEZs), and of exporters. On the sidelines of the Madras Export Processing Zone ( MEPZ) export excellence awards function here today, Madhusudan Prasad, additional secretary in the ministry, said a meeting had been called with exporters and developers to know their concerns. " We want to know where the shoe is pinching and what changes is needed. Based on which, we prepared a comprehensive paper," he said. This was now under consideration and major recommendations from this would be finalised soon, he said, without sharing details. On behalf of the ministry, he also called for exporters to do more. At present, exports are not matching imports. " Its a matter of great concern, which leads to a trade balance deficit and a widening current account deficit," said Prasad. Exports, he said, were essential in the value chain and for the nation to grow. As India gets more integrated, we look at increasing exports to maintain growth momentum, said Prasad. IKEA entry spurs Godrej Interio talks with Italian, Indian companies SOUNAK MITRA New Delhi, 23 March At a time when Swedish furniture major IKEA is entering the Indian market, homegrown furniture maker Godrej Interio is actively seeking acquisitions in India and Italy. The company expects to announce at least one deal next quarter. The subsidiary of Godrej &Boyce Mfg Co Ltd is in talks with two companies in Italy that specialise in design and technology, with an estimated revenue of ₹ 200 crore each, for possible buyout, said Chief Operations Officer Anil Mathur. “We are also negotiating with two companies in India, one based in the northern region and the other in the south. These are small companies with turnover not exceeding ₹ 100 crore,” he said. The company is looking for acquisitions in India to boost manufacturing capacity in the northern and southern regions of the country, where it does not have a strong presence. “Acquisition of an Italian design or technology firm will help the company is expanding product offerings, which in turn will boost our consumer business,” he added. Mathur said the company had room to fund acquisitions on its own and could avail of funds from the parent company if required. Godrej Interio plans to increase sales to ₹ 5,000 crore by 2016- 17, a growth of alittle over 20 per cent yearonyear. The present turnover is ₹ 1,500 crore. Mathur says the company will spend about ₹ 120 crore in raising capacity at different factories over the next two years. About ₹ 25 crore will be spent on retail expansion in this period. Godrej Interio currently gets about 75 per cent of revenue from institutional sales and the remaining amount from retail consumer sales. The latter share is expected grow up to 40 per cent in the next five years, said Mathur. As part of plans to boost the consumer business, Godrej Interio is planning to double its retail space from about 500,000 sq ft to a little more than 1,000,000 sq ft in the next one year. It aims to open about 60 exclusive retail outlets during 2013, mainly in tier- II, tier- III and tier- IV towns. In 2012, it opened 50 such retail points across the country. The company recently entered into a marketing tieup with Korea’s Sejin for marine accommodation solutions, Japan’s Itoki and the US- based Knoll Inc for office furniture. It also has an agreement with Netherlands- based LINET Group for hospital and nursing home furniture. Govtwants PSBs to consider Wind power projects face hurdles in getting bank finance separate credit limit ABHIJIT LELE Mumbai, 23 March The government wants the public sector banks ( PSBs) to consider a separate exposure limit for credit to renewable energy projects to improve fund flow into this capital- intensive industry. The finance ministry took this issue up with the chiefs of state- run lenders in a meeting held in Delhi on March 18, said a top PSB executive, requesting anonymity. Loans to the power sector have seen consistent growth, but banks traditionally give preference to conventional power projects rather than renewable energy units. Banks’ exposure to the power sector rose to ₹ 4.07 lakh crore in January 2013 from ₹ 3.28 lakh crore in March 2012, according to the Reserve Bank of India ( RBI). Considering the importance of promoting renewable energy sources, banks could consider carving out a separate sectoral exposure limit. This, according to the finance ministry, could be either through prescribing an independent exposure limit, or having a sub- limit within limit for the power sector. Banks prefer financing conventional power projects due to their large size and financing requirements, but this has led to crowding out of finance for the renewable energy sector, feels the finance ministry. The investment requirement for the renewable energy sector for the next five years has been projected at around ₹ 3 lakh crore and over 90 per cent of it is expected to come from the private sector. According to the finance ministry, renewable energy production is a capitalintensive business. The risks involved are high and the viability of the project is dependent upon factors such as regulatory support and technology trends. Banks charge higher interest rate for loans to the industry due to high perceived risks. With the smaller project size, tapping overseas markets for funds is not an attractive option for renewable energy companies, according to another bank executive. Moreover, the financial distress faced by state power distribution companies ( discoms) pose offtake risk ( beyond the renewable purchase obligation) and repayment risk for such projects. In recent times, bankability in the solar segment has emerged as a major issue mainly due to aggressive bidding for projects. This has raised concerns about the viability of such projects. Further, in many states, evacuation infrastructure for renewable energy projects is not available, the official added. RENEWABLE ENERGY PROJECTS the power sector rose to ₹ 4.07 lakh crore in January 2013 from ₹ 3.28 lakh crore in March 2012, according to RBI

Tax benefits for children

ANIL REGO When Shashank Pal, an engineer with a leading construction firm submitted proof of his tax saving investments in his office, he was in for a pleasant surprise. He was informed that he can get tax exemption for the school fees paid for his child. He also managed to locate the fee receipts at home and submitted them in time so as to claim tax exemption this year. Now he has decided that, henceforth, he will be regular and will not miss out on any of the chances to invest in his son’s name, which will also help him get tax breaks. Let us look at some of the deductions we can claim for investments made in children’s names. Most of these deductions fall within the investment limit of ₹ 1 lakh, under Section 80C. Tuition Fees Paid: In respect of school fees a parent can claim a deduction of tuition fee paid to any university, college, school or any other educational institution. The deduction on payments made towards tuition fee can be claimed up to ₹ 1 lakh together with deduction in respect of insurance, provident fund and pension. It can only be claimed in respect of two dependent children and for fees to an educational institution within India and for tuition fee only. Interest on Education Loan : The cost of higher education is often a burden on the family’s budget and parents are forced to borrow for their children’s education. The interest paid ( not the principal amount) on an education loan is fully deductible from taxable income under Section 80E up to eight continuous years, starting from the year in which the interest is first paid. This can be claimed by either the child ( if the loan is in their name) or by the parent. Premium paid for health insurance: Parents can claim a deduction up to a limit of ₹ 15,000 on premium paid towards health insurance policies taken for their children. Tax benefits for certain ailments The treatment of a chronic illness can be a drain on the finances of a family. This is why the Income Tax Act allows a deduction of ₹ 40,000 if one has a dependent child who suffers from any of the ailments specified under Section 80DDB, provided the child does not separately claim any deduction towards the same ailment. Aliments for which tax breaks are available are few: Neurological diseases ( like Dementia, Dystonia Musculorum Deformans, motor neutron disease, ataxia, chorea, hemiballismus, Aphasia, Parkinson’s Disease), cancer, full blown acquired immune deficiency syndrome ( AIDS), Chronic renal failure, hemophilia and thalssaemia. Disabilities also eligible for deduction: If one has a disabled dependent, one is eligible to claim ₹ 50,000. The deduction is available only if the impairment is at least 40 per cent and if the disability is severe ( 80 per cent or above), the deduction is ₹ 1 lakh a year. Incidentally, the deduction is offered as a lump sum and is irrespective of the actual amount that the taxpayer may spend. To claim this deduction, under Section 80U one must furnish a copy of the certificate issued by the medical authority in the form and manner, as may be prescribed. Medical Authorities means any hospital or institution specified in Persons with Disabilities ( Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. Such Medical Authorities are prescribed from time to time by Government Authorities. Hostel Allowance ₹ 300 per month per child up to a maximum of two children is exempted ( only if expenses are incurred in India) Education Allowance ₹ 100 per month per child up to a maximum of two children is exempted ( only if expenses are incurred in India) Medical Expenses Reimbursement Deduction of up to ₹ 15,000 per annum is allowed. This can be claimed for self as well as for children who are dependent. Medical bills have to be furnished to avail this benefit. Free/ Concessional Educational Facility: Deduction to an extent of ₹ 1,000 per month is allowed provided the educational institution is maintained and owned by the employer or any other educational institution by reason of his being in employment of that employer. Setting up a Trust: One can save taxes by creating a trust for children. One needs to make an irrevocable transfer to the trust, where money cannot be claimed back by the donor. All investments are made through the trust and the income generated can only be used in accordance with the purpose of the trust. The income from the investments is not clubbed with the donor’s income, but the trust needs to pay tax. This method helps reduce the tax liability. Gifts: Any gift received in cash or kind exceeding ₹ 50,000 is taxed in the hands of the recipient. However, this rule does not apply to gifts received from relatives and received on the occasion of one’s marriage or under a will or inheritance. Any transfer of money or of movable or immovable assets, is considered as a gift. Though there is no tax on gifts, all gifts in excess of ₹ 50,000 ( other than those from relatives) and income generated through them get clubbed with the recipient’s taxable income. However, income earned by assets gifted to minor children are included in the income of the donor for taxation. If you want the money earned to be treated as independent income of your minor children you will have to prove that the recipients had used their own acumen for making money from the gifted assets. By utilising these tax breaks given by the income tax department, it is possible to further reduce one’s tax burden. However, only one parent can claim these benefits - not both. Summary: [1]One can deduct their children’s education expenses, and medical bills against their taxes [1]A dependent child’s income will be clubbed with yours unless it can be proved that the child has earned the money in his or her own right [1]Setting up a trust for your children is a tax efficient method of investing on their behalf [1]Only one parent can claim deductions for the children, not both The writer is CEO & Founder, Right Horizons School fees, education loan and health costs qualify for exemptions