Escorts Mutual Fund

They are at lower levels now. Many sectors such as IT, pharma and auto are at much higher levels (than 2007)," explains Sankaran Naren, CIO, equity, ICICI Prudential MF.
The underperformance of mid-cap stocks between May 2006 and March 2009 made investors

cautious, he says. Midcaps, among worst-hit in the market meltdown, have emerged as one of the best performing segments in current rally. The BSE mid-cap index spurted 147.6% since March 9 while sensex gained 109.8%.

With the mid-cap space witnessing profit booking, funds are making higher allocation to large-caps, say industry officials. The earnings season would kick in shortly and officials believe that corporate profits would be reasonably good. With the global economy in a much better shape than it was a year ago, they do not expect any huge downturn.

While the current rally is being driven by FIIs who have net bought equity worth around Rs 58,000 crore so far this year (up to September 25) - MFs, who turned net buyers in March, have also continued to invest in equity.

The equity holdings of MFs crossed 90% mark in August, a 16-month high, and funds have net bought equity of around Rs 2,500 crore this year. Coimbatore: The continuous surge of equity markets since March hasn't just made mutual fund (MF) investors richer but has given them more bang for their bucks. Nearly one out of every two diversified equity MFs is now quoting higher than the net asset values (NAVs) of September 27, 2007, when sensex closed above the 17,000 mark for the first time.

Interestingly, nearly one in every four diversified equity MF is now quoting above NAVs registered during the third week of October 2007 when sensex was trading firmly at 17,500-19,000 levels. In all, 94 out of the 210 odd MFs, which have a two-year record, have posted gains since September 27, 2007, analysis shows.

"Many funds were not able to catch up (with the markets) during the earlier rally (that happened during the later part of 2007). Also, the current rally is much more broad-based," says Mahesh Patil, co-head, equity, Birla Sun Life MF. Incidentally, 115 out of the 250 odd diversified equity funds have posted gains since May 21, 2008 — the last time sensex closed above the 17,000 mark, Value Research data shows.

As many as 18 new FMPs have been launched this month, data from ICRA Online shows, and offer documents of at least 10 more are awaiting clearance from Sebi
New Delhi: Money managers in India are scrambling to launch fixed maturity plans (FMPs) on hopes the prospect of better returns than liquid funds will help revive interest in one of the most popular fund categories of 2008.
As many as 18 new FMPs have been launched this month, data from ICRA Online shows, and offer documents of at least 10 more are awaiting clearance from the regulator Securities and Exchange Board of India.
FMPs offer a specific maturity to the investor and invest in debt and money market instruments of the same maturity, thus using the interest payments on those papers to generate returns.
Falling short-term rates and regulatory changes have dented returns on liquid funds, which park funds in instruments up to 91 days, helping boost demand for FMPs which invest in medium-term and long-term papers as well.
“Liquid, liquid plus (fund) returns which were earlier probably in the range of 6-7% have now fallen to... 4-5%,” said Bekxy Kuriakose, head of fixed income at DBS Cholamandalam Asset Management Ltd.
“FMPs can give higher returns now as compared to liquid plus or liquid funds ... now there’s a good rate differential.”
FMPs briefly lost favour as liquid funds were also investing in similar paper and promising liquidity as well, but a recent regulation change which compels liquid funds to invest in paper maturing in up to three months brought investors back.
So, only five new FMPs were launched between April and August, of which three collectively raised only Rs200 crore, while total assets under such plans fell by nearly half to Rs35,000 crore, the Association of Mutual Funds in India’s website shows.
With such plans making a comeback, fund houses will woo retail investors, especially those looking to invest for more than 12 months as FMP returns can be more tax efficient than traditional bank deposits in some cases.
The new 18-month FMP of Tata Asset Management Ltd that closed earlier this month raised around Rs530 crore, a spokesperson for the fund house said, adding that there was a drastic increase in retail participation.
FMPs can generate 150-200 basis points higher return than liquid funds in the current environment, Kuriakose said, which can even prompt some investors to forgo their liquidity requirements and invest in these close-ended products.
http://www.livemint.com/2009/09/30230824/Fixed-maturity-plans-in-demand.html

The department of industrial policy and promotion, or DIPP, said this was the last opportunity for the exchanges to comply with the 19 August 2008 guidelines

New Delhi/Mumbai: The Union government on Wednesday gave a second extension of up to 31 March to commodity exchanges to pare foreign shareholdings to 5%.
Some foreign investors continue to hold above the permissible 5% limit in commodity exchanges.
The department of industrial policy and promotion, or DIPP, said this was the last opportunity for the exchanges to comply with the 19 August 2008 guidelines, which mandate that a foreign investor cannot hold more than 5% in a commodity exchange.
Over and above this, the regulations require commodity exchanges to cap their overall foreign investments at 49%, with portfolio investments capped at 23% and foreign direct investments at 26%.
Non-compliance would be a violation of the Foreign Exchange Management Act.
“Difficulties have been brought to the notice of the government in complying with the provisions...within the stipulated time frame,” DIPP said in a statement.
It had set a deadline of 30 June and later extended it to 30 September.
At present, there are three commodity exchanges in India—Multi Commodity Exchange of India Ltd (MCX), National Commodity and Derivatives Exchange Ltd (NCDEX) and National Multi-Commodity Exchange of India Ltd (NMCE).
NCDEX has two foreign stakeholders—Goldman Sachs Investments (Mauritius) Ltd and Intercontinental Exchange (ICE), which recently trimmed their holdings to 5% each from 7% and 8%, respectively.
In August, Shree Renuka Sugars Ltd bought a 2% stake in NCDEX from Goldman Sachs and a 3% stake from ICE to hold 5% in the exchange.
MCX, the country’s largest commodity exchange, still has an overseas investor holding of more than 5%. Fidelity Fund (Mauritius), an affiliate of Fidelity International, has a 9.21% stake in the bourse.
Citigroup Strategic Holdings (Mauritius), NYSE Euronext, and Merrill Lynch Holdings (Mauritius) have 5% stakes each in MCX.
http://www.livemint.com/2009/09/30220230/Deadline-on-lower-foreign-stak.html]

Compared with December 2007, open interest in the single stock futures segment is still down by about 57%, which shows that traders are still far away from taking the high risks they used to in end-2007.

Do market internals point to an incipient bubble in the Indian stock market? The open interest of all futures and options contracts listed on the National Stock Exchange was around Rs1.2 trillion just before the expiry of the September series last week. This is quite close to the peak open interest (around expiries) of Rs1.25 trillion in December 2007. But before jumping to conclusions about leverage going back to the peak of end 2007-early 2008, one must note that options contracts account for 57% of total open interest currently, compared with just 22% in December 2007.
The open interest of options can be a misleading figure since the exposure of option buyers is limited to the premium paid. The open interest, however, is calculated as the notional value of the contract (or the option premium plus the strike price).
It’s more pertinent to look at the build-up of open interest in the futures segment. Open interest in the single stock futures segment has more than doubled in the past seven months, but then even the markets have doubled in the same period. The rise, therefore, seems to be primarily because of the increase in share prices, and there wouldn’t be much of a build-up in terms of number of contracts.
Compared with December 2007, open interest in the single stock futures segment is still down by about 57%, which shows that traders are still far away from taking the high risks they used to in end-2007. Yogesh Radke, head of quantitative research at Edelweiss Securities Ltd says, “After the markets crashed in early 2008, traders have been running shy of derivatives positions in mid cap stocks. This is the primary reason for the sharp drop in open interest of single stock futures from its peak. The open interest in large cap stocks hasn’t fallen as much.”
An important indicator tracked by derivatives analysts such as Radke is the ratio of single stock futures as a percentage of the total futures market. This had reached a peak of 79.5% in early 2008, and currently stands at 66.5%. In terms of leverage, therefore, there still seems to be a long way to go before the markets look overheated.
But this doesn’t mean that traders are running shy of the derivatives market in general. It must also be noted that most traders now prefer taking positions in the options market. Since risk can be contained using options, taking positions in this segment doesn’t entail the risks of high leverage in single stock futures. If and when the markets correct, there is unlikely to be as much pain as in early 2008.
http://www.livemint.com/2009/09/30215526/Indian-markets-are-still-far-f.html

New Delhi: Money managers in India are scrambling to launch fixed maturity plans (FMPs) on hopes the prospect of better returns than liquid funds will help revive interest in one of the most popular fund categories of 2008.
As many as 18 new FMPs have been launched this month, data from Icra Online shows, and offer documents of at least 10 more are awaiting clearance from Sebi.
Fixed maturity plans offer a specific maturity to the investor and invest in debt and money market instruments of the same maturity, thus using the interest payments on those papers to generate returns. Falling short-term rates and regulatory changes have dented returns on liquid funds, which park funds in instruments up to 91 days, helping boost demand for FMPs which invest in medium-term and long-term papers as well.
“Liquid, liquid plus (fund) returns which were earlier probably in the range of 6-7 percent have now fallen to 4-5%,” said Bekxy Kuriakose, head of fixed income at DBS Cholamandalam Asset Management.
“FMPs can give higher returns now as compared to liquid plus or liquid funds. Now there’s a good rate differential.” FMPs briefly lost favour as liquid funds were also investing in similar paper and promising liquidity as well, but a recent regulation change which compels liquid funds to invest in paper maturing in up to three months brought investors back.
So, only five new FMPs were launched between April and August, of which three collectively raised only 2 billion rupees, while total assets under such plans fell by nearly half to Rs 35,000 crore, the Association of Mutual Funds in India’s website shows.
With such plans making a comeback, fund houses will woo retail investors, especially those looking to invest for more than 12 months as FMP returns can be more tax efficient than traditional bank deposits in some cases.
Tata Asset Management’s new 18-month FMP which closed earlier this month raised around Rs 530 crore, a spokesperson for the fund house told Reuters, adding that there was a drastic increase in retail participation.
FMPs can generate 150-200 basis points higher return than liquid funds in the current environment, Kuriakose said, which can even prompt some investors to forgo their liquidity requirements and invest in these close-ended products. “The portfolio managers are trying to capture the investments which would go into the fixed deposits. We can see multiple FMPs coming from each fund house
http://www.financialexpress.com/news/fmps-back-in-vogue-on-hopes-of-high-returns/523414/

JM Emerging Leaders, Canara Robeco Emerging Equities and DBS Chola Midcap may be the stars of the latest stocks rally with them more than doubling
in the past six months to September, but the real test of their glitter may come during a slide, going by the past history.

Though net asset values of many of these funds have vaulted since April, investors must take into account the volatility quotient of many of these schemes.

While it is the midcap funds that have obviously gained the most in the current rally, it will be foolish for investors to be guided by these returns without analysing the past performance of these funds.

For, even though most of the funds now boast of double to triple digit returns for the past six months, the key driver could well be the momentum in the market rather than fund managers’ design.

The top 10 performers in the current market upturn, when plotted on a graph for their returns since 2006, conform to a deep V-shape grid, indicating extreme volatility. In fact, some of these schemes, which have gained immensely in the past six months, were not only bruised during the 2008 meltdown, but their performances during the peak of the historic bull rally in 2006-07 was average.

Schemes, such as JM Emerging Leaders, Canara Robeco Emerging Equities and DBS Chola Midcap, among others, have undoubtedly done extremely well in the current calendar year, each posting absolute returns of over 115% in the past six months alone. Having said that, the fact remains that there is nothing that stands out about their performances going by past records.

Then there are schemes that have not delivered high returns recently, but have been consistent performers over a period of time. Birla Sun Life Frontline Equity, Sundaram BNP Paribas Taxsaver, DWS Investment opportunities and Reliance Growth are some of them.

While their absolute returns in the past six month range between 60% and 90%, lower than the over 115% returns of some of their peers, these schemes succeeded in not only generating handsome returns in 2006-07, but also succeeded in limiting losses during a slide in 2008.

So what should an investor look out for? Periodic bouts of block-buster performances or a fair deal of consistency that ensures decent returns in upswings and provide relative cushion during the downslide? While those using MFs more as a trading platform may opt for the former, for others who have faith in the concept of long-term investing

MUMBAI: State Bank of India (SBI) has made a pitch before the insurance regulator opposing the proposal to allow banks distribute products of multiple Insurance Companies The regulator has been toying with the idea of freeing banks from corporate agency norms that restrict them from selling products of more than one insurance company.

A panel constituted by the Insurance Regulatory and Development Authority (IRDA) is re-looking at whether banks should be allowed to be distributors of insurance products from multiple companies. A report containing recommendations of the panel is expected to be released shortly. Those in favours of multiple companies say that it would give more choice to policyholders while those opposing it say that it would lead to banks pushing products that offer the highest commission.

Speaking to ET, MN Rao, MD & CEO, SBI Life Insurance said that the company together with its parent bank had made a presentation to the regulator wherein it advocated a regulatory framework where one bank sells products of one life insurance company. “There are lots of arguments in both sides, but in balance we feel that one bank should sell products of one company” he said.

Mr Rao has recently taken charge at SBI Life and has been deputed from the parent bank where he was chief general manager of the Bhubhaneshwar circle of the bank. SBI, the country’s largest bank, accounts for over a fifth of the 60,000 plus bank branches in the country. The bank’s brand and the branch network have helped SBI Life achieve leadership position with a capital base of Rs 1,000 crore — which is less than a fourth of what promoters of its nearest rival ICICI Prudential have invested.

Besides product familiarity, the other reason for favouring the one-company model was that servicing aspect. “When there is one company the resolution of complaints is seamless as the one-to-one relationship makes it easier to relate to each other,” said Mr Rao. “The insurance industry is still in its early growth stage and at least in the formative years we feel that there should single tie-ups rather than multiple,” said Mr Rao.

SBI Life has seen a flat growth during the current fiscal because of the slowdown in the industry.

“We expect a 25% growth by the end of the year,” said Mr Rao.

The company would relaunch several of its products in the second half after restructuring them in line with the new cap on charges fixed by the insurance regulator. Sales are also expected to be driven by an increase in the number of bank employees qualified to sell insurance.

This is the first time that the insurance cover for Air India fleet has gone to a private insurer. Till date the same was being underwritten by National Insurance companies

as a consortium.

The new cover is provided by a consortium led by Reliance General Insurance with HDFC Ergo, Bajaj Allianz and Iffco Tokyo General Insurance being part of the consortium.

While Reliance General spokesperson declined to comment and Air India spokesperson was not available for comments, sources said that Air India has also paid its first premium as part of the tender process which warrants the premium to be paid to the insurance company in four installments during the tenure of the cover.

The new cover, to remain in force for one year, would come into force from midnight today and cover all 167 aircraft of Air India across the globe.

Air India is believed to have completed all formalities for the cover earlier this week and has informed all international airports of this new cover.

"Technically, no AI long haul flights could have taken off today if the cover was not in place and the destination airport not informed of the details of the new cover in advance," sources said.

Reliance General consortium is said to have quoted a premium of about 24.2 million dollars for a total insurance cover of 8.5 billion dollars. The insurance would cover aircraft, passenger and third-party claims.

Earlier, public sector insurer New India Assurance had accused National Aviation of Company of India of India Ltd (NACIL), the holding company for Air India, of flouting the tender norms for about Rs 45,000-crore insurance cover for Air India's fleet to favour the consortium led by Anil Ambani group firm, but the latter refuted the allegations.

While NACIL has been silent on accusations contained in a letter sent to it by New India Assurance, Reliance General Insurance had said it had supplied all the information and documents desired by the aviation company for the tender.

In its letter to NACIL, New India Assurance Co had said, "Tender norms laid down by NACIL have not been adhered to and have been relaxed to the disadvantage of two bidders."

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/Air-India-brings-in-Reliance-General-for-fleet-insurance/articleshow/5073700.cms

Insurers against new tax regime for policies sold before April 2011

Insurance companies have asked the government to shift to the new tax regime under the Direct Tax Code only for those policies sold after the proposed Code came into effect from April 2011.
The draft code, circulated for public comments, had suggested that life insurance policies should be taxed at the time of maturity. So, the contribution and accumulation would be exempt from tax payments, but the government would levy tax on the withdrawal amount. The exempt-exempt-tax (EET) method of taxation is proposed to be introduced from April 2011 and would also cover policies purchased before the cut-off date.
On its part, the Life Insurance Council, the industry lobby, has suggested that only policies sold from April 2011 should be subjected to the new system of levy. The companies argued that it would be unfair on individuals who had purchased a cover after factoring in possible returns. Through the Direct Tax Code, the terms were proposed to be changed mid-way through the policy term.
“A person who started saving early did not know that the maturity amount would be taxed. We would like to protect his investment. There are a number of issues which needs to be addressed," said Life Insurance Council Secretary General SB Mathur.
Life and general insurance companies are demanding a reduction in the proposed rate of minimum alternate tax (MAT), proposed at 2 per cent, to 0.25 per cent on the grounds that the rate suggested in the draft document was too high.
Further, insurance companies are seeking an exemption from the payment of tax on the profit derived from the sale of investment. "The general insurance industry has reported underwriting losses of around Rs 4,732 crore during 2008-09. The implementation of the new tax code will bring down the investment yield substantially," said SL Mohan, Secretary General of General Insurance Council.
Most general insurance companies make provisions for underwriting losses through treasury gains and end up reporting profits.
"The grandfathering provision would reduce the tax burden on investments for some time, but the real issues such as MAT would still be relevant," said Bajaj Allianz General Insurance's Chief Executive Officer Swaraj Krishnan.

http://www.business-standard.com/india/news/insurers-against-new-tax-regime-for-policies-sold-before-april-2011/371788/

BANK

SEBI

Glenmark Generics' IPO to raise up to Rs 600 cr

Glenmark Pharmaceuticals Ltd's subsidiary Glenmark Generics Ltd (GGL), which today filed the draft red herring prospectus (DRHP) with Securities and Exchange Board of India (Sebi) for an initial public offer (IPO), is looking to raise Rs 550-600 crore from the share sale.
Glenmark Pharmaceuticals will keep 70-80 per cent of the equity and there will be a pre-IPO placement with financial institutional investors, according to banking sources having knowledge of the development.
They said the IPO may hit the capital markets within three months. Considering the plans of GGL to raise up to Rs 550-600 crore by diluting about 20 per cent of its 73.2 million equity base, the price band could be in the range of Rs 350-400, sources said.

A Glenmark spokesperson declined to comment.
According to the sources, funds from the IPO would be used to fund the growth plans of GGL, which was hived off as a 100 per cent subsidiary last year.
In the third quarter of 2007-08, Glen Saldanha-promoted Glenmark Pharmaceuticals — one of India's leading research-led pharmaceutical companies — had re-organised its business into specialty and generics to manage the challenges of two diverse businesses that had both attained a critical mass.
As part of the re-organisation, Glenmark had transferred its generics and active pharmaceutical ingredients (API) businesses to the new subsidiary — Glenmark Generics Ltd. GGL, which earns over 75 per cent of its business from the US, has an annual turnover of Rs 985 crore. Glenmark Pharmaceuticals and GGL together have an annual turnover of Rs 2,100 crore.

http://www.business-standard.com/india/news/glenmark-generics/-ipo-to-raiseto-rs-600-cr/371823/

Sunil Jain: Not quite an open and shut case

Less than a fifth of all open offers since 2006 have succeeded.
Two principal arguments have been made about the Bharti-MTN deal and its eventual failure/success. The first is the issue of dual listing where Bharti and MTN can be listed on both Indian and South African stock exchanges. This is important since both companies want to remain listed on their country’s stock exchanges — however, since this opens up a potential window for capital account convertibility, the government has made it clear it isn’t going to allow it. The other argument pertains to open offers, where anyone that buys more than 15 per cent of a company has to mandatorily offer to buy at least 20 per cent of the shares of the company from the public. With Sebi now saying that even if such a transaction is conducted through GDRs instead of through direct equity shares, an open offer will have to be made. Since the original deal was to be structured using GDRs, this raises the cost of the Bharti-MTN deal for MTN and is considered a deal-breaker.
Whatever the fate of the deal, however, the open offer clause is probably not as much as a deal breaker as imagined. An analysis of the 339 open offers made from April 1, 2006 makes this clear. According to Prime Database, which has analysed all the open offers in this period, just around 60 were successful — that is, they were nearly or fully subscribed. That’s a success ratio of less than a fifth. In around a third of cases — 113 out of 339 — shareholders offered to sell more than 10 per cent of their shares as against the offer to buy 20 per cent shares (see graphic).
The reason for the low success rate is obvious: If shareholders feel the company will do better under the new owner/partner, why should they want to exit? If the Bharti-MTN deal, to use that example, allows Bharti to capture a lot of upside, considering that Africa is one of the few places, other than India, where the telecom market is still expanding at a rapid pace, why should shareholders exit? Unless, of course, they feel the price being paid by Bharti for the MTN stake is too high.
A good example to keep in mind is that of Maruti Udyog Limited. When the government wanted to sell the company to Suzuki Motors of Japan several years ago, it wanted a price that was significantly higher than what Suzuki could pay — in other words, it was a deal breaker. The deal that was struck, however, saw Suzuki paying a ‘control premium’ to the government for a part of its stake (that resulted in Suzuki getting majority control of the company) and offering to guarantee the public sale of the rest — the country’s investing public, however, thought the share was a steal, so the government got a good value for its remaining stake and Suzuki didn’t have to shell out any more money either.
While the Prime Database numbers indicate it is not automatically true that the Bharti-MTN deal will become more expensive even if an open offer has to be made, there are some caveats. While the overall data shows there is less than a one in five chance of the open offer being fully subscribed, it is equally true that some of the well-known mergers in recent times have had their open offers fully subscribed. So, when Cadila Healthcare bought Carnation Nutra-Analogue Foods in May 2006 and made an open offer to buy 20 per cent of the Carnation shares, this offer was fully subscribed. Ditto for Mahindra & Mahindra’s purchase of Punjab Tractors in May 2007; for Kingfisher’s takeover of Deccan Aviation in December 2007; Prannoy and Radhika Roy’s open offer for NDTV in May 2008 was also fully subscribed; Idea Cellular’s takeover of Spice Communications in September 2008 was nearly fully subscribed (it got an offer to buy 18.9 per cent of shares as compared to the offer of 20 per cent), the list goes on.
One explanation for this, of course, is that the shareholders of the target company didn’t feel there was that much scope for prices to rise anymore, at least in the short run. There is, however, another explanation, and that is in the case where the offer price was higher than the market price of the target company, especially towards the end of the offer period, the open offer got fully or nearly fully subscribed.
In the case of Pfizer Limited which was acquired by its parent in June 2009, the offer price of Rs 830 per share was higher than the market price for most of the three-week offer period. It was only for a few days when the market price was higher — on the last day of the offer, the market price was just Rs 802. Not surprisingly, Pfizer got to buy 29.5 per cent of its shares as compared to 33.8 per cent it wanted to acquire. When Idea Cellular bought Spice Communications in September 2008, the open offer price of Rs 77.3 was pretty close to market price — towards the end of the offer period, however, the market price of Spice fell to just Rs 46.25 and Idea got to buy 18.9 per cent of Spice’s shares. In the Kingfisher-Deccan deal in September 2007, the offer price of Rs 155 per Deccan share was always higher than Deccan’s market price which was in the low- and mid-140s through much of the period. When BASF tried to buy Ciba India in June this year, however, the offer price of Rs 237.13 was, for a long time, much lower than the market price — it is true the market price slipped below the offer price by June 15, but investors must have felt this was an unnatural movement, and the total shares offered to BASF totalled just a little over 2 per cent Ciba’s total shareholdings.
If the Bharti-MTN deal goes into extended time, as looked likely when this piece was written, one of the factors it will have to keep in mind is the timing of the deal — if the open offer price is lower than the then market price or very close to it, the chances of MTN having to pay large sums for the open offer are much lower. Assuming, of course, that Bharti’s shareholders are as bullish on the deal as Sunil Mittal is.
http://www.business-standard.com/india/news/sunil-jain-not-quite-an-openshut-case/371798/

TAXATION

Excise duty mop-up soars 22.5% in August

NEW DELHI: In the clearest indication so far that the much-talked-about green shoots aren’t an optical illusion, excise tax collections in August were up 22.5% over the previous month, though still a touch lower than the figure for August 2008.

Given the fact that excise duties reflect what’s happening to all kinds of manufactured goods, this is arguably a more broad-based indicator of industry recovering than the index of industrial production (IIP).

Sources told TOI that central excise duty collections in August were Rs 8,979 crore, about 8.8% below the Rs 9,846 crore collected in the same month last year. What makes that good news is the fact that July collections of Rs 7,332 crore this year were 28.5% lower than last July’s mop up of Rs 10,255 crore. With the much improved showing in August, the government is now hopeful of meeting the target of Rs 2.7 lakh crore set for indirect taxes

in the Budget for 2009-10.

There is some bad news for industry though. A senior official from the Central Board of Excise and Customs (CBEC) said if the upward trend continues for another couple of months, the government may reconsider the tax concessions it had extended in the second half of the last fiscal.

The government has been keen on reverting to the path of fiscal consolidation at the earliest, but has so far been cautious of the fact that this should not hamper industrial recovery.

Last week, finance minister Pranab Mukherjee had said on the sidelines of a meeting of the chief commissioners and director generals of CBEC that the huge shortfall in July as compared to the previous year had been due to the overall slowdown of the economy and the effect of stimulus measures through reduction of excise duty rates.

The finance minister had nevertheless expressed optimism that the indirect tax target was very much within reach as the trends were indicative of a rebound by the third quarter.

The tax base of indirect taxes has grown steadily and as a share of GDP has gone up from 9.2% in 2003-04 to 12.6% in 2007-08.

http://economictimes.indiatimes.com/news/economy/indicators/Excise-duty-mop-up-soars-225-in-August/articleshow/5016863.cms

Deducting tax at source from hospital bills must for TPAs

NEW DELHI: Third party administrators (TPAs) processing health insurance claims and making payments to hospitals for treatment of subscribers in cashless systems would soon have to deduct tax at source from the payments they make to hospitals. The apex direct tax body, Central Board of Direct Taxes, is likely to issue a directive to this effect, an income-tax department official told ET.

The move would increase working capital requirement of hospitals-the TDS rate is a significant 10% of the billed amount and hospitals can claim a refund on these tax payments only when filing their annual tax returns. The additional capital requirement could push up the cost of healthcare for consumers. The move would place additional burdens on TPAs as well.

The CBDT’s proposed move comes in the wake of a recent Bangalore High Court ruling that makes deduction of tax at source mandatory for TPAs. In 2008, tax authorities had carried out surveys on TPAs, raising a tax demand for the tax the CBDT expected them to deduct at source from hospitals under Section 194J of the IT Act.

Under this section, providers of professional services have to deduct tax at source from their clients. TPAs had challenged these tax demands on the ground that they were making payments to hospitals on behalf of individuals (patients) and individuals are exempt from the requirement to deduct tax. The Bangalore High Court has upheld the tax authorities’ position.

The big question is if TPAs will be required to carry out TDS with retrospective effect or prospectively. If the CBDT wants tax deducted at source retrospectively, it would mean prolonged wrangles between TPAs and hospitals, which are unlikely to readily cough up any tax payments for past periods for which they have already filed their tax returns. And TPAs would have to pay penalty as well, and the combined burden could be in the range of Rs 50 crore-Rs 100 crore, if the circular is effective retrospectively. Usually, tax which is deducted by TPAs can be set off or adjusted by hospitals when they file their returns. But, receiving less payment upfront increases their working capital requirement. Any increase in working capital requirement has to be then made up by other means which could mean a cost for hospitals. Hospitals could then pass on the additional cost to consumers, thereby raising cost of healthcare in a country where only 2-3% of the population has a health cover.

For tax authorities, TDS represents an efficient and non-intrusive way of collecting tax.

According to an official with a TPA which has approached the CBDT on the issue, TPAs could not be brought under TDS as they were only making payments to hospitals on behalf of individuals and individuals were not under an obligation to deduct tax from payments to hospitals.

http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/Deducting-tax-at-source-from-hospital-bills-must-for-TPAs/articleshow/5011927.cms

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