Thursday, September 6, 2012

[aaykarbhavan] Business Line, Business Standard



The Finance Ministry plans to issue internal guidance to enable its officers at the field level adopt some uniform approach in assessment of transfer pricing cases.
"Some guidance will come from us before December-end to address the problem of lack of uniformity in views", said S.K.Mishra, Joint Secretary (foreign tax division), at the 3rd Annual India Tax Forum, organised by International Tax Review here.

Software sector

Stating that there was need for some guidance, Mishra cited the example of software development sector and pointed out the variation in margins that were offered to the tax department for assessment..
While the margins on international transactions offered in Delhi ranged from 5-48 per cent, it stood at 7-67 per cent in Mumbai.
In the case of Bangalore, the margins offered to the tax department for international transactions ranges from 8-70 per cent, said Mishra, who is the Competent Authority of India for mutual agreement procedure (MAP).
MAP is a consultative process between competent authorities of two countries to find amicable ways for resolving international tax disputes
In the last two years, about 140 cases have been resolved through the fast tracked MAP process, Mishra said.
"It needs to be seen whether such instructions will be internal or would be issued to taxpayers at large for their benefit", said Aseem Chawla, Partner, MPCLegal, a law firm.

Beneficial to taxpayer

One must not lose sight of the fact that it is well settled law that circulars/clarifications issued has to be interpreted in a manner which is beneficial to taxpayer and is binding on tax department, Chawla said.

AN MRI on health of the economy
SS Tarapore

The RBI has made an effort to increase the transparency of its balance sheet. A cause for concern, however, is the increase in proportion of domestic assets.
The Reserve Bank of India (RBI) Annual Report is a statutory document presenting the Annual Accounts and Balance Sheet, and the Report of the Central Board on the Working of the Bank. Over the years, the Annual Report has given prominence to reviewing the developments and prospects of the economy and the statutory requirement of presenting the Annual Accounts and Balance Sheet has got relegated to the background.
Till the late 1980s, the approach was that the RBI should reveal the bare minimum required by law and secrecy was the hallmark. Progressively, a more enlightened approach emerged and the RBI now provides a more meaningful presentation. The RBI Accounts and Balance Sheet provide a Magnetic Resonance Image (MRI) of the health of the economy and is very different from a corporate balance-sheet.
When the RBI balance-sheet swells, it invariably portends a difficult situation for the economy. Quite often, an increase in the RBI profits is a cause of concern and the payment of dividend (by way of the surplus transferred to government) is no different from created money.

Bloated balance-sheet

Understanding the RBI requires accounting procedures and practices to stand on their head. Illustratively, the RBI impounds a part of the resources of the banking system by way of the Cash Reserve Ratio (CRR), but it does not pay interest on these cash balances. Per contra, the RBI meets agency charges/commission and security printing charges on behalf of the Government but these costs are not recovered from the Government.
The RBI's balance-sheet size at the end of June 2012 was a staggering Rs 22.088 lakh crore and during the year ended June 2012, the size rose by Rs 4.043 lakh crore, that is, an increase of 22 per cent. While the growth of a corporate balance-sheet would invariably reflect strength, the swelling of the RBI balance-sheet is often a distress signal.
Of the total assets, as on June 30, 2008, 88.8 per cent related to foreign assets and 11.2 per cent to domestic assets. In June 2012, 65.6 per cent related to foreign assets and 34.4 per cent to domestic assets. The increase in the proportion of domestic assets reflects a deterioration in the quality of the RBI's balance-sheet and the overall economic situation.
The RBI follows very strict accounting norms. Fluctuations in the valuation of foreign currency and gold are not put through the Profit and Loss Account but through a Currency and Gold Revaluation Account. This account builds up when the rupee depreciates and is drawn down when the rupee appreciates; this reserve is equivalent to 32.6 per cent of the foreign assets.

InsufficIent reserve

The RBI has a contingency reserve and an asset development reserve, which in June 2012 totalled Rs 2.14 lakh crore or 9.7 per cent of total assets. There are many unforeseen liabilities which can devolve on the RBI and a reserve of only 9.7 per cent is totally inadequate. In June 1993, the RBI was scraping the barrel of the contingency reserve in the context of the exchange loss under the Foreign Currency Non-Resident Account Scheme (FCNRA).
The building up of the contingency reserve is particularly important as the Government is in no position to pick up the losses once the contingency reserve is wiped out. One of the saddest events that can occur is the death of a central bank. This has happened in some countries and the RBI can never be too careful.
The procedure for distribution of the total income (gross) is unique. First, there are allocations to the internal reserves to get to the total income (net).Then the total expenditure is deducted to get to the disposable income, which is transferred to the Government. To the credit of the Government, it has not been avaricious as it has recognised the need to provide for contingencies. Thus, while the gross income rose from Rs 37,070 crore in 2010-11 to Rs 53,176 crore in 2011-12, the transfer to the Government increased from Rs 15,009 crore in 2010-11 to only Rs 16,010 crore in 2011-12.
The establishment expenditure of the RBI in 2011-12 amounted to Rs 7,085 crore. While the RBI has made commendable efforts to increase the transparency of the Accounts and the Balance Sheet, it would only be appropriate that it reveals its expenditure, activity-wise. After all, government departments have to undertake full disclosure of expenditure and the RBI departments should be required to do likewise.

Reserves management

Another area where greater transparency would be desirable is to compare the RBI's in-house forex management vis-a-vis External Reserve Managers. In the past, the RBI's in-house reserves management has been second to none.
The RBI balance-sheet provides advance information on the state of the economy. For instance, stagnant forex assets against rising imports shows that the import cover now is only seven months and the euphoria of excess forex reserves is fast disappearing.
Again, the liberal Open Market Operations (OMO) purchases of securities, while the borrowing programme is rising, perversely reduces yields on government paper. The large OMO is a violation of the Fiscal Responsibility and Budget Management Act (FRBM) 2003, if not in letter, certainly in spirit.
Financial analysts and economists would do well to focus on the RBI Accounts and Balance Sheet.
(The author is an economist. blfeedback@thehindu.co.in)

Management nirvana: Out with the boss!

B.S.RAGHAVAN

September 6, 2012:  
In the course of my cruising the Internet, I was delighted to come across a stimulating discussion on ridding offices of bosses in the Web site of Knowledge@Wharton (August 1). Incidentally, based on my close to two decades of prowling the Web, I have found the Wharton School of Management stirring up heady intellectual debates, unlike the Harvard Business School which prefers to remain in the rut of hackneyed themes such as leadership, success formulas or whatever.
We have all been hearing of paperless offices for some time and of experimentation with lean and flat offices which are not weighed down by hierarchies and command-and-control systems. Hence, it is not surprising that thinking should inevitably turn towards 'bossless offices'.
It is possible to have a boss and still have a bossless office. For instance, in the days of the Indian Civil Service, the degree of prestige and awe it commanded was such that strict norms of efficiency and discipline were maintained by the staff even when the bosses were out most of the time enjoying themselves.
Or, an Idi Amin-like boss might have struck such terror in the minds of the employees that even without his physical presence in the office, he got the work done. The old style of cracking the whip will not do in these days when equality and fraternity are the ruling maxims.
The Wharton article mentions a survey conducted earlier this year of 32,000 employees at mid- to large-size companies about such issues as workplace stress, work/life balance and the value of bosses. It revealed that less than 50 per cent of employees had confidence in their senior managers, and only 44 per cent believed their managers care about their well-being. In addition, managers were seen as untrustworthy, incapable of providing adequate guidance and uninspiring as leaders.

INGENIOUS CONCEPT

It is these trends in the opinion of subordinates that has led to the questioning of the age-old mantra of "The buck stops here", and the demand that all those working in an office should be equal partners in decision-making.
Strangely the ingenious concept of members of an organisation, all holding themselves on an equal footing and managing themselves and working for its goals seems to have escaped the great management guru Peter Drucker himself. However, there have been other scholars who had been sporadically toying with the idea without, however, delving deep into it and working out its ramifications. Actually, several variants of the tempting proposition have been in the field. The first is, of course, empowering the lowest grade employee, particularly in distant offices or customer counters, to take decisions on the spot on his own to tackle situations or solve unforeseen problems.
In recent years, team-oriented approach to decision-making has been gaining ground in the place of the boss handing down his prescription from on high.
The rationale for exploring new avenues for raising the levels of comfort and motivation on the part of the employees is to preserve the self-esteem of human beings in organisations.

ALLURING PROSPECT

No one likes to be driven like herds of cattle, nor being micro-managed. Everyone wants to be regarded as having the native intelligence to understand the nature of the job he is entrusted with and his capacity to carry it out so long as the necessary means and resources are placed at his disposal. As a professor quoted in the article points out, in a bossless office, "Everyone takes part in the decisions, so it's not being directed from above. The idea is that the people doing the actual work probably have a better sense of how to get it done than their bosses do. It's a matter of distributing the expertise to where the expertise actually lies …When employees have a degree of self-management, and therefore a greater sense of accountability, it means their motivation is based not on their standing with the manager or boss, but because they identify with the work."
Leaving aside the practicality of it, the prospect of bossless offices is certainly alluring.
However, they are still some distance away. Meanwhile, it is best that bosses learn to function as helpers, facilitators and associates, and shed the notion of their being demi-gods. The zeitgeist is against absolutism of any kind, and diktats from above are strictly no-no.
Keywords: Workplace, Management strategies, workplace and boss


Mid-year change in capital gains tax likely
Santosh Tiwari / New Delhi Sep 07, 2012, 01:00 IST

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The Parthasarathi Shome panel's recommendation of abolishing short-term capital gains tax has thrown up various possibilities before the finance ministry including making amendment in the Finance Act, 2012, to implement it even before the next Budget.
Though a final decision on this will be taken by Finance Minister P Chidambaram after the committee appointed by Prime Minister Manmohan Singh to look at the General Anti-Avoidance Rules (GAAR) draft guidelines gives its final report by the end of this month, officials in the know of the developments indicated the possibility of bringing the change mid-way might also be explored.


 
 
 
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-Won't rush on Vodafone tax issue, says CBDT










Former chairman of the Central Board of Direct Taxes (CBDT) Sudhir Chndra said such an amendment mid-way in the financial year was possible and the government could bring the amendment to the Finance Act for this purpose in the winter session. Chandra added this could also be done through an ordinance, would be a good move to spur investment in the country.
Some tax experts, though, feel abolition of short-term capital gains was not a good idea as the government in that case would be removing the incentive for holding long-term assets.
They said that in case of an amendment to the Finance Act for abolishing the short-term capital gains tax, a prospective date for its applicability would also have to be announced and stressed that it would be difficult to pass the amendment in Parliament, especially in the current political scenario.
The committee has recommended the government should abolish the tax on gains arising from transfer of listed securities--be it in the nature of capital gains or business income--to both residents as well as non-residents. Further, to make the proposal tax-neutral, it has suggested the government consider increasing the rate of Securities Transaction Tax (STT) appropriately.
If the government cannot accept it, the panel has said a second best alternative would be to retain, until the abolition of the tax as mentioned above, the circular accepting the tax residence certificate issued by the Mauritius authorities.
Stakeholders indicated to the panel during deliberations that several countries did not tax gains from the transfer of listed securities and stressed that slowdown in the world economy had impacted investments into India. Foreign institutional investors make portfolio investments in listed securities on the Securities and Exchange Board of India guidelines. These transactions are subject to STT, and long-term capital gains on holdings for more than 12 months are exempt from taxation.
Short-term capital gains are taxable at 15 per cent.
According to the Shome panel draft report, present revenue from taxation of capital gains from such securities is less than Rs 3,000 crore.
"However, there would be some revenue foregone on account of non-taxation of short-term capital gains in the case of FIIs who avail treaty benefit (mainly India-Mauritius and India-Singapore tax treaties)," the committee has pointed out.
It has also stressed that a significant outcome of the present tax regime was that fund managers of foreign investors did not base themselves in India as the presence of fund managers would constitute permanent establishment of such investors in India and consequently, the business income of foreign investors would be taxed in India. The abolition of tax on portfolio investment may encourage fund managers to shift their bases to India.

The finance ministry on Thursday reiterated that the tax department would not take a rash decision in the Vodafone case and would act in accordance with the law.
In her first media interaction after taking charge last month, Central Board of Direct Taxes (CBDT) Chairperson Poonam Kishore Saxena said the amount of tax involved is not small and, therefore, much due diligence has to be done by the assessing officer.


 
 
 
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"There are so many legal opinions to be taken and considered.… The assessing officer and the supervisory officers will take a decision in accordance with the law, taking into consideration, among other things, the decision of the Supreme Court, the amendments made in the I-T Act, 1961, Section 119 of the Finance Act, 2012, and the opinion of the attorney general," Saxena told reporters.
She said a time frame for a decision on Vodafone could not be given. "If the assessing officer needs some time to study the entire matter, it is for him. We are not going to rush him." Earlier this week, Finance Minister P Chidambaram had said tax officers won't act rashly in Vodafone case. He said a decision on sending a tax notice to the company would be taken after getting the Parthasarathi Shome panel's report on retrospective amendment to the Income Tax Act.
On the issue of tax refunds, Saxena said CBDT had reduced the time for tax refunds to three months and would take steps to release arrears as fast as possible. "Arrears are going to be released. From September 3, we have started demand correction fortnight. Adjustment would be done in a short while," she added.
In the last five years, the number of refunds disbursed by the income tax department stood at Rs 35.20 crore, out of which Rs 20.61 crore were done through banks. In the current financial year, as on August 2012, the number of refunds disbursed stood at Rs 33.51 lakh, out of which Rs 33.15 lakh of refunds were executed through banks.
Asked about investigation into cases of black money against individuals figuring in the HSBC, Geneva and other similar lists, Saxena said the cases were being investigated on the basis of information furnished by foreign countries and prosecution proceedings would be initiated wherever required.
Responding to allegations by yoga guru Ramdev that the government was using the tax department to harass him, she said Ramdev or any other person with such complaints was free to approach the grievance redressal body.
"The department has a very well laid out grievance redressal mechanism. If the assessing officer is in any manner perceived to be harassing any assessee, may be Baba Ramdev, then the next authority in the administration is always available for you to lodge a grievance," she explained.

Microsofts window to Cloud
New Windows Server 2012 integrates cloud technologies within a network without compromising on security
BS Reporter / Hyderabad Sep 07, 2012, 00:41 IST

For those accessing company data on personal devices, laptops, tablets and mobile phones, Microsoft's newly launched Windows Server 2012, which powers the cloud operating system (OS), will make the job easier by removing all the security obstacles.
"While some large enterprises restrict personal devices into in-house server due to security issues, by choosing the Windows Server 2012, consumers can remove all these hurdles through technologies like virtual desktop infrastructure (VDI) and remote connectivity of these tablets without getting into the security part of the enterprises," Srikanth Karnakota, director (server and cloud business), Microsoft Corporation (India), a subsidiary of global giant Microsoft Corporation.


 
 
 
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The IT sector is becoming more people-centric and therefore, the new OS tries to integrate Cloud-based technologies within the network without compromising on security.

VIRTUAL WORLD
  • The Windows Server 2012, built in combination with Windows Azure and System Center, empowers users to manage and deliver applications and services across private, hosted and public clouds
     
  • It keeps apps and data secured regardless of the end device with its security protocol and maximises the utility of cloud computing
     
  • Improves virtual environment on the operating system for end user data and for the entire server farm
     
  • 'The cloud OS will also be a boon for Microsoft's 4,000 independent software providers in India'
"The Windows Server 2012 will be a great boon for the large enterprises who focusing on keeping people-centric IT, which enables people to bring their own devices and work from the and not putting any bottlenecks and challenges. The consumers will be enabled to access enterprise applications through the server technology that is required, not on the client," he added.
The Windows Server 2012, built in combination with Windows Azure and System Center, empowers customers to manage and deliver applications and services across private, hosted and public clouds.
It keeps the apps and data secured regardless of the end device with its security protocol and maximises the utility of Cloud computing and improves virtual environment on the OS for end user data and for the entire server farm.
"Cloud OS will become a central hub, where you can run these applications," he said.
"It incorporates advanced storage, networking, virtualisation and automation capabilities and enables users to access data and applications anywhere on any device with simplified management, security and control," he added.
According to Microsoft, many enterprise customers are already seeing tremendous value in early deployments. A survey of 70 early adopter customers globally revealed that they expect 52 per cent reduction in downtime, 41 per cent reduction in workload deployment time, and 15 hours of productivity time saved per year, per employee.
"The Cloud OS will also be a boon for Microsoft's 4,000 independent software providers in India," he added.


Few medical insurers for senior citizens
Agents refuse to sell or quote very high premium. The best option is to go for a co-payment policy
Neha Pandey Deoras & Yogini Joglekar / Mumbai Sep 07, 2012, 00:29 IST

Won't rush on Vodafone tax issue, says CBDT
BS Reporter / New Delhi Sep 07, 2012, 00:50 IST

"Madam, it is good that you have no pre-existing diseases at the age of 65. But you are overweight and will get one soon. We can't sell you a policy." That was the reply from many insurance agents when they were told a senior citizen needed a medical policy.
While most general insurance companies sell medical insurance policies, it remains on paper for senior citizens. And, despite the fact that the Insurance Regulatory and Development Authority has made it mandatory for companies to sell policies to citizens till (not above) the age of 65.


 
 

 


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However, agents, under the garb of inspecting minute details, turn doctors and physicians. Most judge your health condition by weight, height or any other detail.
For instance, Asha Joshi, 69, was denied a health insurance policy (from an agent of a private general insurer) purely because she happens to be over-weight. After taking her basic details like (age, height and weight), the agent told her that she is sure to develop blood pressure or diabetes in the near future, if not today.
Among the agents Business Standard spoke to, only one private sector player was willing to sell a policy to someone over 65. But, only a new policy, the company has launched recently. Also, he insisted that medical cover should be for Rs 10 lakh. The premium: A whopping Rs 50,199. When he was told that the policy is too expensive, the response, "No one will sell a policy to you at this age. This is a new policy so the company is willing to do so." The agent was right. Most others simply said they will get back.
Even switching a policy is difficult. Most agents say it will be too expensive. On insisting, the reply was, "We will check the insured's history with the previous insurer and get back if we have an option."
In case you are looking at a family floater (including parents), the premium goes up depending on the age of the eldest member of the family, in many cases a senior citizen. Often, companies also refuse to insure those who have been treated for ailments like breast or uterine tumour (benign), saying though curable, these ailments might relapse.
When contacted, a senior official from a private sector general insurance company, said, "Even though the entry age has been increased to 65, most insurers will be hesitant to cover someone above 60 under an individual plan as the health risk increases from 55 and onwards."
 
PICKING THE RIGHT ONE
General Insurer Star 
Health
Bajaj 
Allianz
Apollo
Munich
ICICI 
Lombard
Name of the plan Red Carpet Silver Health Plan Easy Health Rishtey
Maximum age 
limit (years)
69 75 (renewable till 80) 65 70
Co-payment 50% for 
pre-existing 
disease
20.00% NA NA
Exclusions 4 months for 
pre-existing 
diseases
4 years for 
pre-existing 
diseases
3 years for 
pre-existing 
diseases
4 years for 
pre-existing
diseases
Industry players say, general insurers do issue health policies above that age also, but they tend to inspect minute details and pay extra attention while issuing policies to senior citizens. Says another insurer, "Companies make the process of applying for a policy difficult, sometimes for an elderly. They will ask for ten times more tests to be done. If the tests are clear, they may ask for another one for those above 65."
The only solution, it seems, lies with policies in which there are co-payment options. For instance, National Insurance's 'Varishtha Mediclaim' which issues policies to people up to the age of 80 years has a co-payment clause where the insured has to bear 10 per cent of all the admissible claims. This means, for claims worth Rs 100, the insurance company will pay Rs 90 and the insured will have to pay Rs 10. Another option is if the insured agrees to bear 20 per cent of the co-payment, then the company will give 10 per cent discount in premium.
Some private players also give this option. The quantum of co-payment can differ from insurer to insurer. For example, Star Health's Red Carpet product has a 50 per cent co-payment on claims made by the insured on its pre-existing diseases.


General Insurance: Gaurav Garg
Business Standard / Mumbai Sep 07, 2012, 00:36 IST


General Insurance: Gaurav Garg
Business Standard / Mumbai Sep 07, 2012, 00:36 IST

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What is the difference between a basic health policy and a comprehensive cover?
A basic health insurance cover would include coverage for hospitalisation and surgical treatments up to a certain limit. It is also possible that it might carry a co-payment clause. Benefits might not include critical illness coverage. Whereas, a comprehensive health policy offers coverage against hospitalisation, surgical treatments and critical illnesses. There is a possibility that all the benefits might not be covered entirely by a single comprehensive coverage. It is, therefore, advisable to choose between various insurance plans or opt for riders to make your health insurance cover complete.
I am planning to buy a second-hand car. How should I go about the car insurance? Is insurance offered on second hand vehicles? Will the premium be higher, since it is a second hand car?
Yes, your second-hand car can be insured. There can be two scenarios in which you can obtain insurance for your car. The first scenario is where the car insurance is sold by the earlier owner along with the car to the new buyer. In that case the insurance has to be transferred in your name by visiting the issuing office of the insurance company.


 
 

 

















The second scenario is if you prefer to obtain fresh insurance for your car. The insurance company will conduct an inspection of the vehicle prior to the inception of the risk in case of second-hand vehicles. The premium rate remains the same for second-hand vehicles.
I was going through some insurance policy brochures where I came across a few critical illness riders and products. Could you help me understand the difference between mediclaim and critical illness riders? Which is more useful?
A mediclaim or a reimbursement hospitalisation plan offers coverage against hospitalisation and surgical benefits. The benefits are payable on actual hospitalisation and for surgical expenses. Hospitalisation benefits include room rent, ICU, organ donor expenses and pre- and post-hospitalisation benefits. It might also include coverage against day care procedures and ancillary benefits like accidental dental, non-allopathic and vaccination The coverage amount generally ranges from Rs 50,000 to Rs 10 lakh.
A critical illness policy or rider offers lump sum amount coverage against critical illnesses. This means that on diagnosis of a critical illness, a lump sum benefit amount will be payable to the insured. Actual hospitalisation or surgery is not the criterion for claiming the critical illness benefit. The payment structure is flexible, so that the insured can use the lump sum benefit amount as and when required for his medical treatment. The coverage amount generally ranges from Rs 2-50 lakh.
A critical illness benefit includes coverage against illnesses like cancer, heart attack, stroke, kidney failure, coma, blindness, paralysis, multiple sclerosis, major burns and so on. Treatment of the above critical illnesses can be expensive and even the richest need to borrow or break other investments to meet the cost of quality treatment. As the plans are different in nature, it is ideal to choose a reimbursement-based hospitalisation plan with a critical illness rider or plan as it makes the health coverage complete and comprehensive in nature for the customer.

The writer is MD and CEO of Tata AIG General Insurance




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