Wednesday 29 April 2015

India's Tax Terrorism - Minimum Alternate Tax (MAT)

Every year, India finds itself in a new tax controversy. The Vodafone litigation consumed the early years of this decade, capped by the retroactive tax amendment in 2012. Then came the Shell shock & transfer pricing trouble in 2013. Last year, the BJP made the UPA’s tax terrorism a campaign issue. Only to find itself now facing similar allegations.

Minimum Alternate Tax (MAT) is an indirect tax. MAT is a way of making companies pay minimum amount of tax. It is applicable to all companies except those engaged in infrastructure and power sectors. Income arising from free trade zones, charitable activities, investments by venture capital companies are also excluded from the purview of MAT. However, foreign companies with income sources in India are liable under MAT.

For example, book profit before depreciation of a company is Rs. 7 lakh. After claiming depreciation and other exemptions, gross taxable income comes to Rs. 4 lakh. The income tax applicable Rs. 1.2 lakh at a rate of 30%. However, MAT would be Rs. 1.29 lakh (Rs. 7 lakh at 18.5%). The MAT paid can be carried forward and set-off  against regular tax payable during the subsequent five-year period subject to certain conditions.

In 2010, Mauritius based Castleton Ltd. Approached the tax body whether it was required to MAT or not. The body has ruled that even foreign firms are subjected to MAT. Castleton has appealed to the Supreme Court.

FIIs are in the view that MAT should be levied only on the domestic companies and not on foreign companies or foreign investors. One of their key arguments is that MAT can be levied only on book profits, to compute which there must be a requirement to maintain books of accounts. As there is no such requirement, foreign investors argue, they should not be asked to pay MAT.

The Ministry of Finance has said that foreign investors domiciled in countries that have tax treaty pacts with India do not have to pay MAT taxes. These countries include Singapore and Mauritius. Also, the Central Board of Direct Taxes has directed authorities to close treaty cases in a month. According to Rajesh H. Gandhi, partner, Deloitte Haskins and Sells LLP, more than 30 per cent of investments by foreign institutional investors come from treaty countries.
However, those outside of treaty countries, it could be long drawn legal battle. About a third of such investments come from the U.S. India’s treaty with the U.S. does not cover capital gains provision, according to London-based ICI Global, a lobby representing foreign investors.
Foreign investors have been the major drivers of the stock market. They have pumped in over $50 billion in the Indian markets since the election of Prime Minister Narendra Modi in May last year. Any uncertainty over tax is likely to hurt investor sentiment. The BSE Sensex is down by 2000 points in 9 days. Business hurdles like MAT act as a spoil sport in the days of glory.
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By - Chaitanya Kulkarni

Friday 17 April 2015

Explained : India's new GDP measurement

Mumbai skyline

India is expected to grow at 7.5% outstripping the dominant chinese dragon. The sudden change in the GDP calculations have raised questions. MOSPI in reply has presented a 114 page report clearing all the question. Here are some highlights.

1.In India, all cars used to be equal.
In earlier Indian GDP data, the key manufacturing indicator was the monthly index of industrial production, which is based on the total quantity of output in a sample of a few thousand factories.
“The problem is that Marutis and Audis are all put together as the same,” said Ashish Kumar, director-general of the Central Statistical Office. In other words, by gauging only the volume of production, the old series was overlooking changes in monetary value brought about by product improvement and differentiation.
In the old GDP series, a yearly survey of industrial firms supplemented the production index when it became available. But that survey, too, has a limitation: Because it measures activity at the factory level, it doesn’t account for the marketing, development, logistics and financial-planning activities that take place at manufacturing firms’ head offices.
The new GDP series therefore incorporates a new database of company balance sheets from the Ministry of Corporate Affairs. For the year ended March 2012, the database includes information from more than 500,000 firms. A central-bank study that had been used previously to gauge corporate activity covered fewer than 2,500 companies.
The impact on final growth rates is huge—and still slightly hard to swallow. In the 12 months that ended March 2013, manufacturing expanded 6.2% in the new GDP series, compared with 1.1% in the old. And in the following year, for which the old series had shown a 0.7% contraction, the new series has manufacturing growing by 5.3%.
2. All workers used to be equal, too. 
Well, at least for gauging activity in the informal economy. Small, unregistered companies—a major chunk of the Indian economy—typically employ unpaid helpers in addition to owners and hired workers. But before, these firms’ output was being estimated by taking the total number of workers and multiplying by per-capita added value.
No longer. The new GDP series uses an “effective labor input” method, which assigns different weights to different kinds of workers based on their productivity. The chart is here:
- Central Statistical Office data
3. Agriculture isn’t just about crops, and livestock isn’t just about meat. 
Two major changes in the agricultural component of the new GDP series have to do with livestock. The first is a new way of valuing “meat byproducts.” State governments had been failing to provide direct data on the values and quantities of animals’ heads, legs, fat and skin on a “systematic and regular basis.” So, thanks to a study by the National Research Center on Meat, in Hyderabad, these are now being recorded simply as a share of the total value of the animals’ flesh.
The second major change to livestock measurement has to do with a different kind of byproduct. For the first time, we have included the evacuation rate of goats and sheep in the production of organic manure.
Translation: Using a study on how much those animals defecate, statisticians have added that particular kind of biological output to their economic value.
Central Statistical Office Data
The estimated evacuation rates are 0.3 kg per day for goats and 0.8 kg per day for sheeps. The study was conducted by Central Institute for Study on Goats in Makhdoom, Uttar Pradesh.
With all those “droplets” added in, the value of India’s livestock sector in the new GDP series is 9.1 billion rupees, or $150 million, higher than it was in the old series.
4. Finance is still a pretty new industry in India.
In the previous GDP series, the industry had two main components: banking, which made up 80.1% of added value in the sector, and insurance, which made up the rest. In fact, in the official guide to the old GDP figures, the financial industry was called just that: “Banking and Insurance.”
By contrast, the new GDP series includes separate measurements of stock exchanges and stock brokers. It counts the growing plethora of private investment funds available to Indians. In the old GDP figures, UTI, the formerly government-managed investment vehicle, had been the sole mutual or money-market fund being measured. The Employees’ Provident Fund Organization, the state-run social-security program, was the only pension fund.
It was just assumed to be one-third the size of the formal, non-bank financial industry. Now, private moneylenders’ contribution to the economy is measured using survey data from the central bank.
5. Hoarding gold is now officially virtuous. 
In the new GDP series, households’ expenditure on gold and silver ornaments is treated as part of their savings instead of their consumption. The value of such savings, in the year ended March 2012, was recorded at 340 billion rupees, or $5.4 billion—which, despite Indians’ infamous appetite for gold, represented only 1% of total savings in the economy that year.
6. When it comes to timely economic data, India is still far, far behind rich countries. 
The biggest obstacle to measuring the Indian economy is how much of it is informal: cash-based, outside the tax net and leaving no paper trail. Two-thirds of India’s nonfarm workforce are employed this way.
With measurements on such a large portion of the economy available only via surveys conducted once every five years—less often in some cases—Indian statisticians invariably rely on various workarounds to produce yearly GDP numbers. For the informal economy, the new series uses tax and corporate data instead of blunter indexes of production to project survey findings forward.
In rich countries, GDP can be triangulated: Whether you tally up the value of what’s produced, the money that is spent to buy that production or the income earned from selling it, the total should be the same. Not so in India, where only production data are considered reliable.
Data on securities and other financial instruments are underdeveloped as well. India doesn’t have regular statistics on employment.
“There’s a large number of areas where we have deviated” from the United Nations’ latest guidebook on measuring GDP, said T.C.A. Anant, who holds the title of chief statistician of India—“for a large measure, because we are simply, at the moment, unable to implement those recommendations.”

Thank you for reading.

By - Chaitanya Kulkarni

This blog post is inspired by the blogging marathon hosted on IndiBlogger for the launch of the #Fantastico Zica from Tata Motors. You can apply for a test drive of the hatchback Zica today.

Monday 13 April 2015

India at Hannover Messe 2015

India, the world's fastest growing economy will be the partner country for Hannover Messe 2015. Hannover Messe is the world's largest trade fair with participations from countries all over the world. The fair will take place from 13th April to 17th April in Hannover, the industrial capital of Germany. 

Boasting an average annual growth rate of 10 percent over the last 10 years and with current growth running at around five percent. To stimulate growth India is opening itself up to further foreign investment, having decided to modernize its infrastructure and industrial plant and equipment. Last year alone, the German federal government promised some one billion euros worth of loans to India – funds which are to be used primarily in the area of energy efficiency, industrial subcontracting and digital manufacturing solutions.

With a trade volume of 16.1 billion euros, Germany is India’s leading trading partner within the EU. The German trade surplus of approximately 3.4 billion euros (2012/13) reveals the high level of Indian demand for capital goods in particular – above all for machines, which constitute some 33 percent of Germany’s total exports to India. Based on a survey commissioned by the German-Indian Chamber of Commerce, German enterprises are expecting a medium-term increase in exports to India thanks to the business-friendly policies of the country’s newly elected government.

Business Delegation:

Around 120 delegates are visiting HM 2015 from India. Some of them include India’s biggest business tycoons. Shikha Sharma, Deepak Parekh, Naresh Trehan, Sanjeev Geonka, Arundhatti Bhattacharya etc are some names. The full list of delegates is available here.

Participating Companies:

296 Indian companies are participating in Hannover Messe this year. These includes Indian MNCs, Trade Unions, State Development Summits, Investment forums etc. Daimler India is showcasing its trucks while Germany based Volkswagen Automobile will showcase Made In India cars. The full list of Participant countries in available here.

Participating States

Madhya Pradesh
M P Laghu Udyog Nigam Ltd, Bhopal (MP Small Industries Corporation)
M P Trade and Investment Facilitation Corpn Ltd, Bhopal 
Govt of Maharashtra 
CSIDC Ltd, New Delhi 
Directorate of Commerce & Industries,Govt.of Meghalaya, Shillong 
Industrial Extension Bureau (A Govt. of Gujarat Organization) 
Government of Jharkhand
Andhra Pradesh
Govt. of Andhra Pradesh, Andhra Pradesh Bhavan, 1, Ashoka Road, New Delhi-110 001
Uttar Pradesh
Udyog Bandhu, Nodal Agency of UP Govt., 12-C, Mall Avenue, Lucknow-226001
Govt of Bihar
Himachal Pradesh
Department of Industries, Govt. of Himachal pradesh
Industrial Promotion & Investment Corporation of Odisha Limites
Tamil Nadu
Department of Industries Commerce & Export Ptomotion
Assam Industrial Infrastructure Development Corporation

Day 1 Hannover Messe 2015

By -
Chaitanya Kulkarni

Friday 10 April 2015

Hilarious Exam Answers ( Picture Blog )

Exam is the test of knowledge and imagination.

* This article is blatantly copied from other blogs/websites as I take my exams seriously.
* People should try this during their exams.

Thank you

Thursday 9 April 2015

5 Indian Stocks that will make you rich!

After the landslide victory of Narendra Modi, the Indian Stock Markets (BSE, NSE ) is fuelled with optimism. The market index showed the same. BSE Sensex grew by 29.5% in FY 2014-15 and the best performing were from Small Cap and Mid cap. JK Lakshmi Cement recorded the growth of 324%. NSE Midcap index recorded the growth of 49.5%. In this opportunity of growth, I think you shouldn't be left behind. Here are the top 5 bids of 2015-16.

5) Just Dial

Current price - 1339
Target - 1725

4) Yes Bank 

Current Price - 846
Target - 990

3) Wockhardt

Current Price - 1912
Target - 3000

2) JK Lakshmi Cement

Current Price - 368
Target - 475

1) Bharat Electronics

Current Price - 3674
Target - 4120.

Thank you. Make money.

* Subject to market risk.
* Before investing, research of scrip is necessary. Do not invest on hearsay.

By - Chaitanya Kulkarni
twitter - @chai2kul
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Wednesday 8 April 2015

Chongqing : China's Unknown Mega City (Picture Blog)


Microfinance : Capitalism for the poor.

Microfinance has been hailed as a boon to the developing world. By extending small amounts of credit to would-be entrepreneurs, the model is said to raise incomes, reduce unemployment, and empower previously marginalized groups, notably women. First tested in Bangladeshi villages in the 1970s, microfinance was embraced by the development community in the 1990s and 2000s and has held a special status as a "transformative" idea. In 2006, Muhammad Yunus won a Nobel Prize for his microfinance work along with his organization Grameen Bank.

As mainstream microfinance has matured, focus has turned to the country’s chronically underserved MSMEs. The changes are being accelerated by the government: last year, the RBI announced a new category of 'small' bank that focuses on poorer customers. On 8th April, India PM Modi launched Micro Units Development and Refinance Agency Ltd. (MUDRA) Bank. Supported by these initiatives, over time, we expect to see more players and capital flow into the space, resulting in a greater volume of lending to the under served. MFI funding will impact the growth of MSMEs. 

Bandhan Microcredit : Driver to MSME growth

Bandhan, the country’s largest microfinance company, is competing closely with Bangladesh’s Nobel Prize-winning Grameen Bank to become South Asia’s largest micro credit provider. It is already the largest non-deposit taking microfinace institution in the world.

In India, this sector has grown on the Grameen model of lending over the past two decades. Credit decisions are taken at the branch level, which facilitates disbursal of loans in about a day. At the end of October, Bandhan’s loan dues were Rs 6,804 crore ($1,091 million); Grameen Bank’s was $1,109 million (Rs 6,900 crore), according to the company’s website.

Grameen Bank, founded by Muhammad Yunus in 1976 (founder and institution were jointly given the Nobel Peace Prize in 2006), has been operating as a full-fledged bank since 1983. Bandhan is a fledgling in comparison; it started operations in 2011, almost one and a half decades after Grameen Bank was set up. Even so, it has a customer base of close to 6 million; Grameen’s is 8.6 mn.

Bandhan has 2,022 branches in 22 states. It recently tied-up with FIS, a US-based company, as technology partner for the launch of the proposed Bandhan Bank. The seven-year technology outsourcing arrangement will provide services like core banking, channel solutions, trade finance, debit card management and transaction switching. FIS will also be responsible for delivery and management of the entire information technology infrastructure, including all disaster recovery capabilities and the inter-branch network.

Bandhan is expected to start full-fledged banking operations by the end of 2015, opening nearly 600 commercial bank branches in one go. Ahead of foraying into this sector, Bandhan has stepped up its lending activity. Against an average monthly disbursement of Rs 1,000 crore in November last year, Bandhan disbursed close to Rs 1,300 crore this time.

Rupay Debit Cards

A big chunk of micro credit comes Regional Rural Banks. After the successful implementation of Pradhan Mantri Jan Dhan Yojana, India’s financial inclusion plan, all 56 rural banks have tied with RuPay. Rupay card is based on indigenous technique. 

The domestic card is designed by National Payments Corporation of India. It has been introduced with an objective to minimize the overall transaction cost of banks. Till now, the ATM cards were designed on foreign techniques of master and visa cards. All rural banks also have the facility of National Electronic Funds Transfer (NEFT) charged at nominal fee of Rs.2.


In Budget 2015-16, India’s finance minister Arun Jaitley announced the creation of MUDRA Bank with the corpus fund of Rs. 20,000 crore and credit guarantee corpus of Rs. 3,000 crore. MUDRA, to be set up through a statutory enactment, would be responsible for developing and refinancing through a Pradhan Mantri MUDRA Yojana, all Micro-finance Institutions (MFIs) which are in the business of lending to micro / small business entities engaged in manufacturing, trading and service activities. MUDRA would also partner with State/Regional level coordinators to provide finance to Last Mile Financiers of small/micro business enterprises.

The roles of MUDRA bank are :

  • Laying down policy guidelines for micro enterprise financing business
  • Registration of MFI entities
  • Accreditation /rating of MFI entities
  • Laying down responsible financing practices to ward off over indebtedness and ensure proper client protection principles and methods of recovery
  • Development of standardised set of covenants governing last mile lending to micro enterprises
  • Promoting right technology solutions for the last mile
  • Formulating and running  a Credit Guarantee scheme for providing guarantees to the loans/portfolios which are being extended to micro enterprises
  • Support development & promotional activities in the sector
  • Creating a good architecture of Last Mile Credit Delivery to micro  businesses under the scheme of PM MUDRA Yojana.

The primary product of MUDRA will be refinance for lending to micro businesses / units under the aegis of the Pradhan Mantri MUDRA Yojana. The initial products and schemes under this umbrella have already been created and the interventions have been named ‘Shishu’, ‘Kishor’ and ‘Tarun’ to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur as also provide a reference point for the next phase of graduation / growth for the entrepreneur to aspire for:

  • Shishu: covering loans upto Rs. 50,000/-
  • Kishor: covering loans above Rs. 50,000/- and upto Rs. 5 lakh
  • Tarun: covering loans above Rs. 5 lakh and upto Rs. 10 lakh.

Businesses/entrepreneurs/units covered would include proprietorship/partnership firms running as small manufacturing units, shopkeepers, fruits/vegetable sellers, hair cutting saloon, beauty parlours, transporters, truck operators, hawkers, co-operatives or body of individuals, food service units, repair shops, machine operators, small industries, artisans, food processors, self help groups, professionals and service providers etc. in rural and urban areas with financing requirements upto Rs.10 lakh.

As compared to that scale, the integration of hundreds of thousands of more informed existing and new LMFs into the regulatory and refinance architecture of MUDRA bank does not seem to be a tall order at all. MUDRA, which is a practical idea, is a potential game changer for the country.

Microfinance : Catalyst for 10% growth

The Economic Census Survey of 2012 revealed the scale and magnitude of what we have been ignoring for several decades. There are 57.7 million enterprises in India, and it generates employment for 460 million people, of which 262 million people are self-employed. That this long ignored informal sector is a significant part of our economy is obvious from the following statistics. It accounts for 90 per cent of our non-agricultural workforce, 50 per cent of the gross domestic product (GDP) and 40 per cent of the non-farm GDP. This informal GDP is almost completely out of the direct tax net and lacks any formal form of access to credit or risk capital to allow it to grow and join the mainstream economy. A recent Credit Suisse report stated: "Unlike in developed economies, where informality is a deliberate choice to avoid taxation or regulations, in India it is more structural, a reflection of the lack of development and limited government reach."

Reports have concluded that Indian GDP can be raised by almost 15 per cent if the informal sector data is incorporated in the GDP series. Yet, only 4 per cent have access to institutional credit, with loans between Rs 50,000 and Rs 10 lakh almost impossible, forcing them to go to moneylenders. The non-corporate sector faces stiff competition from larger firms, and are further impeded by the lack of infrastructure and access to easy credit. They are often unable to procure adequate financial resources for the purchase of machinery, equipment or raw materials.

Microfinance involves funding the unfunded, and unlocking the potential of a new pool of entrepreneurs and future taxpayers in this country. It is encouraging for entrepreneurship across the economic strata. It is using micro finance, an economic development tool whose objective is to assist the lower income groups to develop and grow their small businesses, many of whose owners are traditionally excluded communities such as Scheduled Castes, Scheduled Tribes or other Backward Classes, who own almost 60 per cent of all enterprises in this sector. It represents a real way to make the dreams of millions in the informal sector, long neglected and ignored, a reality. This formalisation of the informal sector would expand the tax-GDP ratio and expand the number of taxpayers and, in turn, government revenues.

This government is right to see the potential of this sector to drive up jobs and taxes. It has realised the force multiplier impact on the economy and tax revenues by a successful formalisation of the informal sector. It has realised the failure of both the Reserve Bank of India and the banking system in credit-supporting this sector. This also is core to this new economic philosophy of supporting enterprise wherever there is a desire for that in our economy, while continuing with better targeted and well-conceived social security framework for the poor and needy. Bringing in the untapped informal sector into the formal one will benefit business and economy.

By - Chaitanya Kulkarni, founder, The Indian Capitalist

Thank you for reading. Keep Sharing.
This blog post is inspired by the blogging marathon hosted on IndiBlogger for the launch of the #Fantastico Zica from Tata Motors. You can apply for a test drive of the hatchback Zica today.

Sunday 5 April 2015

5G - The future of mobility

5G stands for 5th generation. To provide a little more context around how much faster 5G speeds will be compared to 4G. According to Huawei, 5G will allow you to download an eight gigabyte HD movie in six seconds versus the seven minutes it would take over 4G or more than an hour on 3G.

5G technology requirements As a result of this blending of requirements, many of the industry initiatives that have progressed with work on 5G has identify a set of eight requirements:

  • 1-10Gbps connections to end points in the field (i.e. not theoretical maximum)
  • 1 millisecond end-to-end round trip delay (latency)
  • 1000x bandwidth per unit area
  • 10-100x number of connected devices
  • (Perception of) 99.999% availability
  • (Perception of) 100% coverage
  • 90% reduction in network energy usage
  • Up to ten year battery life for low power, machine-type devices.

What will 5G allow me to do that I can’t right now with 4G?

According to Huawei, 5G will allow you to download an eight gigabyte HD movie in six seconds versus the seven minutes it would take over 4G or more than an hour on 3G.

But 5G is much more than just faster data speeds on your mobile devices. It also opens the door to a lot of different consumer and industrial applications and uses  some of which seem unbelievable now because they’re so futuristic.

When will we get 5G?

Again, it’s too soon to say for sure, but don’t count on it in the next couple of years. The most optimistic targets would see the first commercial network up and running by 2020, but even that may be too optimistic. As with LTE, it will take years for the network to become widespread.

By - Abhilash Nair for The Indian Capitalist.
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