Under fire, IndusInd Bank begins review of microfinance subsidiary

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Private lender IndusInd Bank has initiated an independent review of its microfinance arm Bharat Financial Inclusion Ltd (BFIL) to see if there was any process lapse or accounting failure after a complaint by a whistle blower.

“Should there be any need, the Bank will immediately take corrective action as appropriate and keep all the stakeholders adequately informed. The Bank has been following a conservative provisioning approach and reiterates that there is no change in the credit cost estimates including that in the micro-finance business,” IndusInd Bank said in a statement.

A group of senior officials at BFIL, a micro-finance lender, has alerted the Reserve Bank of India (RBI), IndusInd Bank CEO Sumant Kathpalia and independent directors of the bank of ‘misgovernance and lapse of accounting norms to evergreen loans’ since the pandemic.

Denies ever-greening charge

IndusInd Bank said its subsidiary disbursed nearly 84,000 loans without customer consent due to a technical glitch, even as it denied allegations of ever-greening of loans. It underlined that there is a strong risk management and control framework in place, both within the bank and at BFIL. “Due to a technical glitch in May 2021, nearly 84,000 loans were disbursed without the customer consent getting recorded at the time of loan disbursement. This issue was highlighted by the field staff within two days and the technical glitch was rectified expeditiously,” the lender said.

Of this, only 26,073 clients were active with the loan outstanding at ₹34 crore, which is 0.12 per cent of the September-end portfolio. “The bank carries necessary provision against this portfolio,” it said, adding that the Standard Operating Procedure has since been revised to make biometric authorisation compulsory.

Refuting allegations of “ever-greening”, it further said that all the loans originated and managed by BFIL, including during the Covid period, are fully compliant with the regulatory guidelines.

About 82 per cent of the BFIL serviced customers are in rural and deep rural India. All loans disbursed by BFIL are through biometric authorisation of the customers, except those disbursed due to the technical glitch, it further said, adding that in October 2021, nearly 100 per cent of the loan disbursements were in the bank accounts of the customers, as in pre-Covid time.

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EPFO meet to discuss hike in minimum pension

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At the next meeting of the Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO) scheduled later this month, increasing the minimum pension for the subscribers of the pension fund is the key agenda.

While the Central Trade Unions have demanded a hike of up to ₹6,000 from the current ₹1,000, the CBT may take it up to ₹3,000. The controversial issue of investing the EPFO money in private corporate bonds may also come up in the meeting. The CBT may also discuss the issue of the interest rate for the fund for 2021-22.

‘Against pensioners’

“We expect that the CBT may decide to increase it to ₹3,000,” a CBT member told BusinessLine. The Labour Standing Committee had recently recommended the Centre to increase the minimum pension to ₹3,000. However, a trade union representative said they do not expect much progress on this. “The Centre has been delaying the decision. The attitude of the Centre is against giving anything to pensioners and workers,” the TU leader said.

There are indications that the present interest rate of 8.5 per cent will continue for the money deposited in the EPF. “We were having an interest rate of 12 per cent earlier. We have been asking the Centre to restore it. But they brought it down to 8.5 per cent,” a Trade Union representative in CBT said.

A source in the Labour Ministry, however, said that there may not be any change in the current interest rate. The EPFO and the Finance Ministry have been urging the CBT to permit investment of money in the EPFO in various infrastructure bonds. At the moment, the money is invested in the exchange-traded funds (ETF) of the PSUs.

“The Centre was seeking permission to invest the money in private corporate bonds. It wants the CBT to look at the possibility of such investments on a case-to-case basis,” a member said. The CBT is likely to discuss the Centre’s request for removing the restriction on investing in private sector bonds. The agenda may also include permitting the Financial Investment Committee to invest in private bonds approved by the Finance Ministry. The meeting was scheduled to take place on November 16. But it has been postponed.

“The final agenda is not ready yet. We will hold a meeting in November itself,” a Labour Ministry official said. The last meeting of the CBT was held in Srinagar in March. The CBT recommended an 8.5 per cent annual rate of interest to be credited on EPF accumulations in members’ accounts for 2020-21. The Finance Ministry approved the proposal recently.

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I-T department probes into alleged irregularities at Urban Credit Cooperative Bank

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The Income Tax Department has started investigations into alleged irregularities at Urban Credit Cooperative Bank located in Maharashtra. The tax department said more than 1,200 new bank accounts were opened by the bank without the Permanent Account Number (PAN).

The investigations have revealed that these bank accounts were opened without following KYC norms and all account opening forms were filled in by the bank staff and they have put their signature/thumb impressions.

The tax department carried out search and seizure operations on October 27 at the headquarters and one of the branches of the bank. The residence of the Chairman and one of its directors were also covered.

The analysis of bank data on Core Banking Solutions (CBS) and the statements of key persons recorded during the search operation have revealed the glaring irregularities in opening the bank accounts.

In these accounts, multiple cash deposits each of exact denomination of ₹1.9 lakh, were made totalling to ₹53.72 crore. Out of these, more than 700 bank accounts have been identified which were opened in series, where cash deposits of more than ₹34.10 crore were made within 7 days of opening of bank accounts, mainly between August 2020 and May 2021.

These deposits have been structured to avoid mandatory PAN requirement for cash deposits over ₹2 lakh. The money was subsequently converted into fixed deposits in the same branch.

Local enquiries in few cases of such account holders, have demonstrated that these persons are not aware of cash deposits in the bank and categorically denied any knowledge of such bank accounts or even the fixed deposits.

“The Chairman, CMD and the manager of the branch, could not explain the source of cash deposits and accepted that these were done at the behest of one of the directors of the bank, who is a prominent local businessman engaged in trading of grains,” the Income Tax Department said in a statement.

On the basis of evidence gathered and statements recorded, the entire amount of ₹53.72 crore has been restrained.

Further investigations are in progress.

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Tax Query: Are brokerage, GST, STT taken into account when calculating capital gains?

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Kindly let me know with suitable examples whether brokerage, GST, STT and other charges are to be included/excluded in/from purchase/sale price of equity shares for computing capital gain (for shares both purchased before and after 31/01/2018). What is the purchase price for bonus shares for computation of capital gain? Note all these are non-speculative income.

Arun Bhowmik

As per the provision of section 48 of the Income-tax Act, 1961 (Act), following are eligible to be deducted from the full value of the consideration received to compute capital gains: a) expenditure incurred wholly and exclusively in connection with such transfer; b) cost of acquisition of the asset and the cost of any improvement thereto. Based on the above, cost of acquisition may include amount of brokerage, GST, and other charges incurred specifically in relation to such purchase of such capital assets. Similarly, any expenditure incurred wholly and exclusively in connection with the transfer of asset is also deductible from the full value of sale consideration to arrive at net sales consideration. However, as per proviso to section 48 of the Act, deduction in respect of any Securities Transaction Tax (STT) is not allowed while computing capital gains. Accordingly, brokerage, GST, and other charges paid while acquiring the capital asset can be included in the cost of asset and also deductible from the sale consideration if incurred at the time of sale of such asset. Any STT paid at time of acquisition or at time of sale is not included in cost/ deductible from the same consideration.

Sale price = (100*250) = ₹25,000; Less: Purchase Price = (100*200) + (100*200) * 0.01% + 40 = ₹20,042; Less: Expenses exclusively in relation to transfer = (₹25000*0.01%) + ₹40 = ₹42.5. Hence, net capital gains = ₹4915.5

Bonus shares: As per the provisions of section 55 of the Act, where an individual is allotted any additional financial asset without any payment (i.e. bonus shares), cost of acquisition shall be computed: a) If such shares were allotted before April 1, 2001: cost to the assessee or the Fair Market Value (FMV), as prescribed, of the asset on the April 1, 2001, at the option of the assessee; b) In any other case: nil

Accordingly, for the purpose of calculating capital gains, the cost of acquisition for the bonus shares would be considered as FMV (as prescribed) if allotted prior to April 1, 2001 and nil if allotted post April 1, 2001.

The writer is a practising chartered accountant

Send your queries to taxtalk@thehindu.co.in

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What is new in Form 26AS and how it impacts taxpayers

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Form 26AS was initially introduced as a tax credit statement, containing details of taxes deducted from the income of taxpayers (TDS/ TCS), advance tax or any self-assessment tax paid by the taxpayers or income tax refund received during the financial year.

The Budget 2020 proposed to extend the mandate of Form 26AS and make it more comprehensive, with detailed information about the taxpayer’s tax profile. Consequently, the tax department, in May last year, updated Form 26AS to provide details of pending/ completed income tax proceedings, status of income tax demand and refund along with details of specified financial transactions undertaken by taxpayer during a financial year (such as share purchase, property purchase), etc. to the taxpayers in a single form.

New additions

Once more, the scope of Form 26AS, also known as Annual Information Statement (AIS), has been expanded to incorporate 8 new particulars, including foreign remittances, interest on income tax refund, off-market transactions, dividend income/ purchase of mutual funds, detailed breakup of salary and information from Income Tax Return (ITR) of another person.

Notably, such information was already being captured by the tax authorities from authorised dealers, registrar, depositories, transfer agents etc. For instance, every authorized dealer making a payment to a non-resident is required to furnish statement of such payments in Form 15CC to the tax department. Likewise, depositories and transfer agents are obligated to report off-market transactions of account holders, which may include legacy transfers, gifts, transfer of shares between two demat accounts, shifting of securities between a client and a sub-broker and transactions in unlisted securities.

Tax authorities also get information about financial transactions of persons by way of declarations in other taxpayers’ ITRs. For instance, seller of a property is required to furnish particulars of buyer. Such information obtained from the ITR of another person shall be made available in the revised AIS. Additionally, complete break up of salary including allowances, deductions/ exemptions claimed, their income from other sources and house property and the final tax liability so deduced by the employer shall also form a part of AIS. For the time being, the AIS shall be accessible on the e-filing portal as well as the TRACES portal.

Implications and benefits

The additions to the information list will help both taxpayers as well as tax authorities in assessing a taxpayers’ data and effectuate better flow of information between taxpayer and tax department.

For taxpayers, the collation of almost all tax-related information/reportable transactions at one place will accelerate and facilitate ease while filing income tax returns.

Further, the revised form shall also be of significance for stakeholders such as banks/financial institutions/customers/buyers while exercising due diligence and ensuring the credibility of the corporate/person they are dealing with.

It shall also help taxpayers identify any errors or inaccuracies, if any, and take timely remedial action. Notably, this time a facility of feedback has been instituted, where taxpayers may report any incorrect particulars noticed in Form 26AS.

The reported value and value after feedback shall be shown separately in the AIS. The reporting entity (like the depositories, authorised dealers, etc.) may be contacted if the request is denied. Moreover, a simplified Taxpayer Information Summary (TIS) shall also be made available to the taxpayers, which shall derive information from the taxpayer’s feedback and shall be used for pre-filling of ITRs. Simply put, taxpayers may review AIS and provide feedback if the information reflected therein needs modification. This shall lead to real time changes in the TIS, which may be used for filing the ITR. This is in line with the department’s commitments in the Taxpayers’ Charter, to treat the taxpayers as ‘honest’ unless there is a reason to believe otherwise.

Tax base widens

The government recognises the fact that tax disputes and assessments infuse fear in the minds of the taxpayers. It has therefore been trying relentlessly to simplify tax procedures and build a taxpayer-friendly tax regime.

Facilitating tracking of transactional and tax information at the state of reporting stage itself, shall help minimise incongruities/ omissions, which is a prime reason for scrutiny assessments and shall lead to saving of time, costs and hassle at the assessment stage. With knowledge of the fact that the taxman already has information about the taxpayers, they shall be discouraged to suppress material information, thereby widening the tax base.

Since the inception of the scheme of ‘Transparent Taxation’ the tax department has taken commendable steps like simplification of ITR forms, faster processing of refunds, reduction of unnecessary litigation, etc.

The availability of complete and accurate information for fulfilling compliance obligations under law, adds strength to the government’s efforts of providing a seamless, painless and faceless tax administration.

The author is Director, Nangia Andersen LLP (with inputs from Vasudha Arora)

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Indian companies skip China expo, BFSI News, ET BFSI

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New Delhi, Even as more than 3,000 global businesses from over 120 countries and regions are keenly showcasing their products and services at the China International Import Expo (CIIE) in Shanghai and eying potential business deals, no Indian company is listed as participant in the world’s largest fair that focuses on imports, the Global Times reported.

India’s absence from the event that kicked off on Thursday, for unclear reasons, also contrasts with robust growth in China-India bilateral trade this year, a trend that is increasingly irresistible for the South Asian economy despite its growing political hostility toward China, experts said, as per the report.

The number of Indian companies that attend the CIIE has been decreasing progressively in recent years and dropped to zero at this year’s CIIE, according to an official catalog of participants for the event.

The catalog of 4th CIIE exhibitors displayed at the exhibition halls showed that no Indian company is listed. A search for Indian exhibitors in the expo’s digital catalogue, presented on the CIIEs’ official website, also showed no results.

At the second CIIE, India was one of the 15 guest-of-honour countries.

The Global Times then saw around 10 small Indian pharmaceutical firms displaying their products at one of the expo venues. The booths were also crowded with visitors who asked about those products.

Last year, the Global Times only found three Indian companies at the CIIE, one of which was a manufacturer of gift products.

While lingering tensions between the two countries might leave a trail of clues, there are no clear answers to India’s shrinking profile at the major import expo, observers said.

Border disputes and New Delhi’s intention to follow in the US’ footsteps could by no means suppress India’s reliance on a variety of Chinese goods such as auto parts and various small commodities, Wang Dehua, a senior South Asian affairs expert in Shanghai, told the Global Times on Thursday.

In the first three quarters of 2021, China’s trade with India soared 49.3 per cent to $903.75 billion, according to Chinese customs data.

The strong reading is believed to have paved the way for bilateral trade to top $100 billion for the first time, achieving a target the two countries set in 2010, the report said.

FILE PHOTO: Chinese President Xi Jinping is seen on a giant screen at a media centre as he delivers a speech via video at the opening ceremony of the China International Import Expo (CIIE) in Shanghai, China November 4, 2021. REUTERS/Andrew Galbraith/File Photo



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How good is ICICI Lombard’s new OPD and wellness rider?

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ICICI Lombard recently launched a new OPD (outpatient) and Wellness rider, ‘BeFit’. The add-on aims to provide 360-degree support outside of in-patient healthcare, including preventive healthcare, wellness, home healthcare.

While other insurers too offer such covers, this product includes everything that can be of interest to customers looking for a comprehensive OPD solution. BeFit can be added to any of your existing health insurance plans from ICICI Lombard to complement basic health insurance.

Outpatient charges include fees for doctor consultations, pharmacy and diagnostic charges and expenses on treatments that require hospitalisation for a day. The frequent and non-critical nature of the charges keep them out of coverage in basic health insurance policies. Home healthcare, to manage basic health ailments from the comfort of home, is also excluded under basic health covers.

Product offering

ICICI Lombard’s BeFit has integrated its services across physicians, diagnostics, wellness coaches and consultants on a single interface available on ICICI Lombard’s IL Take Care mobile application. The add-on can provide access to consultation with doctors, either physically or virtually across a network of around 11,000 doctors across 20 specialities present in 20 cities, to begin with. The plan also offers counselling on health issues, which extends to psychiatric and mental health as well. Diagnostics and pharmacy benefits are also included in the rider with a network of around 1,000 diagnostics and pharmacies, along with home delivery in cases where applicable. The cover also allows for minor surgical procedures on day-care basis, but available across other health insurers.

The rider also provides health management and wellness programmes. While the former is optional for customers, it is necessitated by the plan, upon diagnosis of lifestyle or adverse health conditions. It includes health management programme with a personal health coach, diet and nutrition consultants to monitor and improve the health of the insured. The wellness programme is non-intervening and is supposed to incentivise healthy behaviour with reward points that translate into a discount on premium renewal or other services. Health management rewards and wellness rewards accrue over a period with each point equivalent to 25 paise.

Cashless and wide range of options

The pricing of the rider ranges from ₹297 to ₹6,558 with a total of six different options. The inexpensive plan offers virtual consultations and other services such as counselling, ambulance assistance, preventive care, well-being, and health management programmes. These are available across price ranges. The highest plan offers physical and virtual consultations, pharmacy and diagnostics services of up to ₹5,000 per year, and physiotherapy sessions as well.

As the network of doctors, diagnostics, pharmacies and other professionals/services is present in the BeFit network, the cashless settlement feature gains prominence. OPD covers from other insurers also offer cashless benefit, but a network dedicated to OPD is key for getting benefits.

How it compares

For other insurance providers, OPD specific covers are built into specific plans. While basic health insurance provides a sum assured of ₹5 lakh for an average premium of ₹12,000 per year, OPD-specific policies are available at yearly premium of ₹12,000 to ₹16,000 per annum.

Max Bupa Go Active health insurance offers OPD charges of up to ₹1,500 per year as the basic feature of the policy. With an add-on for ₹2,459, a wellness cover can be purchased, which provides a discount of 20 per cent on yearly premiums on meeting your health goals. Universal Sampoo general insurance health plan offers OPD cover of ₹5,000 per year. Similarly, Star Comprehensive and Manipal Cigna Prohealth, offer OPD covers of ₹1,200 and ₹500 per year respectively. Health check-up is offered by these plans but with different conditions; once every year with Max; up to ₹2,000 per year with Star and up to 1 per cent of sum assured with Tata AIG Medicare. Most health insurance policies offer pre and post hospitalisation care, as it is seen as an extension of in-patient treatment continuum.

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SBI chief, BFSI News, ET BFSI

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India is ready to move into the next orbit of growth with the hugely successful implementation of the COVID-19 vaccination program, State Bank of India (SBI) Chairman Dinesh Kumar Khara said on Saturday.

The kind of vaccine drive the country has seen makes all the Indians proud, especially because the domestically produced vaccine is being used in a big way, Khara said at the India Pavilion at EXPO2020 Dubai.

“Actually, it (rapid vaccination) has enhanced the confidence level of the common man as well as the economy,” he said.

India recently achieved a major milestone in its vaccination programme against COVID-19 as the cumulative vaccine doses administered in the country surpassed the 100-crore mark.

“The country has lived through one of the most challenging times and has come out of it in a very successful manner that gives the confidence that going forward, the journey should be rather easy, and we should be having a huge opportunity for growth… which I am sure will go a long way in terms of meeting the common man’s aspirations,” he said.

The credit growth in the economy was quite muted for almost two years, he said, expressing hope that the capacity utilisation will improve, and help revive investment demand in the corporate sector.

“The government has done a wonderful job by continuing its focus on infrastructure investment, which has gone a long way in terms of giving a push to the core sectors of the economy. And with private corporate sectors coming with the investment, the economy will certainly move to the next orbit of development,” he added.

On the India Pavilion, Khara said it is presenting the real India, which is full of opportunities, to the whole world in an impressive manner.



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How to financially prepare for a home loan interest rate hike in the future, BFSI News, ET BFSI

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As mentioned earlier, the chances of further rate reduction are very low. However, home borrowers should not ignore the chance of rates going up from current levels. Since the rate transmission is smooth now, any rate increase by RBI will immediately reflect in their home loan rate. Any increase in the home loan rates will increase the EMI (or loan tenure) and could mess up your financial planning.

For instance, the EMI for a 20-year home loan of Rs 1 crore will be Rs 75,739 @6.7%. The same will go upto Rs 81,787 @7.7% and jump to Rs 88,052 @8.7%. The best thing to do in situations like this is to go for fixed-rate loans. However, the options are very limited and only a few options offer fixed rates that too for a limited period. More importantly, these partially fixed-rate home loans also charge higher interest rates.

Partially fixed loans will cost you more
Consider the additional costs before going for partial fixed loans.
While these rate increases are not in your hand, you can be prepared for that by assuming a higher rate of interest. “Instead of the very low rates now, assume a reasonable home loan rate of around 8.5% and invest the remaining EMI somewhere else systematically,” says Aparna Ramachandra, Founder & Director, Rectifycredit.com. For instance, the EMI for a 20-year home loan of Rs 1 crore is Rs 86,782 @8.5% and will be Rs 75,739 @6.7%. You should invest the difference of Rs 11,043 in a short-term debt fund every month. This corpus will act as a backup if the rates go up. You will be in a better position even if the rate doesn’t go up because this money will be getting into savings instead of spending.



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IT department freezes Rs 53-crore deposits of Maharashtra-based urban cooperative bank, BFSI News, ET BFSI

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The Income Tax Department has frozen deposits worth over Rs 53 crore of an urban credit cooperative bank in Maharashtra after it found “glaring irregularities” in the opening of accounts in a recent raid, the CBDT said on Saturday. The department raided the headquarters of the bank and the residence of its chairman and a director on October 27, it said.

While the official statement did not name the searched entity, sources identified it as Buldana Urban Cooperative Credit bank.

“The analysis of bank data on core banking solutions (CBS) and the statements of key persons recorded during the search action have revealed glaring irregularities in opening the bank accounts.

“More than 1,200 new bank accounts were opened in the said branch without PAN (permanent account number),” the Central Board of Direct Taxes, which frames policy for the tax department, said in a statement.

The investigations, it said, found that these bank accounts were opened “without following KYC (know your customer) norms and all account opening forms are filled in by the bank staff and they have put their signature/thumb impressions”.

The department alleged that multiple cash deposits of “exact” denomination of Rs 1.9 lakh each were made and they totalled Rs 53.72 crore.

“Out of these, more than 700 bank accounts have been identified which were opened in a series where cash deposits of more than Rs 34.10 crore were made immediately within seven days of the opening of bank accounts, mainly during the period August 2020-May 2021,” it said.

“These deposits have been structured to avoid the mandatory PAN requirement for cash deposits over Rs 2 lakh,” it added.

The money was subsequently converted into fixed deposits in the same branch, the statement claimed.

The CBDT said enquiries in a few cases of such account holders showed that they were “not aware of cash deposits in the bank and categorically denied any knowledge of such bank accounts or even the fixed deposits”.

“The chairman, CMD and the manager of the branch, could not explain the source of cash deposits and accepted that these were done at the behest of one of the directors of the bank, who is a prominent local businessman engaged in trading of grains.

“On the basis of the evidences gathered and statements recorded, the entire amount of Rs 53.72 crore has been restrained,” the statement said.



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