Pay zero tax on unlimited gains!

India has truly become a tax haven. If you are willing to take market-related risks, you can arrange your affairs in such a fashion that you don't have to pay even one single rupee as tax, irrespective of the extent of your gains.

And, it's all perfectly above board and legal! Here's how.

With a view to giving a boost to the Indian equity market, successive recent finance ministers have doled out many tax concessions to the income and gains from:

• Shares traded on a recognised stock exchange in India, and
• Equity-based mutual fund schemes (equity funds).

Now, all you have to do is to park all your funds available for investment in either of these two avenues -- and relax.

The dividends are tax-free, and so are all long-term capital gains. The only question that needs an answer is -- which of the two avenues should you choose?

Table 1 below presents a comparative gist of all the currently prevalent costs and taxes on shares and equity funds.

Table 1: Comparative Analysis between Shares & Equity Funds

Transactions		Equities	Equity-based MFs
Purchase	- Brokerage	Around 0.5%	Nil
	- STT	0.125%	Nil
	- Entry Load	Nil	Around 2%
Sale	- Brokerage	Around 0.5%	Nil
	- STT	0.125%	0.25%
Dividend	- Income Tax	Nil	Nil
	- Distribution Tax	16.995%	Nil
Capital Gains	- Short-term	10.3%	10.3%
	- Long-term	Nil	Nil
Exit Load		Nil	Load on Early Exits
Effect of Dividend on Price / NAV		Small	Full Reduction
Annual Management fees of AMC		Nil	Around 1%
Risk		High	Medium

Let us compare these two avenues, item by item. At the first glance it might appear that equity mutual funds are superior to direct investment in shares because:

1. You don't have to pay brokerage for equity funds whether at purchase or sale. This, however, is more than offset by the entry/exit loads and AMC (Asset Management Company) fees.

2. No STT (Securities Transaction Tax) for mutual funds at purchase. This is compensated by double the STT at sale by mutual funds. Good for long-term investors in mutual funds.

3. Mutual funds are exempt from Dividend Distribution Tax (DDT) of 16.995%. (The Finance Act 2006 extended this benefit to closed-end equity funds as well.) Don't get overly lured by this, however.

DDT is charged to mutual funds when they receive dividends from companies they have invested in. Charging DDT to you when you receive any dividend from a mutual fund would amount to double taxation.

Personally, I don't like either the dividend or the dividend reinvestment options of mutual funds. The quantum of dividends paid, whether by mutual funds or by companies, is, both, variable and uncertain, rendering the planning of day-to-day expenses difficult.

• All these incomes are tax-free for FY 2007-08
• Tax: Which ITR form should you use?
• Wrong PAN on Form 16? What to do

The growth option of mutual funds bypasses this difficulty. The growth option is better than the dividend option only for this one reason and not because it bypasses DDT by converting the dividend into growth. Purely from a taxation point of view, the two options are equivalent since in both cases there is no DDT, the dividend is tax-exempt, and so are the long-term capital gains.

The real edge equity funds have over shares for most investors

As we saw from the above comparison, there isn't much to choose between shares and equity mutual funds so far as their respective costs and taxes go. Yes, mutual funds charge loads to cover their expenses of market transactions and also a small fee for nursing and monitoring your investments. But it is worth paying the price because:

1. Mutual funds make personal monitoring unnecessary: Mutual funds undertake the rigours of the monitoring and keeping tabs on your portfolio. You receive the benefit of their expertise in handling and tracking the market.

2. Mutual funds are akin to savings bank accounts: When investing in an open-ended equity fund scheme, an investor can deposit money any time s/he has investible funds and, similarly, can redeem, partly or fully, any time s/he needs funds. The repayment is effected within 5 working days at most. Thus, such schemes have virtually become savings bank accounts -- and with tax-free returns, to boot.

3. Systematic withdrawal facility: A good strategy is to withdraw as much as you need at some fixed periodicity of your choice. For instance, you may withdraw on a monthly, quarterly, 6-monthly or annual basis to meet your expenses.

Tax-smart: Zero tax even on short-term capital gains

If you are forced to redeem your mutual fund units in the short-term horizon, namely within 12 months of their purchase, whether partially or in full, tax is payable @ 10.3% on any short-term gains thus made.

Can we avoid this? Let us see how:

Remember that you have parked all your investible funds in the growth option of an equity fund. Now, imagine that you had a capital of Rs 100 lakh (Rs 10 million) with which you bought 10 lakh (1 million) units of Rs 10 each. Suppose the NAV (Net Asset Value) has grown by 10% to Rs 11 per unit, and thus the value of your investment has become Rs 1.10 crore (Rs 11 million). Of this, you redeem 90,909 units worth Rs 10 lakh (Rs 1 million) before 12 months, which still leaves your original investment of Rs 100 lakh invested in the mutual fund intact.

Now comes the best part.

The short-term capital gain you have made is Re 1 per redeemed unit, i.e. Rs 90,910. You have no other income. The tax threshold, below which no tax is payable, is Rs 110,000. Ergo, you have Rs 10 lakh (Rs 1 million) for your household expenses from short-term capital gains - and, at zero tax!

Convinced now that India is truly an incredible tax haven for an informed investor? The only pre-condition you need to fulfill in order to benefit from this big-bang tax break is to familiarize yourself with the basics of investing in equity funds and grasp some simple strategies that can significantly reduce the market-related risk of equity investing.

• Guidelines to filing your income tax return
• How to design a tax-smart salary package

Excerpt from:

Taxpayer to Taxsaver (F.Y. 2007-08)

By A N Shanbhag

Publisher: Vision Books

source: Rediff.com

Banglore Tiger!!!

Documenting Wipro's Rise: 'It Challenges Other Companies to Strive for Excellence'

Published: June 14, 2007 in Knowledge@Wharton

The story of how Western India Vegetable Products morphed from a disorganized agriculture-based manufacturing and distribution company into Wipro, the third biggest global tech services provider (behind Tata Consultancy Services and Infosys), is fairly well known in India.

In the summer of 1966, when Azim Premji was 21 and about to graduate from Stanford University, he was called home to Bombay to take the reins of the family business after his father's sudden death. Premji first modernized the vegetable oil business he had never wanted to run. Then, as opportunities presented themselves, he expanded. When IBM left India in the late 1970s, he saw the opportunity to get into the computer business. When the Indian economy began to open up in the 1990s, he started to build up what would become a global Business Process Outsourcing (BPO) powerhouse.

Steve Hamm tells the story of Wipro in Bangalore Tiger: How Indian Tech Upstart Wipro Is Rewriting the Rules of Global Competition. A senior writer and the software editor at BusinessWeek, Hamm has been a business journalist for more than 20 years, has followed the tech industry for a little less than 20 years and has been chronicling the emerging tech services industry in India since 2001.

The intertwined stories here -- those of Wipro, Premji, India and the evolving worlds of commerce and technology -- are important and worth reading.

A Good Face for Brand India

Azim Premji, whom Knowledge@Wharton has interviewed, comes across particularly well: intelligent, creative, focused and flexible. His zeal for understanding, rationalizing and then constantly tuning and improving systems -- perhaps, in part, a product of his education as an engineer -- is clearly one of the cornerstones of Wipro's success. The fact that "India's Bill Gates" is a Muslim burnishes India's multicultural credentials.

One of Hamm's primary points is that Wipro gives us a view of where things are heading globally, and he phrases this in language with an evangelical caste to it. "Wipro is not just a company," he writes. "It's a quest. And, in a fiercely competitive and rapidly changing business environment, no company that is not also a quest can succeed for long. Bottom line: Wipro matters because it challenges other companies to strive for excellence."

Hamm documents the degree to which this quest has been built on egalitarian principles. Premji and his executives come across as having broader concerns than profit and expansion -- from their desire to set a clear moral example, to a commitment to educating their employees and themselves, to a deep and ongoing devotion to transforming India, both economically and culturally. All of those things, of course, redound to the success of the company. They also serve as examples of the benefits of long-term thinking.

Refusing to pay bribes may cost a company business, but a reputation for being incorruptible will likely bring more. It is expensive to educate employees -- particularly given the danger that you might be educating the competition when and if they leave -- but it is more expensive to lose employees. One can argue about the appropriate role of a company in the larger society -- Premji's foundation supports education, down to the elementary level -- but if India is not successful in broad terms, the chances for any Indian company, at home or in the global arena, are diminished.

One of the core aspects of the Wipro story, and of Hamm's persuasive view of the current and future global business environment, is the degree to which success often hinges on flexibility and planning. The successful entrepreneur or manager is one who, on putting a process or business deal in place -- the IT infrastructure of a hospital, for example -- understands and accepts that getting things right is always temporary.

You can't relax even if you feel that things are running "perfectly," because all that means is that things are running "perfectly" today. Tomorrow will inevitably be different. And waiting to see what happens before considering how to proceed is a recipe for following, not leading, trends. Wipro doesn't just look at tomorrow, Hamm tells us: The company always aims to be looking three years ahead and preparing for the future.

Starting with the vegetable oil business, Premji consistently brought a higher standard of assessment to his company along a variety of axes. He set a high ethical bar for all employees; he measured what they did and gave them incentives to do better; he focused endlessly on education -- both educating himself and educating his employees at all levels -- to give people the tools to advance.

"In those first difficult years," Hamm writes, "Premji established a management style and a corporate culture that formed a solid foundation for everything that would come later. While his father's top men had based their decisions on tradition and instincts, he brought numerical measurement and analysis into play. And way before it became de rigueur for Western businesses, he benchmarked each of his managers against the others."

What to Tell and How to Tell It

In 1981, Tracy Kidder wrote The Soul of a New Machine, which chronicled the development of Data General's Eclipse mini-computer, meant to compete with Digital Equipment's Vax. The book won a Pulitzer Prize and a National Book Award. It was an early "glimpse-inside-high-tech" at a time when computing was just beginning to penetrate the public consciousness in the U.S. as something other than "Back Office Big Iron" -- invisible mainframes that were abstractions to most people.

Kidder's book was largely focused "down in the trenches" with the project engineers. Their concerns and their view of both business and technical processes were functional and direct. Hamm spends more time talking to and quoting higher level managers and executives.

Their concerns often boil down to promoting the brand. That is not to say that what he relays often seems wrong or dishonest. Rather it feels largely beside the point and often repetitive. There is limited use in hearing people repeat that the company seeks to be efficient or honest or forward looking. More interesting and important is how these things are accomplished. More interesting still is hearing about how a company deals with setbacks. That's the situation in which stakeholders of all kinds show both their strengths and their weaknesses, and where readers often learn the most. The Wipro executives, understandably, don't tell us much about what hasn't worked.

As a journalist, Hamm is working in a venerable tradition. In business schools, students pore over case studies; they learn about business practices and strategies by dissecting concrete examples; they follow the data. Longer-form narratives like Bangalore Tiger serve a related but slightly different function. They come at the subject from another angle.

The numbers are the numbers. One can map Wipro's corporate structure (as Hamm more or less does), which provides a fascinating and useful overview. But that map only shows what the company has done. It doesn't tell how it was done. "How" is a matter of information but it is also a matter of story. In some ways, Hamm does a good job of telling the story of Wipro; in other ways he falls short.

The advantage that a journalist has in this situation is the benefit of a sustained and intimate inside view of a company. One of the disadvantages of this approach is that it often disinclines us from taking a more critical perspective.

Throughout the world and throughout history, there has been no shortage of companies that prospered by paying bribes, exploiting their workers and their customers, and selling inferior goods or services at over-inflated prices. It is the rare modern business seminar, however, in which these methods of operation are extolled as the sure road to success. To say that success is built on ethical conduct, respect for both workers and customers, and selling a high quality product at a competitive price -- variations of which Hamm repeats throughout the book and quotes any number of Wipro executives as saying -- borders on the trite. Google, with perhaps equal measures of humor and seriousness, boils business ethics down to a pithy three words: "Don't Be Evil."

The book also feels as if it has been assembled in large part from smaller freestanding pieces. There are places where the seams show, where set-piece bits of information are reused or where information is sequenced in a manner more confusing than helpful. In one section, for example, Hamm writes: "Rather than sell a British-based bank only software programming, [Wipro] can also sell the bank IT consulting, manage its desktop computers, and even run its consumer credit card accounts receivable department."

One wonders immediately how it is possible to outsource the management of desktop computers. Further down the page, Hamm notes that "It's primarily done by employees in India, but some of the work is performed in the client's offices," which mostly deepens the mystery. It isn't until some 17 pages later that we are told, "Wipro has created a portfolio of automated monitoring and maintenance software and process [sic] that allow it to perform 90% of the work from India and only 10% on-site."

Finally, there are places where it is hard not to at least question Hamm's interpretation of facts or history.

The reader and the writer need not always agree, and being forced to consider something from a different and unexpected point of view is one of the benefits, and pleasures, of seeing something through someone else's eyes. Authors make choices all the time, in the examples they include or discard, in what they focus on and what they make peripheral. Given Hamm's long immersion in the subject matter dealt with here, however, it is jarring when he hits off-notes, making assertions or assumptions that seem dubious and undermine his authority.

For example, very early on, in the book's introduction, Hamm points to Mark Andreessen's designing the first web browser in 1993 as one of the crucial pivot points that would eventually facilitate the explosion in remote computing on which the core of Wipro's business has been built. "Andreessen's browser, called Mosaic, democratized the Internet," Hamm writes. "It was an easy-to-use doorway to the Net that made it possible ultimately for anybody in the world with a computer and Internet access to connect with anyone else."

Fair enough; that's a good description of what happened on the consumer side. But business had been using remote computing of various sorts for decades by then. Businesses were not held back by the network interface. It would make more sense to point to bandwidth, which, from the 1980s on, became ever "fatter," cheaper and more ubiquitous as satellite access became more common, microwave links helped bridge areas where cables were impractical and fiber optic networks were built out to the point where there was a large surplus of bandwidth, which drove transmission costs steeply downward.

These criticisms aside, Hamm knows the landscape he is writing about. Wipro and Premji are an important and interesting story and the information provided here is valuable; it would have been well worth editing more carefully.

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4202

Customer Service!!!

(can we expect such service in India...)

Counterfeit Colgate Toothpaste Found

Colgate-Palmolive Company today warned that counterfeit toothpaste falsely packaged as "Colgate" has been found in several dollar-type discount stores in four states: New York, New Jersey, Pennsylvania, and Maryland.

There are indications that this product does not contain fluoride and may contain Diethylene Glycol. The Company stated that it does not use, nor has ever used, Diethylene Glycol as an ingredient in Colgate toothpaste anywhere in the world.

The counterfeit toothpaste can be easily recognized because it is labelled as "Manufactured in South Africa." Colgate does not import toothpaste into the United States from South Africa. In addition, the counterfeit packages examined so far have several misspellings including: "isclinically" "SOUTH AFRLCA" "South African Dental Assoxiation."

Counterfeit toothpaste is not manufactured or distributed by Colgate and has no connection with the Company whatsoever. Colgate is working closely with the U.S. FDA to help to identify those responsible for the counterfeit product.

Consumers who suspect they may have purchased a counterfeit product can call Colgate's toll-free number at .


(am not sure in Col Pal has a toll free number in India....may be it has....someone can update on that...)

(source http://www.cnn.com/2007/US/06/14/dobbs.toothpaste/index.html)

RBI working on harmonised Consumer Price Index

MUMBAI: To make inflation figures more realistic, the Reserve Bank is planning a 'Harmonised Consumer Price Index' even as the rising clout of services in the consumption basket has made the Wholesale Price Index less representative.

"In parallel, we are doing technical work on computing a Harmonised Consumer Price Index, and we are in consultation with the government in this regard," RBI Governor said at the Banco Central de Chile.

There are occasions when divergence between WPI and CPI is larger than usual. In view of these considerations, we do monitor and disseminate all the CPI indicators, he said.

Reddy said the increasing importance of services in the consumption basket is making the Wholesale Price Index (WPI) - the main measure of inflation - less representative.

A single CPI index could be even less representative as there is differing consumption trends for the rich and the poor, the rural and the urban and also among regions across the country, he said.

"We do not have the concept of core inflation but for purposes of analysis as well as articulation, we identify the impact of fuel- and food-price shocks," he said.


These two items are often subject to shock both external and domestic. The two items also have a large weight in the basket, especially of consumption. It is also difficult, ex ante, to differentiate between the shock and the permanent components, he added.

Speaking about the inflation target, Reddy said the Reserve Bank, since three years, have nevertheless articulated, with significant impact, tolerance limit of inflation at around five per cent.

Reddy said that has since been embedded in inflation expectations as noticed in severe adverse reactions when WPI exceeded five per cent.
The goal is to anchor inflation expectation in India so as to align them with the global levels as soon as possible for ensuring smooth economic integration with the global economy, he said.

Making a comment on inflationary trend, Reddy said the inflation rate accelerated steadily from an annual average of 1.7 per cent during the 1950s to 6.4 per cent during the 1960s and further to 9.0 per cent in the 1970s before easing marginally to 8.0 per cent in the 1980s.

However, the inflation rate declined from an average of 11 per cent during to 5.3 per cent during the second half of the 1990s ) and further to 4.9 per cent during , he said.

More recently during , WPI based inflation rate increased from 4.1 per cent at the end of March 2006 to an intra-year peak of 6.7 per cent at end-January 2007 and remained firm in the range of 6.1-6.6 per cent in the succeeding weeks before moderating to 5.7 per cent by the end of the financial year, he said.
[http://economictimes.indiatimes.com/News/Economy/Finance/RBI_working_on_harmonised
_Consumer_Price_Index/articleshow/msid-2110020,curpg-1.cms]

Where the world has gone to....

A very interesting case study.....after all those that we had in our classes.....
This is one short and interactive.....so for the inquisitive....it is here

Harvard Case Study

I suggest we discuss this case online either by posting comments here or replying to our group email.

A healthy discussion will benefit us all as we learned during the course.
So hope to see your solution to the case either published on Harvard site or well discussed on our communication channels

-Chetan Shah