CAduniya.com : CA India Blog

For the second time last week, the Sensex on Friday stood at above the 10K mark. The closing level of 10,099.91 points marked a gain of 4.2 per cent over the previous week’s close. Some positive momentum emerged in the markets last week after a lower Inflation figure of 6.8 per cent was announced (for the week ended December 6). This figure was 1.2 percentage points lower than the previous week’s figure.

Net investment by foreign institutional investors (FIIs) for last week stood at Rs 330.9 crore. The price of crude Oil stood at $40.98 per barrel at the end of last week, falling nearly 7.6 per cent during the week.

The government may introduce provisions in the new direct tax code to prevent misuse of double taxation avoidance agreements India has with other countries. The new code is likely to be unveiled before the year ends. A government official said a discussion paper on the code, a major initiative undertaken under the guidance of the former finance minister and present home minister P Chidambaram, is being fine-tuned. “A discussion paper on the code explaining the rationale behind every change would be placed in the public domain,” the official added. A draft bill on the code may also accompany the paper to enable everyone to express their views on the proposed changes. Double taxation treaties are essentially agreements between two countries that seek to eliminate the double taxation of income or gains arising in one country and paid to residents/companies of the other country. The idea is to ensure that the same income is not taxed twice. In many instance, however , these agreements are misused to evade taxes. This is called ‘treaty shopping,’ where usually residents of a third country take advantage of a tax treaty between two countries. For example, many companies in other countries route their investments into India through Mauritius or Cyprus to take advantage of the tax treaty that these countries have with New Delhi. Both, India-Mauritius and India-Cyprus tax treaties provide that capital gains arising in India from the sale of securities can only be taxed in Mauritius and Cyprus. This means no capital gains tax on investments in securities routed through Mauritius and Cyprus, as they do not levy tax on capital gains. The discussion paper on the code would explore ways to check this treaty-shopping. Mr Chidambaram was actively involved in the exercise of drafting the code.

The government will prevent chartered accountants (CAs) from offering consultancy and advisory services to the companies which hire them for auditing their accounts. This is being done to lend greater credibility to company accounts. The statutory auditors, who vet the financial accounts of a company, will be restricted from providing their corporate clients services such as investment management, actuarial services and investment banking. The proposal forms part of the Companies Bill 2008, currently pending before the Lok Sabha. The move is expected to usher in greater independence in the audit function and infuse greater confidence in the minds of investors on the credibility of financial statements. At present, the statutory auditors are barred from providing accounting and internal audit services for their clients, but are allowed to deliver consultancy and advisory services. Under the guidelines proposed in the new legislation, statutory auditors will also be prohibited from providing services like design and implementation of financial information system, investment advisory, rendering of outsourced financial work and management services. The initiative assumes significance in the wake of a slowdown in the economy where companies may hire consultancy services from their statutory auditors who may turn a blind eye to discrepancies in financial statements. “The proposal seeks to place specific restrictions on the services which a chartered accountant, acting as a statutory auditor, can provide for his client,” says Institute of Chartered Accountants of India president Ved Jain, adding the proposal will help avoid conflict of interests. The move may come as a major damper for many practising CAs who have been providing audit as well as consultancy services for their clients. According to Ernst and Young India director Rahul Roy, the proposal can lead to a great shakeup within the accounting profession. He, however, agreed that the move is in line with globally followed practices.

NEW DELHI — India’s government will increase spending and ease some taxes in an effort to stimulate an economy that has been hammered by the global economic slowdown and the recent Mumbai terrorist attacks.

The measures on Sunday came a day after the country’s central bank cut benchmark interest rates in the hope of cushioning the downturn.

The government said it will spend 200 billion rupees ($4 billion) more than previously planned, bringing expenditures to a total of three trillion rupees over a four-month period through end of the fiscal year on March 31.

The office of Prime Minister Manmohan Singh also signaled that more spending increases would be needed in the next budget year.

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P Chidambaram’s tenure as finance minister in the last 54 months saw the Indian economy register 9 per cent plus growth in three consecutive years that resulted in buoyant tax collections. But record-high crude oil prices and populist schemes announced by the Congress-led coalition government eroded many gains achieved in the first four years.

How rupee fluctuations affect your investment.

• If the rupee falls in value, the rupee returns on commodities such as gold increase, (assuming that international gold prices remain constant)
• If the rupee appreciates in value, the rupee returns on gold decline
• An investment in overseas assets will fall in value if the underlying currency depreciates, and investors will tend to lose out
• But a strengthening currency will result in gains for investors in overseas assets such as property and bonds (assuming that asset prices remain constant)

The rupee fell to a record low past 50.60 against the US dollar hammered by continuous outflow of capital and record offloading of shares on the stock markets.

The rupee started weaker at 50.55 against the dollar and was at 50.52/53 against the dollar, but still down 0.4 per cent from the previous day’s close. The rupee later hit a record low of 50.65 to a dollar.

The previous time the rupee touched 50.60 against the dollar was on 20 November, when it was more than 22 per cent down over the year.

In the afternoon trade, the domestic currency was trading at 50.53/57 to a dollar, off the record low of 50.65. The rupee had closed at 50.30/32 on Monday.

Dealers said market sentiment has been weighed down by rising demand for the US currency and expectation of a further fall in domestic stock prices.

State-run banks were seen selling dollar at Rs50.60 on behalf of the Reserve Bank of India, dealers said.

The country’s main share index, the BSE Sensex, was more than 2 per cent lower, caught in the sell-off as the economic outlook deteriorated. .

Foreign funds have so far sold around $13.7 billion worth of shares in 2008, after buying a record $17.4 billion last year.  (2nd December, 2008)  Source