@Leisure - Vol-34 | srei

@Leisure - Vol-34

Newsletter
 

What the previous financial year taught us

Financial Year 2016-17, which just came to a close, was a remarkable year. Demonetization, Goods and Services Tax (GST) and several key reforms marked the outgoing year. Yet, this financial year also brought with it certain key lessons; here are some of them:

Believe in the Indian growth story

Things have started to look good for India and the Indian growth story is well on track. Tax collection has grown at 18 per cent to Rs. 17.10 lakh crore last fiscal year, which is the highest in the previous 6 years.1 Auto sales have been doing well, with the passenger vehicles industry recording a growth of 10.52 percent y-o-y in the last month of FY 2016-17.2 Indian farmers have purchased more farm implements as well; in FY 2016-17, tractor manufacturers sold 582,000 units, which translates to a growth of 18 per cent.3 It is expected that these sales will continue to spiral in FY 2017-18. The Indian growth story is moving forward on the ground and the greatest lesson we can learn is to believe in it.

Honesty is the best policy

Demonetization carried out in November 2016 was a grim warning to those that have always sought to play the 'system'. The government has issued a clear warning that honesty pays. Tax evaders and the others who seek to deny the government the opportunity to collect revenue should take a lesson from this and come clean. Demonetisation has already led to an increase in deposits with Banks having estimated to have mopped up funds worth Rs. 5 lakh crore during the demonetisation period, this is indicative of the fact that people are turning to the banking system and the drive to formalise the economy has met with success.4

Go digital

The cash crunch following the demonetization process introduced many people to digital payments. People who had never utilized their plastic cards got to use them for the first time. This new culture of digital payments has now firmly been entrenched in the Indian system and psyche. Going forward, it would pay for people to make the best use of the new technology and adopt digital payments for a cleaner economy.

Invest in India

Just believing in India is not enough; we need to put our money where our mouths are as well. We need to invest in our country's infrastructure if we want to have an India which can sustain itself in the future. The Minister of Road Transport and Highways and Shipping, Mr Nitin Gadkari, has said that investment in infrastructure over the next 3 years would target Rs. 25,00,000 crore.5 The government cannot by itself raise this money to build tunnels, roads, docks, etc.; the private sector and citizens have a role to play as well.

Be patient

With the ushering in of GST, there will be a rationalization of the tax system and it is expected that goods and services will be taxed at a moderate rate rather than the tax-on-tax system we have today. The benefits of this will be felt by the common man in the long-term. Similarly advantages of reforms like the direct benefits transfer scheme, which has already been initiated, will also be realized in the coming year. It is important for the citizenry to show some patience and let the fruits of the government’s labour mature.

The most important lesson that the previous financial year has taught us is the need to change our mind-set. India is changing and Indians will have to change with it.

1 - http://economictimes.indiatimes.com/news/economy/finance/government-exceeds-fy17-tax-collection-target-at-rs-17-10-lakh-crore/articleshow/58004019.cms

2 - http://www.autocarindia.com/auto-news/passenger-vehicle-sales-cross-3mn-units-in-16-17-404592.aspx

3 - http://economictimes.indiatimes.com/industry/auto/news/industry/modis-pro-farmer-policies-likely-to-help-indias-tractor-industry-reach-record-sales/articleshow/58037981.cms

4 - http://www.thehindubusinessline.com/money-and-banking/bank-deposits-slump-by-90000-cr-in-fortnight-ended-january-20/article9520485.ece

5 - https://www.ibef.org/industry/infrastructure-sector-india.aspxcone

 

Srei's founders formulate a new holding structure

Srei Infrastructure and other companies owned by the Kanoria family, have formulated a new holding structure under which all the companies owned by the family would be held in a trust - the Kanoria Foundation.

Succession planning in place

The move to the trust will help smoothen succession. The family's move towards this structure has ensured that it will keep the needs of the business at the forefront even after the present leadership has played out its role. The Kanoria family was advised on the trust by Professor Ram Charan, a business advisor, author and speaker.

Different models studied

The trust was formed after the family assessed different ownership trusts including the ones in place at the Tatas. However, the Kanoria Foundation will do more than just take care of the family and transfer money into existing businesses. The trust will also be conducting some social work and take a holistic approach which aims at conducting both Dharma and Karma. The foundation aims to build a solid foundation for conduct of business on these lines for the coming generation.

Role of the trustees

The trustees of the foundation would play the role of 'investment manager' and look after the initiatives and investments of the group companies. However, the day-to-day working of the companies would be looked after by the operational manager or the Chief Executive Officers. This is in line with the transformational process, which has already set-in at the group. The trust lends itself to a democratic system of decision making as well as backing the entrepreneurial spirit.

The Road Ahead

Srei infrastructure has existed for 27 years, the company has built itself to last. It is necessary for the long-term sustainability of businesses that there be structures in place that will support the company even after one generation relinquishes control. The company’s aim is to provide value proposition to its customers and it will continue to do so. The trust is a step in that direction.

Conclusion

The promoters hold nearly 60 per cent of Srei Infrastructure and 68 per cent of India Power, while they hold nearly 75 per cent of Shristi. Now, the entire promoters’ holding is in the trust; as a result, the trust has all-encompassing interests in financial services, power sector and hospitality sectors.6

 
 

Get Ready for New Income tax rules

The beginning of the new financial year and the passage of the finance bill means that there are some changes to the income tax rules. If you are a bond investor or you are interested in bond investing, these changes will have some impact on you. Let us have a closer look:

Less taxing times

The good news for all investors is that there is a decrease in the tax rate from 10 per cent to 5 per cent for those whose income is between Rs. 2.5 lakh and Rs. 5 lakh annually. What this effectively means is that for tax payers who have an income up to Rs. 5 lakh, the tax liability now ranges between 0 to 50 per cent of what they paid earlier. For those in other slabs, this translates into a benefit to the tune of Rs. 12,500. Additionally, now there is just a one-page simplified form for those who have income of up to Rs. 5 lakh (excluding business income).7

Reinvestment of capital gains

There will be a tax exemption for those investors who want to reinvest capital gains in notified redeemable bonds; this is in addition to investment in NHAI and REC bonds. In addition, rupee denominated masala bonds will also get a tax benefit as there is now an exemption of tax for transfer among non-residents and a low rate of 5 per cent tax will apply for investors till 2020.8

Indexation changes

The base year used for calculating indexation of cost has been changed to April 1, 2001 from April 1, 1981. The change in the base year may benefit property owners and owners of gold and securities that they have held on for a long period of time since any gains up to April 1, 2001 become tax-free.9 The lower tax rate means that bond investors can save more money and have more to invest. Exemption of tax on reinvestment is also good news and so is the change of the base year of indexation calculation.

6 - http://smartinvestor.business-standard.com/market/Compnews-450280-Compnewsdet-Kanorias_move_company_ownership_to_trust.htm#.WOcNVlOGOi4

7 -
http://economictimes.indiatimes.com/wealth/tax/10-most-important-income-tax-changes-which-will-apply-from-april-1/articleshow/57807996.cms

8 - http://www.livemint.com/Politics/vVGQk2I3G11Ya8DUr9XvMM/Budget-2017-Masala-bonds-to-get-more-tax-benefits.html

9 - http://economictimes.indiatimes.com/wealth/tax/budget-2017-shifted-indexation-calculation-base-to-2001-who-gains/articleshow/57034487.cms

 
 

Buddy Jokes

Jokes / Quotes

Q: What is the definition of "accountant"?
A: A person who helps you solve a problem you didn't know you actually had.

A fine is a tax for doing wrong and a tax is a fine for doing well.

Q: How can one successfully freeze their financial assets?
A: By depositing all their money in an Icelandic bank.

"Greed is not a financial issue. It's a heart issue." Andy Stanley

"All lasting business is built on friendship." Alfred A. Montapert

 

Buddy Quiz

True or False

1. Passenger vehicles saw a growth of 10 per cent in the last month of the previous financial year.
a) True
b) False

2. Professor Ram Charan was an advisor in the formation of the Kanoria Foundation.
a) True
b) False

3. If your income is between Rs. 2.5 lakh to Rs. 5 lakh, your tax rate has become zero.
a) True
b) False

4. Calculation of indexation of cost will now be done with the base year April 1, 2011.
a) a. True
b. False

5. Kanoria Foundation trustees will play the role of an 'investment manager'.
a) True
b) False

Answer: 1 - True; 2 - True; 3 - False; 4 - False; 5 - True.