Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: TDS :: ACCOUNTING STANDARD :: VAT Audit :: Central Excise rule to resale the machines to a new company :: VAT RATES :: form 3cd :: list of goods taxed at 4% :: TAX RATES - GOODS TAXABLE @ 4% :: articles on VAT and GST in India :: ACCOUNTING STANDARDS :: cpt :: due date for vat payment :: empanelment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes
 
 
General »
 While filing tax in India, NRIs do not have to report overseas assets
  Clarification regarding applicability of Section 16 (1)(a) of the Companies Act. 2013 with reference to cases under corresponding provisions of Companies Act. 1956 -reg.
 SH. VISHWA NATH GUPTA Vs. PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL, KANPUR AND ANR.
 No tax scrutiny of big transaction if it matches income
 Clarification regarding applicability of Section 16 (1)(a) of the Companies Act. 2013 with reference to cases under corresponding provisions of Companies Act. 1956 -reg.
  Home loan tax reliefs often missed by taxpayers
 Income tax department launches online facility for linking Aadhaar and PAN
 Home loan tax reliefs often missed by taxpayers
 Tax headache in India is a bonanza for global accounting firms
 Activities To Be Treated As Supply Even If Made Without Consideration Under CGST ACT
  Haryana Goods and Services Tax Bill passed

Corporate biggies & few HNIs take bonus-stripping route to cut tax outgo for current fiscal
November, 01st 2012

Corporate treasuries, desperate to make a little more money in a difficult market, are believed to be pushing some of the asset management companies (AMCs) to offer bonus units that can be traded to lower tax. Bonus units in debt plans a favourite of many treasurers help companies set off gains against 'managed' losses arising out of a strategy known as 'bonus stripping'. The trade involves investors buying fund units before the record date, pocketing the bonus units and then selling the original units (bought before the bonus record date) at a lower net asset values (NAV) (which drops post bonus).

An analysis of the asset build-up of several bonus plans suggests that corporates and a few bulge-bracketed rich investors are finding ways to prune tax outlay for the year. At present, offerings by at least two funds are being tracked by treasurers. The asset base of a treasury advantage fund managed by a large-sized fund house has grown from just about .

Rs6,600 crore in June to about.Rs12,500 crore in September. Another fund in play is the income fund managed by a leading fund house the assets of which have grown from just about .Rs300 crore in April to over.Rs600 crore in September. According to industry sources, both the funds are witnessing significant interest from corporate investors as they expect bonus issues in the near-term.

"There is nothing illegitimate about bonus-stripping," said Dhirendra Kumar of fund research firm Value Research. "It is just a very tactical way of reducing tax payouts. Also, it does not impact any specific investor class as such funds are only sold to investors who have such needs," he said.

The modus operandi is simple. Suppose, an investor buys 10,000 fund units at a net asset value of .Rs20 a unit, involving an investment of.Rs2,00,000; the fund announces a bonus issue of 1:1. On the record date, the NAV of the units of the mutual fund scheme is .Rs21 per unit. On receiving the 10,000 bonus units, the total number of units of the mutual fund scheme held by the investor would be 20,000. Consequently, the NAV of the units post the bonus issue will drop from .Rs21 per unit to.Rs10.50 per unit.

A few days later, the investor sells the units it bought at .Rs20 a unit at post-bonus NAV of around .Rs10.50. This transaction is shown as portfolio loss because the investor had originally purchased the fund units at .Rs20 (even though the investor retains the bonus units). This notional or 'managed' loss is used to set off short-term capital gains made else where in the investors' portfolio.

As per Value Research data, UTI Mutual, CanaraBSE 0.16 % Robeco, Deutsche Mutual and Franklin Templeton Asset Management, among a few others, have announced bonus offerings since April. A few other leading fund houses may announce bonus issues in their liquid and money market schemes over the next one month, said a distributor

"If the fund house is offering strategies within the regulatory framework, it is perfectly fine. However, fund houses should protect the in-terest of other investors in the fund," said Ashvin Parekh, partner & national leader ( financial services), Ernst & Young.

Apossible understanding between the asset manager and the corporate treasury starts when the former sounds out the probable bonus issue record dates, prior to which the companies will have to invest in the fund. As per statutes, investors who have remained invested in the fund for three months are entitled to get bonus units. According to distributors, bonus-stripping will gather pace in the coming months as investors start tax planning for the fiscal.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Experience

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions