Infrastructure bonds: There’s a sting in the tax tale

The infrastructure bonds announced in this year’s budget are suddenly in the news. A number of issuers and their distributors are actively selling infra bonds nowadays, and there’s a great deal of advertising and coverage in the financial media about them. Unfortunately, despite the hype, these bonds are not actually a big deal for investors.

Yes, you can save tax ranging from Rs 2,060 to Rs 6,180, depending on your tax bracket, but that comes with a number of negatives, including some decidedly dodgy assumptions in the various sales pitches that you will come across.

I suspect that being attuned to the EEE (exempt-exempt-exempt) style of tax-saving investments, investors are not paying attention to the fact that the income earned from these bonds will be added to your taxable income in the year in which you realise it. In my opinion, all the advertising you see, which calculates the effective tax-adjusted yield of these bonds, is misleading to the point of being borderline fraudulent.

Why? Because the calculation cleverly assumes that you are in the 30%-tax bracket while investing in these bonds but quietly moves you the 0% tax bracket while receiving the interest on the bonds can hardly be described as a shining example of honest selling. No advertisement or sales brochure even mentions the taxability of the income.

Anyone who is familiar with these products, knows that the taxability of the income is being deliberately hidden from the investing public. Yet, this is exactly what every single issuer of these bonds and their sales agents are doing. No regulator or authority seems bothered by this.

Secondly, these bonds come with a long tenure of 10 years and a lock-in of five years. If there’s no convenient secondary market, then you will effectively have a lock-in of 10 years. Although some issuers will provide a guaranteed buyback, lock-ins of five years or above are the minimum.

Thirdly, unlike most fixed-income tax-saving investments, these bonds don’t carry any implicit or explicit government backing. Combined with the long tenure of these bonds, it will mean that the continued creditworthiness of the bond issuers is something that investors will have to keep an eye on.

As I’ve written earlier, a tax-saving investment has to be an investment first and a tax-saver later, in the sense that if you wouldn’t invest in that asset otherwise (taking the tax-saving into account), then you shouldn’t do so just because it’s saving some tax. Moreover, the upper limit of Rs 20,000 means that many taxpayers in the upper tax bracket will find that the quantum of additional tax savings to be marginal. All in the all, the detailed picture on these bonds is a lot less clear than the hype suggests.
Source - ET -Dhirendra Kumar of Value Research

Tatas buy UK's largest manufacturer of salt

The Tata group has bought yet another major company in the UK, the country’s largest manufacturer of salt, consolidating its position as UK’s biggest manufacturing employer. In a deal valued at £93 million (about Rs 650 crore), Tata Chemicals’ European subsidiary Brunner Mond acquired Cheshire Salt Holdings , the parent company of British Salt, from its current owners LDC, the private equity arm of British banking group Lloyds.

“The acquisition will be entirely debt financed on a non-recourse basis to Tata Chemical,” said Mr Mukundan, MD of Tata Chemicals, and has been underwritten by Standard Chartered Bank . The buy will give Brunner Mond access to assured supplies of a key raw material, salt deposits, which it lost at the time of its divestment from ICI. Its salt deposits are currently owned by Ineos. “This will help Brunner Mond maintain its low-cost manufacturing position in Europe and provides a great opportunity to optimise the costs further,” said Mr Mukundan.

Brunner Mond corporate affairs director Neal Chamberlain said the company has no plans at present to change its arrangement with current suppliers for now. British Salt has enough reserves to provide Brunner Mond for 50 years. British Salt generates an annual revenue of around £35 million at an EBIDTA of over 45%, according to Tata Chemicals CEO PK Ghose. “We expect Brunner Mond to become a debt-free company in the next five years,” he added. Post acquisition, the company will have a debt of around £150 million on its account. The move gives Brunner Mond and the Tata group an entry point to the food processing and gas storage business sectors where British Salt has considerable expertise. British Salt produces about half the UK’s pure salt for a range of applications from food processing to industrial applications, including de-icing salt, currently in huge demand in snow-bound Europe.

British salt was acquired from its earlier American owner in a LDC backed management buyout three years ago. Lloyds has exited seven firms this year worth around £800 million, and was understood to be looking out for a suitable offer, and Brunner Mond has been eyeing British Salt for some time, given the complementary business, as well as physical proximity of both companies. The company has manufacturing plants in Northwich, Cheshire, where it has its headquarters. Martin Ashcroft, managing director of Brunner Mond, said: “There will be benefits for both companies with new opportunities in non-cyclical markets in sectors such as food and water treatment. Brunner Mond is one of Europe’s largest makers of soda ash and sodium bicarbonate, and UK’s only manufacturer, and part of the massive Tata group’s presence in the UK.”

Salt is used in water purification, food processing, chemicals, and other industrial purposes, and is a key raw material for soda ash manufacturers. Bill Thompson, chief executive officer of British Salt in a statement said that the strategic alignment and ‘significant combined expertise’ will be a major opportunity. The company, based in Middlewich, employs about 125 people, and on Monday was communicating the details of its new avatar to employees. British Salt joins the massive Tata presence in the UK, which now includes JLR, Tata Steel Europe (erstwhile Corus), TCS, Tetley, and others.

Tata Chemicals, with an annual sales of over Rs 9,500 crore, churns out a major part of revenue from common salt, soda ash and fertiliser business while contribution from pure white salt is about 7%. The combined Brunner Mond/Tata Chemicals Group is the second largest producer of soda ash in the world.

Source - ET

Get a New Passport for Schengen Visa

Do you have an Indian passport issued before 2001 with a 20 year validity. Then you are not eligible to get a Schengen Visa. European Union doesn't recognize barcode of older Indian Passports. Consulates and embassies which issue Schengens stopped stamping passports which were issued before 2001. This rule came into effect in May. So if you need to travel to any Schengen country apply for a new passport

Source - TOI