Despite the flood of cheap money in overseas markets, the past few months have been rather difficult for cash strapped companies in India. Ones with high levels of debt on their balance sheet have been literally scouting for funds at every nook and corner. The high demand for working capital and short term loans has meant that banks have raised their credit deposit ratio. Typically, out of every Rs 100 of deposits, the bank can lend Rs 73. This is after keeping aside Rs 23 and Rs 4 respectively for SLR (statutory liquidity ratio) and CRR (cash reserve ratio).

However, as per Economic Times, the outstanding credit deposit ratio is currently 78%. Moreover the incremental credit deposit ratio is 83%. This means a substantial part of the lending is from high cost borrowing rather than cheaper CASA (current and savings accounts). Effectively banks themselves will have to frequently re-price their short term lending at higher rates to keep their margins (NIMs) stable. Without that banks will have to compromise on their own profitability and asset quality. All said, the cost of funding for cash strapped companies is set to go higher. And investors would do well to give such companies a miss. 

Treasury takes final actions to avoid hitting debt ceiling.

The government has started to implement the final extraordinary measures that will enable the U.S. to avoid breaching the country's $16.7T borrowing cap. The government has until October 17 before those measures are exhausted, at which point it will have just $30B left, well below net expenditures on certain days. As indicated above, the prospects of Congress agreeing on a deal to raise the ceiling aren't looking particularly good at the moment.

Shutdown hits equities as deadlock in Washington continues.

European shares and U.S. stock futures were mostly lower at the time of writing as investors started to get more than a tad concerned that the government shutdown in America might drag on for longer than expected, especially with the first day of the closure ending with no agreement over the federal budget in sight. What the impasse means for raising the debt ceiling is also a worry. Gold was higher, oil lower and 10-year Treasury yields almost unchanged.

Eurozone unemployment remains high at 12%

The eurozone jobless rate held steady at 12% in August and came in slightly below consensus of 12.1%. The lowest rate was in Austria (4.9%) and the highest in Spain (26.2%).

Chinese official PMI misses estimates.

China's official PMI, which focuses on larger state-owned enterprises, edged up to 51.1 in September from 51 in August but missed consensus of 51.5. The tepid growth in the print follows disappointing HSBC PMI data, which concentrates on smaller privately owned firms, and adds to concerns that China's economic recovery might not be all that. Chinese markets are closed for a week's holiday, so any reaction will be fairly delayed.

Japan confirms hike in sales tax to 8%, stimulus package

As widely expected, Japan will go through with a plan to raise sales tax in April to 8% from 5%, a move that is set to raise ¥8T. To offset the economic impact of the hike, Prime Minister Shinzo Abe has unveiled a ¥5T ($51B) stimulus package that will include spending on public works and tax breaks to encourage companies to boost capital expenditures and wages. Still, the VAT rise is Japan's first serious attempt in 15 years to rein in its massive public debt.

S. 40(a)(ia) TDS: Amendment by Finance Act 2010 permitting TDS payment till due date of ROI is retrospective. Bharati Shipyard 132 ITD 53 (Mum)(SB) disapproved

CIT vs. Rajinder Kumar/ Naresh Kumar (Delhi High Court) 

In 2007-2008 the assessee made professional payments for which TDS had not been paid by 31.3.2007 though it was paid before the due date for filing the return of income. The AO& CIT(A) disallowed the expenditure u/s 40(a)(ia) though the Tribunal deleted it by relying on Virgin Creations (Cal) which held that the proviso to s. 40(a)(ia) amended by the Finance Act 2010 has retrospective effect. On appeal by the department to the High Court HELD dismissing the appeal:

The intention behind s. 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of s. 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/ paid and the respondent who is following cash system of accountancy has made actual payment to the third party for services rendered. Also, s. 40(a)(ia), prior to the insertion of the proviso by the Finance Act 2010, was not free from interpretative difficulties and problems. The amended provisions are clear and free from any ambiguity and doubt and will help curtail litigation. The amended provision clearly support the view that the expression “said due date” used in clause A of proviso to the un-amended section refers to the time specified in s. 139(1) of the Act. The amended s. 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. Consequently, the proviso to s. 40(a)(ia) must be treated as retrospective in operation (Virgin Creations referred/ followed; Bharati Shipyard 132 ITD 53 (Mum)(SB) disapproved)