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April 27, 2012

Invocation/encumbrance of shares

Pledged shares are collateral for a loan; invoking the shares means the lender transfers the shares to itself when the borrower fails to pay back the loan.
Invoking means that the lender has exercised his right on security and the shares have been actually transferred from the demat a/c of borrowers to the demat account of lenders. To that extent the promoters holding has reduced and lender has the liberty to sell the shares at any time and sue the borrower for balance amount.
If the loan is not repaid, the pledgee, after giving notice to the pledgor as per the terms of the agreement, may instruct its DP to invoke the pledge by submitting the "Pledge Form" with a tick on "Invoke Pledge". On execution of this instruction, the securities are transferred into the pledgee's account. This does not require any confirmation from the pledgor.

As per regulation no. 31 of SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011:-
31(1) The promoter of every target company shall disclose details of shares in such target company encumbered by him or by persons acting in concert with him in such form as may be specified.

(2) The promoter of every target company shall disclose details of any invocation of such encumbrance or release of such encumbrance of shares in such form as may be specified.

(3) The disclosures required under sub-regulation (1) and sub-regulation (2) shall be made within seven working days from the creation or invocation or release of encumbrance, as the case may be to,—
(a) every stock exchange where the shares of the target company are listed; and
(b) the target company at its registered office.

April 25, 2012

Interest/ Penalty for delayed deduction/payment of TDS

Interest/ Penalty for delayed deduction/payment of TDS
Period from
Period To
Failure to deduct tax at source
1% pm
Date of Main payment made
Date of Deduction
201 (1A)
Failure to deposit tax at source
1.5% pm
Date of Deduction
Date of Payment
201 (1A)
Failure to deduct in part or full
Equal to tax not deducted

TDS not deducted: 1% + Penalty
TDS not deposited   : 1.5%

Delayed filling of TDS return

Existing section 272A in which a penalty of Rs.100/- per day ( subject to total amount of TDS/TCS for the period) is levied for delayed filing of TDS/TCS returns but this penalty is not mandatory  in nature if the  assesse has reasonable cause for such delay. Further this penalty is also not a prepaid penalty.
But now section 234E has been proposed to be introduced from 1st July, 2012 in which a penalty of Rs. 200 per day (subject to total amount of TDS/TCS for the period) in case of delayed furnishing of TDS/TCS returns. The above section has been introduced to ensure timely filing of TDS /TCS returns for timely processing. It may be noted that this fee is prepaid & mandatory in nature i.e. it is to be paid before filing of delayed TDS/TCS returns.
Another new section 271H has been proposed to be introduced from 1st July, 2012 in which a penalty ranging from Rs. 10000/- to Rs. 100000/- will be imposed for delayed & inaccurate particulars furnished in the TDS/TCS returns like incorrect PAN, amount of TDS deducted, wrong details of TDS deposited etc., hence the tax deductor must be careful now while filing the TDS/TCS returns. But in case of delayed filing of TDS/TCS returns, this provision has given one year time from the due date of filing TDS/TCS returns after depositing the TDS/TCS amount along with interest to avoid this penal provision. There is only one favourable point for the deductor in this section which is that in case he has a reasonable cause for the failure, no penalty under this section can be imposed.

Special Thanks to CA Abhishek Tonsiwal

April 18, 2012

Different Type of Rates

Simple Definition
Rate at
Complex Definition
Reverse Repo Rate
The rate at which Bank can deposit with RBI or the rate at which Banks earn from RBI
Normally 0.5% below Repo Rate
The reverse repo rate is the rate of interest at which the central bank borrows funds from other banks for a short duration. The banks deposit their short term excess funds with the central bank and earn interest on it.
Repo Rate
The rate at which Bank can borrow from RBI.
Changed in accordance with inflation.
This is the rate at which commercial banks borrow money from the central bank for a short period of time by selling their securities or financial assets to the central bank with an agreement to repurchase it at a future date at predetermined price.
Bank Rate
The rate at which Banks can borrow from RBI for without any sale of security.
Normally 0.5% above Repo Rate
The only way the bank rate is different from the repo rate is that the bank rate is the rate at which banks borrow money from the central bank without any sale of securities. It is generally for a longer period of time.
Cash Reserve Ratio
CRR is the minimum percentage of cash deposits that banks must keep with the central bank.

Structural Liquidity Ratio
This is the percentage of deposits that banks must mandatorily hold in the form of government bonds. SLR bonds are liquid assets that can be sold at a short notice to meet any unexpected demand from depositors.

Marginal Standing Facility: The Reserve Bank of India in its monetary policy for 2011-12 introduced the marginal standing facility under which banks could borrow funds from RBI when there is a considerable shortfall of liquidity. This measure has been introduced by RBI to regulate short-term asset liability mismatches more effectively. But there can’t be unlimited borrowing from RBI under MSF window. Permissible borrowing under MSF rate is capped at 1% or 2% of Bank’s demand and time liabilities. MSF rate is generally equal to Bank rate

Liquid Coverage Ratio (LCR):  HQLAs as a percentage of net cash outflows over the next 30 days.
 100% by Jan-19

Liquidity Adjustment Facility: Under this facility, banks borrow from the central bank by pledging government securities.