rence between the tax on Total Income and the Tax on Book Profit as calculated sh

all be adjusted from the MAT credit available under section 115JAA.
NATURE FORM & TIME LIMIT
Appeal to Commissioner of Income-tax (Appeals)
In Form 35, within 30 or 45 days from the date of receipt of the order to be app
ealed against.
Appeal to Income-tax Appelate Tribunal
In Form 36, within 60 days from the date of receipt of order to be appealed agai
nst.
Filing of Memorandum of Cross Objections
In Form 36A, within 30 days from the date of receipt of the notice.
PAYMENT OF DIVIDEND DISTRIBUTION TAX UNDER SECTION 115-O
Within 14 days from the date of declaration of dividend.
Annual Information returns
Before August 31 after the end of the year
Form 15H and Form 15-I
Within 7 days from the end of the month in which it is received
But, In advanced economies, like USA, people dont invest large portion their inco
me in savings
account or FD. Theyve variety of investment options. So, for those American banks
, their own
Central bank (US Feds) is a signicant money supplier.
Hence US Feds monetary policy shows faster impact on their American Banks, THAN R
ajans
Explained: Monetary Policy, Rep, SLR, CRR, Qualitative Tools http://mrunal.org/2
014/01/banking-monetary-policy-quantitative-qualit...
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monetary policy on Desi banks.
Monetary Policy: limitations
In developing countries, Monetary fails to bring quick results because
People dont have many investment alternatives. Commercial banks have large deposi
ts. Rajan
is not the main or even prominent money supplier for these banks. Whatever Rajan
does, its
eect will be felt only after 6-8 months but by that time, new factors would cause
another rise in
ination and Rajan will have to start from scratch again.
1.
Non-Monetized economy: in rural areas, many transactions are still of barter nat
ure. (E.g.
kiranawalla cum middleman supplies seeds, pesticides, fertilizers- in exchange o
f share in
farmers produce.)
2.
Lack of nancial inclusion. Since most people are not in the banking net. They rel
y on Shros
and moneylenders. Many of them circulate the black money of cops and politicians
, and charge
36% interest rate on loans. Rajan has no control over them.
3.
Monsoon uncertainty, cyclone, ood, draughts and their eect on food production. Foo
d
ination =>newspaper walla, washerman, barber, car mechanic everyone will raise th
eir service
fees to accommodate their raised cost of living. Rajan has no control over them.
4.
Crude oil and gold import + negative eect when rupee weakens. Rajan can try to br
ing

1$=Rs.65 to $1=63 Rs. But he has not enough forex reserves to bring $1=Rs.50.
5.
Fiscal decit, illogical schemes. e.g MNREGA worker digs a temporary road. After rs
t rain, t he
road is wiped out= physical infrastructure added to economy no. Wages raised..yes.
= this
mismatch leads to more ination.
6.
7. Subsidy leakage, Black money, underground economy.
And most importantly, because Rajan uses Multi-indicator approach, he focuses on
WPI (minus
food and fuel). Thats why Urjit Patel recommends him to target CPI. More on that
in next article.
8.
So far, we learned that RBI has two sets of tools/instruments under monetary pol
icy:
Quantitative tool Qualitative tools
1. Reserve ratios
2. OMO
3. Policy rate (Repo Rate)
Well see them in a moment
Qualitative Tools
#1: Margin Requirements/ LTV
Explained: Monetary Policy, Rep, SLR, CRR, Qualitative Tools http://mrunal.org/2
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18 of 29 1/5/2015 6:23 PM
Mallya wants to borrow from SBI. He pledges his companys shares worth Rs.100 cror
es as
collateral.
For such loans, Rajan can prescribe margin, say 65%.
In that case even if Mallya pledges 100 crores worth shares, SBI can give him 10
0-65=only 35
Crore rupees as loan.
Using this tool, Rajan can control money supply. e.g. during ination, he should i
ncrease margin
requirement, so Mallya can borrow less=> less job=>less income=>less demand=>pri
ces
reduced.
If Rajan changes repo rate, it is not compulsory for SBI to change her loan inte
rest rates. (we saw
how Alok Nath keeps giving money to SBI, so they are not entirely dependent on R
ajan.)
But if Rajan changes margin requirements, then SBI and all other banks must obey
it. In other
words, this tool has direct impact on money supply.
#2: Consumer credit regulation
Suppose Nano car sells @1 lakh and Rajan has made rule that downpayment cannot b
e less
than 30%.
It means customer must bring Rs.30,000 from his pocket and bank can only give hi
m maximum
70000 as loan.
How can Rajan ght ination with this tool?
Increase downpayment from 30%=>50% (meaning bank can give less loan. Customer hi
mself
has to arrange lot of money from his own pocket)
Rajan can make rule banks cannot accept EMI less than 5000 on car loan. Observe:
Case #1: 100 EMIs worth 1000 each = 1,00,000. (ignore interest rates)
Case #2: 20 EMIs worth 5000 each=1,00,000. (ignore interest rates)
In case #2: some of the lower-middleclass families may postpone their decision t

o purchase nano
car (Because they cant aord higher EMIs.)
Result= less demand=>prices reduced. (indirectly- because car mechanics get less
work,
number-plate painters get less orders etc. so they reduce fees to attract new cl
ients and retain
existing clients.)
Thus, Rajan can control money supply by changing downpayment and installment (EM
I) rules.
#3: Selective credit control
Explained: Monetary Policy, Rep, SLR, CRR, Qualitative Tools http://mrunal.org/2
014/01/banking-monetary-policy-quantitative-qualit...
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Under this, Rajan can specically instruct bankers not to give loans to traders of
certain
commodities e.g. sugar, gur, edible oil etc.
even if the said trader is ready to mortgage his shares/bonds/factory/machine/ve
hicle anything.
this prevents speculations/ hoarding of commodities using money borrowed from ba
nks.
#4: Moral Suasion
Here Rajan tries to persuade the bankers to do xyz thing. Example
Please reduce giving automobile loans- instead park your money in government sec
urities.
(above the SLR requirements.)
1.
2. Ive reduced my repo rate, now you also reduce your base rate.
Rajan will try to inuence those bankers via- direct meetings, conference, giving
media statements,
giving speeches @public seminars, university convocations etc. (even where banke
rs are not
present.) Hell do so, to build a public opinion, media opinion and inuence those b
ankers by
making them feel guilty.
Rationing of
credit
Found in Planned economies/communist nations.
Here central bank will decide upper limit to loans in each sector (heavy
industries, service, agriculture, small-scale etc.)
So once that quota is over. Additional loans cannot be given to that
borrowers from that sector. This also controls money supply.
Direct
action
Means RBI gives punishment to erring banks. Punishment can involve: penal
interest, refuses to lend them money from LAF etc. and in worst case even
cancels their banking license.
Lets recap
Monetary policy tools: Quantiative vs Qualitative
Quantitative Qualitative
1. Reserve ratios (SLR, CRR)
2. Open Market Operation
3. Policy rate (Repo Rate)
1. Margin requirements / LTV
2. Consumer credit regulation
3. Selective credit control
4. Moral Suasion
5. Rationing of Credit
6. Direct Action
Explained: Monetary Policy, Rep, SLR, CRR, Qualitative Tools http://mrunal.org/2

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Indirect in nature. (Even if Rajan changes repo rate, its
not necessary SBI will immediately change its base rate
/ loan interest rates.)
Direct in nature.