Transaction tax clouds Infy's Rs 830 cr MF investments

Infosys Technologies feels that recently announced transaction tax could have an impact on its investments in mutual funds. Infosys has invested close to Rs 830 crore in mutual funds.

According to the T V Mohandas Pai, chief financial officer, Infosys Technologies, "While we do not buy or sell government securities, our mutual funds could have an impact if the government decides to go ahead with this tax."

Detailing his views on this matter, Pai said, "My view is that it should not apply to government securities because the margins are very low. It must also not apply to day-trading or those people who take positions in the market place. Both these issues must be excluded. For those who naturally declare their income as short-term or long-term, it is a good deal. A large part of the turnover is from day traders. It is a business income and not a short-term or a long-term capital gain. So, they must not pay this transaction cost."

Pai is confident that the government will see the light at the end of the day.

"The transaction tax is just a substitute for the capital gains tax. When you do business, there is no question of capital gains. Business has to be excluded. Whereas in the bond market, you cannot have this because the margins are so low. The costs will shoot up. The government has already said that they are willing to looking into this. I believe its good news."

On whether Infosys could take a more cautious quarterly check on rupee volatility, Pai said that it could be done by considering two important factors namely, the translation differences and the forward sales or purchases.

"Translation differences depend on the level of assets and this happens at the quarterly year-end. So, you can possibly buy an option to hedge the translation for one year going forward. We have to examine that. We have asked the government to allow us to have non-deliverable positions, with the option to cancel. This means that when we have a translation difference, there isn't any actual delivery.

"You are only booking it for protection to minimise the impact of any movement (of the rupee) on the balance sheet. The RBI is looking into this matter."