You are referring to the recent amendment made by the Finance Act, 2007 disallowing completely the entire expenditure in excess of Rs 20,000 if paid for otherwise than by an account-payee draft or cheque as against the earlier farcical disallowance of just 20 per cent. While the amendment definitely removes the farcical element, I am afraid the old escape routes — multiple payments and multiple invoices — are still there that would be used especially in the unorganised sector to hoodwink the Revenue.

A possible solution is to insist on payments through banking channels no matter what the amount is, instead of sticking to the cut-off point of Rs 20,000. But then a businessman does need to make petty cash payments day in and day out. Perhaps, the cut-off point could be brought down to Rs 10,000.

How come the one who sells his house for a mind-boggling sum doesn’t pay tax, while I pay tax on my small salary of Rs 5 lakh?

Preeti Bhandarkar, Navi Mumbai

The numerous exemptions conferred on long-term capital gains have the effect of taxpayers, especially those belonging to the salaried class, seething with rage. If one holds a capital asset for just 36 months (12 months for shares), then it gets the hallowed status of long-term capital asset with attendant benefits accruing to long-term capital gains. The official justification for the kid-glove treatment given to long-term capital gains is they are not every day occurrences and happen once or twice in one’s lifetime and in any case, in case of a residential house, the exemption comes with a rider — reinvest the capital gain in another house within the specified time.

While the leniency to house may be justified — even though further belt-tightening is called for according to me — there is widespread misuse of this regime as far as profits from buying and selling of shares are concerned. All in all, your point is well taken. Only it should appeal to the powers that be.

What is a ‘spread’ in banking parlance?

Shrikant Shekawat, Jodhpur

Simply put, it is the difference between the averaging lending rate and the average borrowing rate. As you know, the main business of a bank is to borrow and lend. Its borrowings consist of savings and time deposits mainly. It lends mainly to commercial establishments. Suppose the average rate offered on deposits is 5 per cent per annum and the average lending rate is 11per cent per annum, the spread is 6 per cent.

The spread is quite attractive in India for banks. The spread is what enables a bank to meet its overheads and produce a decent profit for its owners.

S. MURLIDHARAN

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