Newspaper Summary 160126

 According to the sources, the article titled "India close to EU trade pact as talks with US drag on" details the current status of New Delhi’s major trade negotiations.

Commerce Secretary Rajesh Agrawal stated on Thursday that India and the European Union are "very close" to finalizing a long-sought trade deal. India expects these talks to conclude this month, potentially wrapping up before European Commission President Ursula von der Leyen and European Council President Antonio Costa visit New Delhi for a summit on January 27. This agreement would be India's largest, opening a market of over 1.4 billion people to European goods and helping New Delhi cut reliance on China and Russia.

Regarding the trade pact with the United States, the status is as follows:

• Negotiations are continuing, but Rajesh Agrawal noted that a deal would only be reached "when both sides were ready".
• The talks are described as "stalled" or "dragging on" compared to the EU progress.
• Secretary Agrawal revealed that previous negotiations with the U.S. collapsed last year following a "breakdown in communication" between the two governments.
• India is currently seeking new markets like the EU specifically to mitigate "US tariff pressures".

While the EU deal is nearing completion, the US-India pact remains stalled amid a broader environment of rising global protectionism.

Nine of India’s top 10 most valued companies witnessed a significant erosion in their combined market capitalization last week. Reliance Industries and Tata Consultancy Services (TCS) were the leading laggards, recording the sharpest declines in their market valuations.

The group of top 10 firms that experienced these valuation slips includes:

• Reliance Industries
• Tata Consultancy Services (TCS)
• HDFC Bank
• ICICI Bank
• Infosys
• State Bank of India (SBI)
• Life Insurance Corporation (LIC)
• Bharti Airtel
• Hindustan Unilever (HUL)
• ITC

This collective loss occurred during a week of broader market weakness, in which the S&P BSE Sensex dropped by 1.86% and the Nifty 50 slid by 1.82%. Other market segments saw even steeper declines, with the Nifty 500 falling 2.25% and the S&P BSE Small Cap index plunging 3.65% over the same weekly period.

Additionally, the share of direct retail participation in the stock exchange's cash turnover has reached a 10-year low, falling to 33.6% in 2025. Analysts attribute this trend to growing risk aversion among individual investors following the underperformance of major equity benchmarks. While some firms like Infosys have recently updated their growth guidance upward to 3.5%, the stock still faced a 13% decline over the course of 2025 amid muted discretionary technology spending.

Marine products were one of the 17 major product groups that registered positive growth in India's merchandise exports during December 2025. According to the sources, the sector's performance highlights include:

• December Growth: Exports of marine products rose to $752.66 million in December 2025, a 2.40% increase from the $735.03 million recorded in December 2024.
• Nine-Month Performance: For the April-December 2025 period, cumulative marine exports reached $5.78 billion ($5,780.20 million), marking a 1.53% growth over the $5.69 billion ($5,693.30 million) achieved in the same period of the previous year.
• Sector Context: Marine exports grew alongside other key categories such as engineering goods, electronic goods, and chemicals.

This sector-specific growth contributed to a broader increase in India’s total merchandise exports, which reached $38.51 billion in December 2025. For the full April–December 2025 period (FY26), total merchandise exports rose to $330.29 billion, up from $322.41 billion a year ago. Despite the rise in exports, India's merchandise trade deficit widened to $25.04 billion in December due to a sharp rise in imports.

According to the sources, a modern tax reckoner involves the transition to the new Income Tax Act, 2025, and the specific rules for filing Updated Returns (ITR-U).

The ITR-U (Updated Return) Framework

Taxpayers who missed the December 31 deadline to revise their FY25 returns can only fix errors through the ITR-U route, which remains open for four years from the end of the relevant assessment year. However, this route has strict eligibility criteria:

• Purpose: It can only be used to declare missed income that results in higher tax payment.
• Restrictions: It cannot be used to claim refunds, deductions, or exemptions, nor can it be used to keep tax liability unchanged or report losses.
• Permitted Corrections: Taxpayers may use ITR-U for under-reporting, reporting income under the wrong head, or rectifying an incorrect tax rate.
• Exclusions: It is legally blocked if the correction only improves accuracy without enhancing revenue, such as adding a mandatory Schedule Foreign Assets (FA) without additional income.

Cost of Compliance for ITR-U

Filing an updated return requires the payment of the additional tax plus interest and a penalty:

• Interest: Levied under Section 234B at 1% simple interest per month from April 1 of the assessment year until the filing month.
• Penalty Tiers: The penalty is 25% of the additional tax and interest if filed within one year. This increases to 50% in the second year, 60% in the third, and 70% if filed in the fourth year.

The Revamped Income Tax Act, 2025

The Income Tax Act, 1961 is slated for repeal, to be replaced by the Income Tax Act, 2025, on April 1.

• Simplified Structure: The new law has been pared down sharply, nearly halving the number of chapters and words to make it more reader-friendly.
• Subordinate Rules: Many operational aspects, including faceless assessment and safeguards against official discretion, are being shifted from the main law into subordinate rules to be issued by the Central Board of Direct Taxes (CBDT).
• Obsolete Thresholds: Experts note that many tax limits remain outdated; for instance, the tax-free meal allowance remains frozen at ₹50 per meal, and the definition of metro cities for HRA purposes still includes only Delhi, Mumbai, Kolkata, and Chennai, as established in 1961.

Current Tax Collection Trends

As of January 11, the Centre has collected ₹18.4 trillion in net direct taxes, reflecting an 8.8% growth. While corporate tax collections rose by 12.4% to ₹8.63 trillion, personal income tax (non-corporate tax) grew at a slower pace of 6.4%. The securities transaction tax (STT) mop-up showed minimal growth of just 0.7%. Despite collection shortfalls compared to budget targets, analysts expect the Centre to meet its 4.4% fiscal gap aim through non-tax revenue and spending cuts.

The sources do not contain a specific, dedicated article titled "Taxation of Real Estate Mutual Funds." However, they provide several pieces of information regarding Real Estate Investment Trusts (REITs) and the taxation of mutual fund distributions and capital gains:

• Godrej Investment and REITs: Godrej Industries Group has recently incorporated a new umbrella entity, Godrej Investment Ltd, to oversee its financial services operations. The incorporation documents for this new subsidiary state that its objectives include buying, selling, and dealing in Infrastucture Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs), which are often utilized as real estate investment vehicles similar to mutual funds.
• Long-Term Capital Gains (LTCG) Tax Poll: The sources include a survey regarding preferences for Long-Term Capital Gains tax, a key component of real estate and mutual fund taxation. The poll asks respondents to choose between a 20% tax rate with indexation benefits or a 12.5% tax rate without indexation benefits.
• Mutual Fund Income Distributions: Several mutual fund houses have issued notices regarding the Income Distribution cum Capital Withdrawal (IDCW) for various schemes, which has specific tax implications for investors:
  • Axis Mutual Fund declared distributions for several plans, including its Midcap, Small Cap, and Focused funds.
  • HDFC Mutual Fund issued a notice for the HDFC Arbitrage Fund regarding its IDCW options.
• Reporting Missed Investment Income: For taxpayers who have missed disclosing income from investments—including real estate or mutual funds—the sources detail the ITR-U (Updated Return) process. This route allows taxpayers to report missed income within four years of the assessment year, provided it results in higher tax payment. It specifically allows for the rectification of incorrect tax rates or income reported under the wrong head.

If you are looking for specific statutory tax rates for real estate funds, that detailed breakdown is not present in the provided legible text of the sources.

The article titled "Tiger case may train lens on treaty claims" discusses a landmark Supreme Court ruling regarding Tiger Global’s liability for capital gains tax following its sale of Flipkart shares.

The Supreme Court Ruling

The Supreme Court overturned a previous Delhi High Court verdict, ruling that Tiger Global is liable to pay capital gains tax on its sale of Flipkart shares from more than seven years ago. A bench consisting of justices J.B. Pardiwala and R. Mahadevan determined that the "real control" of Tiger Global’s Mauritian entities actually lay with its US-based parent company. The court concluded that once a mechanism using offshore entities is found to be a "sham," it ceases to be "permissible avoidance" and is instead classified as "impermissible avoidance" or "evasion".

Transaction Details

• The Deal: In 2018, Tiger Global's Mauritian entities sold shares of Flipkart Singapore (the owner of Flipkart India) to Walmart for approximately $1.6 billion. Another section of the sources records the total sale proceeds received by the three Mauritius entities as $2.08 billion.
• Tax Treaty Dispute: Tiger Global had sought a tax exemption under the India-Mauritius Double Taxation Avoidance Agreement (DTAA). While the tax department initially rejected this, the Delhi High Court had previously ruled in favor of the investor before this final Supreme Court reversal.

Broader Implications for Investors

This judgment is considered a precedent-setting verdict that could fundamentally change how India taxes foreign investors.

• Substance Over Form: The court emphasized that the substance of a transaction matters more than the location where a company is registered. Having a tax residency certificate (TRC) alone is no longer sufficient to claim benefits if the structure was primarily used for tax avoidance.
• Scrutiny of Other Treaties: Experts believe this ruling will embolden tax authorities to apply more rigorous scrutiny to offshore holding structures in other jurisdictions, such as Singapore and the Netherlands, especially where there are concerns regarding a lack of commercial substance or circular ownership.
• Past Transactions: The verdict opens the door for the tax department to re-examine past exits by foreign investors and mergers and acquisitions where treaty benefits were claimed.

Financial and Legal Consequences

• Estimated Liability: Tax experts suggest that once interest and potential penalties are calculated, Tiger Global’s total tax bill could reach a staggering ₹15,000 crore.
• Next Steps: Tiger Global’s immediate legal options include filing a review petition or, in rare cases to prevent a miscarriage of justice, a curative petition before a larger bench of the Supreme Court.

This ruling is viewed as a landmark in the evolution of India’s tax treaty jurisprudence and the application of the General Anti-Avoidance Rule (GAAR).

KKR has closed its second Asia-Pacific performing credit fund, raising a total of $2.5 billion in capital. The fund's corpus is composed of $1.8 billion from KKR’s Asia Credit Opportunities Fund (ACOF II) and $700 million from separately managed accounts focused on similar investments. To date, KKR has deployed more than half of this capital—approximately $1.9 billion—across 10 investments with a total transaction value of $4.6 billion.

This fund provides private credit solutions to companies and sponsors, focusing on three primary themes: senior and unitranched direct lending, capital solutions, and collateral-backed investments. Its target opportunities span several sectors, including healthcare, education, real estate, logistics, and infrastructure. Geographically, the fund targets investments in India, Australia, Greater China, Japan, Korea, New Zealand, and South-East Asia.

The closing of ACOF II comes nearly four years after KKR raised its inaugural Asia-Pacific private credit fund, which closed at $1.1 billion. According to Diane Raposio, partner and head of Asia Credit & Markets at KKR, Asia is a key pillar of the firm’s global credit strategy, and the region is seeing growing investor demand for credit allocations. The fund successfully attracted commitments from a diverse mix of global investors, including insurance companies, sovereign wealth funds, public and corporate pension funds, family offices, banks, and asset managers.

Over the past seven years, KKR has completed more than 60 credit investments in the Asia-Pacific region, deploying a total of approximately $8.3 billion. This expansion aligns with a surge in the Indian private credit market over the last 12 to 18 months, as businesses seek faster and more flexible capital than traditional lenders can provide. KKR joins other global firms and domestic players, such as Blackstone and Motilal Oswal Alternates, in capitalizing on an Indian market estimated to have roughly $10 billion in deal size in 2024.

The article "Inside the mad dash to save Saks, America’s last luxury retailer" by Suzanne Kapner and Chavie Lieber chronicles the dramatic bankruptcy filing of Saks Global, the parent company of Saks Fifth Avenue, Neiman Marcus, and Bergdorf Goodman.

The Bankruptcy Filing and Massive Debts

Saks Global filed for bankruptcy protection in a Houston court after weeks of veering toward collapse. The filing revealed an extensive list of unsecured trade creditors including:

• Chanel: Owed $136 million.
• Kering (Gucci, YSL, Balenciaga): Owed nearly $60 million.
• Hilldun (financing firm): Owed $66.5 million.
• Richemont (Cartier parent): Owed $30 million.
• LVMH and Ermenegildo Zegna: Each owed approximately $26 million.
• Burberry: Owed $9.5 million.

The Scramble to Stay Afloat

Executive Chairman Richard Baker, the architect of the $2.7 billion deal that merged the luxury giants just over a year ago, spent weeks attempting to secure emergency capital. He appealed to equity investors such as Amazon and Rhône Group, and sought to loosen borrowing restrictions with Bank of America, but was rejected by all. In a final effort to raise cash, Baker sold the land beneath Neiman Marcus stores in Beverly Hills and San Francisco for a combined $100 million to cover interest payments, but it was insufficient to convince vendors to continue shipping merchandise.

The "Death Spiral" and Operational Failures

The company was caught in a "death spiral":

• Supply Cut-offs: Unpaid suppliers withheld shipments of spring clothing and accessories.
• Inventory Shortfalls: Due to unpaid debts and system-integration glitches, Saks Global had $550 million less inventory to sell than forecast during the critical second half of 2025.
• Financial Loss: For the quarter ending August 2, sales dropped 13% to $1.6 billion, and the net loss widened to $288 million.
• Digital Strain: A 2021 decision to split Saks' stores and digital businesses "sucked up" capital and created duplicative costs; the businesses were only recently recombined around the time of the Neiman merger.

Management Overhaul

Bondholders have now taken control of the company and pushed out Richard Baker. A new leadership team has been installed, headed by Geoffroy van Raemdonck, the former CEO of Neiman Marcus who previously steered that brand through its own bankruptcy.

Impact on the Luxury Market

The bankruptcy throws the future of America's last luxury department stores into question as rivals like Nordstrom and Bloomingdale’s successfully move further upmarket. While Saks Global has secured $1.75 billion to help it restructure, many brands remain hesitant to resume shipments, and stylists have noted that flagship locations are noticeably light on high-demand items like coats and party dresses. Despite the failure, Baker maintains that the merger was the "only road forward" to counter the growing direct-to-consumer power of major luxury brands.

The article titled "Powell probe: Is this the Federal Reserve’s Versailles moment?" by Krishnan Ranganathan details a new scandal in Washington involving a criminal investigation by the U.S. Department of Justice into actions taken by Federal Reserve chair Jerome Powell. The investigation centers on a $2.5 billion renovation of the Fed’s Marriner S. Eccles headquarters and the adjacent 1951 Constitution Avenue building. The director of the Office of Management and Budget likened the project to Versailles, denouncing cost overruns of roughly $700 million as "outrageous."

According to the sources, the project's bill comes to approximately $2,000 per square foot, which is high even by federal standards compared to projects like the Smithsonian’s National Museum of the American Indian. Specific examples of budgetary excess include a subterranean staff car park and a tunnel linking the two buildings; critics point out that the underground parking alone is estimated to cost nearly 10 times more than the $30 million it would cost to lease 500 spaces nearby.

The sources place these overruns within the context of the "Iron Law of Megaprojects," noting that over 90% of massive projects globally exceed their cost and time targets. Examples of similar overruns include:

• The European Central Bank’s headquarters, which was three years late and €350 million over budget.
• Nasa’s James Webb Space Telescope, which ran seven years late and finished 450% over budget.
• The Sydney Opera House, which cost 1,400% more than planned.

Ranganathan argues that while the Fed’s spending appears extravagant, the political escalation of the probe is more troubling than the invoices. The article warns that mobilizing federal prosecutors against a finance chief over a procurement dispute threatens the Federal Reserve's independence. Ultimately, the sources suggest that such a threat to institutional norms serves the interests of those looking to undermine the U.S. dollar’s status as the world’s reserve currency.