Round Tripping "EMPOWER IAS"

In news:

• Supreme Court has rejected the Income Tax department notice against a News Channel alleging round tripping of money.

 

About Round Tripping:

• Round tripping refers to money that leaves the country through various channels and makes its way back into the country often as foreign investment.
• Round-tripping is a method used to show an increase in volume in a thinly traded stock.
• It is also known as round-trip transactions or ‘Lazy Susans’ and is a characteristic of the New Economy companies.
• It is a market-manipulation practice used to misrepresent the number of transactions occurring on any given day.
• Companies used round-tripping to distort the market by establishing false revenue benchmarks, aiming to meet or beat the numbers.
• Round-trip trading artificially inflates volume and revenues, but in reality, it adds no profit.
• It is a form of barter that involves a company selling “an unused asset to another company, while at the same time agreeing to buy back the same or similar assets at about the same price.
• This process is sometimes used as a means of increasing the apparent amount of sales and revenue generated by the seller during a specific financial period.
• Round trip stock trading is one method that companies use to deceptively increase income. It is also a method used to show an increase in volume in a thinly traded stock. Most of the time, round trips occur when the person is a day trader.

 

Reasons:

• There are various reasons that promote round tripping.Mainly, Tax concessions allowed in the foreign country encourages individuals to park money there and then reroute it.

 

How does the money return to India?

• It could be invested in offshore funds that in turn invest in Indian assets. The Global Depository Receipts (GDR) and Participatory Notes (P-Notes) are some of the other routes that have been used in the past.

 

Why round tripping happens?

• There are a number of observed factors that promotes round tripping. Mainly, Tax concessions allowed in the foreign country encourages individuals to park money there and then reroute it.