Government approves Rajiv Gandhi Equity Savings Scheme

MDT/PTI 21 September 2012

Besides investing in shares of blue chip private and public sector companies, investors would also be permitted to invest through mutual funds and listed exchange traded funds under the Rajiv Gandhi Equity Savings Scheme

New Delhi: Moving ahead with steps to revive investor sentiment and curb demand for gold, Finance Minister P Chidambaram on Friday cut withholding tax on overseas borrowings to 5% from 20% and approved the Rajiv Gandhi Equity Savings Scheme (RGESS), reports PTI.

While the RGESS is aimed at encouraging first time retail investors to invest in stock markets through tax concessions, the cut in withholding tax to 5% seeks to lower the cost of foreign borrowings by the Indian companies.

The RGESS, Chidambaram said, will "give tax benefits to new investors who invest up to Rs50,000 and whose annual income is below Rs10 lakh.

"It will act as alternative financial instrument and encourage more people to invest in this instrument rather than gold, which is a dead instrument", he said.

The scheme was announced by the then Finance Minister Pranab Mukherjee in his 2012-13 budget speech.

According to Chidambaram, "the scheme not only encourages the flow of savings and improves the depth of domestic capital markets, but also aims to promote an 'equity culture' in India. This is also expected to widen the retail investor base in the Indian securities markets".

Besides equities of blue chip private and public sector companies, he said, the investors under the scheme would also be permitted to invest through Mutual Funds and listed Exchange Traded Funds (ETFs).

As regards the withholding tax on overseas borrowings, Chidambaram said that appropriate amendments would be made in the Income Tax Act, 1961, under which the interest income of a non-resident investor will be taxed at reduced rate of 5% instead of 20%.

Comments

User

sachchidanand

1 decade ago

THERE IS CONFUSION ABOUT HOW TO DECIDE "NEW INVESTOR". I HAVE A DEMAT ACCOUNT AND I HAVE BEEN TRADING. CAN I USE THIS DEMAT ACCOUNT FOR BEING ELIGIBLE UNDER THIS SCHEME. MORE CLARITY IS REQUIRED

Nilesh KAMERKAR

Replied to sachchidanand comment 1 decade ago

You cannot avail of the RGESS benefit. It is only for those who have never invested in equity so far. Thus merely changing of demat account won't help.

Investing directly in equity must not be done merely for such tax breaks because it may break your capital permanently, if you do not know how to invest in equities

MOHAN

1 decade ago

Rajiv Gandhi Equity saving Scheme?

Government must also come up with Sonia Gandhi's Equity savings Scheme before 2014 elections!!

Nilesh KAMERKAR

1 decade ago

How to make the new (first time) investors invest in RGESS through mutual funds?
1) Will they exercise the option of investing in one of the direct plans and benefit from lower fees too? or
2) Will the retired teachers and retired bank employees acquire these investors into ‘simple and performing’ schemes which may qualify for RGESS? or
3) Will the existing set of mf sellers educate & acquire these ‘new’ set of investors, so that they can eventually take the direct route? or
4) Will these come from tier 2 centers so that the AMCs can claim the benefit of 30 basis points higher TER or
5) None of the above

Only time will tell . . . (also we may not be able to ‘import’ a solution in this case)