Govt dangles tax carrot for retail stock investors
November, 06th 2012
India launched the Rajiv Gandhi Equity Savings Scheme in late-September, an initiative that aims to bring millions of first-time investors into stocks by offering a tax incentive to deepen market liquidity and reduce a reliance on gold savings.
Following are details of how the scheme works:
* First-time Indian investors earning less than 1 million rupees a year would be eligible for a 50 percent tax break on stock investments of up to 50,000 rupees.
* Investors will have half of however much they invest deducted from their tax bill.
* Investors can buy stocks directly or through mutual funds or exchange traded funds.
* Eligible investments are restricted to the top-100 stocks traded on the Bombay Stock Exchange and National Stock Exchange, as well as state-owned companies.
* The scheme imposes a 1-year blanket lock-in clause, meaning no changes can be made to the portfolio, and participants need to keep their money invested for at least three years.
* The scheme was proposed in the 2012-13 union budget by then Finance Minister Pranab Mukherjee, and was launched on September 21.
* India wants to tap the potential of the savings conscious urban and semi-urban middle class and turn equities into an attractive alternative to gold and cash.
* The scheme is also intended to reduce markets' dependence on volatile foreign flows.