By IANS,
New Delhi : To boost retail investments in capital markets, the government Friday approved the Rajiv Gandhi Equity Scheme (RGES) under which first time investors with an annual income of Rs.10 lakh will get tax benefits for putting in up to Rs.50,000.
The scheme which was announced in 2012 budget had allowed the tax benefits for investments in stocks. But, Finance Minister P. Chidambaram has now brought in exchange traded funds (ETFs) and mutual funds (MFs) under the scheme.
The investor would get 50 per cent tax deduction on the amount invested.
“We have interpreted the relevant section of the Income Tax Act and think it can include ETFs and MFs,” Chidambaram told reporters while announcing the operational features of the scheme.
He said cutting investments in gold was one of the purpose of the scheme.
“It will act as an alternative financial instrument and encourage more people to invest in this instrument rather than gold, which is a dead instrument.”
The new scheme will not only encourage the flow of savings and improve the depth of domestic capital markets, but also promote an “equity culture” in India, the finance minister said.
People who have opened the Demat Account but have not made any transaction in equity and/or in derivatives till the date of notification of this Scheme and all those account holders other than the first account holders who wish to open a fresh account can avail the scheme, a finance ministry statement said.
The total lock-in period for investments under the scheme would be three years including an initial blanket lock-in period of one year, commencing from the date of last purchase of securities under RGESS.
The revenue department will notify the scheme and Securities and Exchange Board of India (SEBI) will issue the relevant circulars to operationalise the scheme in the next two weeks, the ministry said.
Money under the scheme would be invested in stocks listed under the BSE100 or CNX100, or those of public sector undertakings which are Navratnas, Maharatnas and Miniratnas.
Follow-on Public Offers (FPOs) of the above companies would also be eligible under the scheme. IPOs of PSUs, which are getting listed in the relevant financial year and whose annual turnover is not less than Rs.4,000 crore for each of the immediate past three years, would also be eligible, the finance ministry said.