March 18, 2012

What is Rajiv Gandhi Equity Savings Scheme

In Union Budget 2012-13, the Finance Minister announced something called Rajiv Gandhi Equity Savings Scheme. Find out from experts what the scheme is all about:

The broking industry has given thumbs up to the Finance Minister's announcement of introducing the new Rajiv Gandhi Equity Savings Scheme in this year's Union Budget. Analysts expect the broking industry to get a boost, both in terms of clients and revenues from the scheme.

“The scheme would allow for income tax deduction of 50 per cent to new retail investors, who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh. The scheme will have a lock-in period of 3 years,” said Mr Pranab Mukherjee, Finance Minister, Government of India. This 50 per cent deduction would be on the short-term capital gains tax.

Brokers feel that the implementation of the scheme would help reduce market volatility and ensure more capital flow into the Indian equity markets. Mr K. Sandeep Nayak, CEO, Centrum Broking, said, “There will definitely be a spurt in demat and broking accounts as new investors are drawn to the capital markets. There could be a five per cent chance that investors can be misled into putting money into wrong stocks.”

“An individual investing Rs 50,000 prudently in the equity markets will get the benefit of Rs 25,000 deduction. At the lowest income tax slab of 10 per cent this translates into tax savings of Rs 2,500. So, he has actual investment is Rs 47,500. Besides, possible appreciation at the end of the three-year lock-in period, another benefit for the investor is that he need not pay long-term capital gains tax,” said Mr Shravan Sharma, Chartered Accountant.

Through this scheme, brokers feel that it is a good phase for them as an increase in investors would also translate into an increase in revenues. They also feel that the Government is trying to build an investment cult. “With the expected increase in investors, we hope to increase revenues as well. As January to March is the season when people put maximum money into insurance schemes and policies (to evade tax), we hope that the next season will also bring brokers maximum money,” said Mr Satish Menon, Executive Director, Geojit BNP Paribas Financial Services.