In order to increase retail participation in the capital market, Finance Minister Pranab Mukherjee today proposed a tax exemption scheme for new investors.
The Rajiv Gandhi Equity Savings Scheme will allow 50% tax deduction for those whose annual income is below Rs 10 lakh and who invest up to Rs 50,000 in stocks.
The scheme will have a lock-in period of three years, Mukherjee said while announcing the budget proposals for 2012-13.
The move is first-ever tax benefit for direct investments in stocks.
However, Secretary Department of Economic Affairs R Gopalan later informed that this scheme for new investors can be availed only once, meaning people who have already invested in equity market cannot avail this tax benefit.
"This is once in a lifetime (offer)," he said, adding this scheme is over and above the deduction provided on investments up to Rs 1 lakh in capital market.
Gopalan said the aim is to channelise savings into the stock markets, which "our economy needs".
According to market analysts, the move will further encourage flow of savings into financial markets.
In addition, government sought to make trading in capital markets less costlier and simpler, with the lowering of securities transaction tax, along with various other measures to boost equity, commodity and bond market.
ICICI Securities' MD & CEO Anup Bagchi said the initiative like Rajiv Gandhi equity savings scheme would lead to increased participation from retail investors.
Homi Mistry, Partner, Deloitte Haskins and Sells, said tax benefits under Rajiv Gandhi Equity Saving Scheme is a step in the right direction for the benefit of capital markets.
Sunil Goyal, MD, Ladderup Corporate Advisory Pvt Ltd, said tax incentives for subscription to capital issues by retail investors will attract funds in capital market from a larger number of the investors.