Budget 2012: Govt. Announces Rajiv Gandhi Equity Savings Scheme

In order to increase retail participation in capital markets, Finance Minister recently introduced a tax exemption scheme for new investors in budget 2012-13. The Rajiv Gandhi Equity savings Scheme will allow 50% tax deduction for those who invest Rs.50,000 in equity schemes (stocks) and whose annual income is below Rs.10 lakh. This is the first-ever tax benefit for direct investments in equity.

The scheme will have a lock-in period of three years and another benefit for the investor is that they need not pay long-term capital gains tax. This 50% deduction would be only on the short-term capital gains tax. It is also informed that people who have already invested in stock markets cannot avail this tax benefit.

Analysts expect the stock broking industry to get a boost, both in terms of clients and high revenues from the scheme. These companies are expecting that there will definitely be increase in demat and broking accounts as new investors are drawn to the capital markets.

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%, this translates into tax savings of Rs.2,500. So, the actual investment of investor is Rs.47,500. Thus, this scheme will encourage people to save in stock markets.

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