Govt Allows Tax Breaks for First-Time Investors in Shares, Mutual Funds

To expand the investor base and encourage individuals to move from gold and real estate investment options, the government allowed first-time investors in top shares, equity mutual funds and exchange-traded funds to avail tax-breaks. The government’s decision on tax-breaks may help middle-class which is now increasingly looking at new investment options.

According to the Finance Minister, the decision will encourage more people to invest in shares and mutual funds rather than gold, which is a dead instrument. But the flip side is that, investors can only benefit for the first-time.

The individuals with no trades so far and have PAN and demat account can avail the benefit provided that, their taxable income is up to Rs 10 lakhs. Moreover, the maximum permitted investment amount is Rs 50,000 a year and a 50% deduction available under Income Tax Act.

There are certain conditions for availing this tax benefit. One, the investment should be made in the top 100 stocks on the Bombay Stock Exchange or National Stock Exchange. Two, you should lock your money for three years. In fact, you would not even be allowed to trade in the first year and you need to maintain investment for the remaining two years.

According to the Co-CEO of Goldman Sachs Asset management, this is an excellent initiative by the government to encourage small investors and beginners to participate in capital markets. In India, penetration of investments in equities is very low. So, this initiative will help overcome the problem.