Budget 2017: Jaitley may give more tax breaks for first-time buyers of shares

Gaurav Choudhury

Moneycontrol
Finance minister Arun Jaitley may make it more rewarding for individuals to park surplus funds in equities in a bid to encourage greater household savings into India’s stock markets.

The government was considering either the launch of a new scheme offering tax breaks to first-time direct equity investors or suitably modifying the existing Rajiv Gandhi Equity Savings Scheme (RGESS) for attracting investment, sources told Moneycontrol.

The new or the relaunched scheme could come bundled with the new tax savings proposals under Section 80 (C) plan that will be likely be announced in the budget for 2017-18.

The government may raise tax breaks offered on money parked in a pool of savings instruments including bank fixed deposits, insurance premium and mutual funds from Rs 150,000 to above Rs 200,000 a year under the popular “Section 80C” scheme.

Until now, households enjoyed tax breaks on equity-linked savings schemes (ELSS) of mutual funds within the overall Rs 1.5 lakh limit under Section 80C of the Income Tax (I-T) Act and under 80CCD for National Pension System contributions up to Rs 50,000 a year.

Besides, first-time direct equity investors enjoy additional tax incentives through the Rajiv Gandhi Equity Savings Scheme (RGESS).

The RGESS, which was launched in 2012-13 to promote an “equity culture,” has found few takers because the structure was found to be complicated compared to other schemes.

Only new or first time retail investors with an annual gross income of less than Rs.12 lakhs are eligible to invest in the scheme. The maximum amount eligible for claiming benefit under the scheme is Rs. 50,000.

Tax deduction under Section 80CCG of the Income-Tax Act, 1961, is available on 50 percent of the amount invested. The benefit is in addition to deduction available Section 80C. The scheme also comes in with lock-in period of three years, with a fixed lock-in during the first year followed by a flexible lock-in for subsequent two years.

Sources indicated that a proposal was being examined of extending the tax benefits, which are currently available under RGESS, to all equity fund investors, not just first-time investors.

There is also a likelihood that the scheme is extended to infrastructure bonds offering tax benefits similar to Section 80CCF that gives additional limit of Rs 50,000 over and above section 80C.

“This may come in with lock-in period of three years and tax deduction for those who invest in public issues. This may boost retail participation in public issues and boost capital markets,” a source said.