Brokers’ body proposes new fund to replace RGESS

The brokers’ body of the NSE, ANMI, has submitted a proposal to the Finance Ministry on a new equity mechanism with tax benefits for investment in infrastructure projects. The investment limit of ₹1 lakh in the new scheme should be over and above ₹1 lakh available under Section 80C of the Income Tax Act, it has proposed.

Naming the scheme as ‘National Development Mission’, the brokers’ body has said under the proposed scheme at least ₹50,000 crore can be raised annually wherein all investors, particularly retail ones, contribute towards rapid economic development of the country. It noted that while there has been good response to tax-free bonds of infrastructure companies, the response to equity capital in infrastructure projects has been lukewarm.

“There is an urgent need to mobilise risk capital to fund infrastructure projects. We, therefore, suggest that instead of Rajiv Gandhi Equity Savings Scheme, which has failed to enthuse investors, a new ‘National Development Mission’ be launched,” it said in its proposal.

It argued that there was an existing base of 2.18 crore demat investor accounts. Even if 50 lakh investors opt for the scheme, there is the possibility of raising ₹50,000 crore. It expects 20 per cent growth in annual contributions, rising to over ₹1 lakh crore in 2018-19.

The brokers’ body also suggested that the Government notify the eligible equity investments in infrastructure projects that need to raise equity capital, as well as equity offers under the public sector disinvestment programme. There should not be any lock-in as this will be primary equity issuance and the investor cannot ask the issuer/ government to return the funds invested by him.

Finally, the eligible equity investments should be listed on the stock exchanges to provide an opportunity for the investor to exit.

The brokers feel that the new mechanism will be like capital formation, where there will be no liability on the part of the government to pay interest/ dividend. Incidentally, there are reports that the Finance Ministry is planning to raise the investment limit for tax benefits. So, this could help the government in formulating the policy, they said.

Currently, individuals are given tax benefits mainly under Section 80C of the Income Tax Act, 1961. Here the maximum limit is ₹1 lakh and tax relief can be obtained by putting money in NSS, PPF, LIC, principal repayment on housing loan and equity-linked savings schemes, besides others.

Over and above ₹1 lakh, there is also a provision of getting tax benefits up to ₹25,000 (annually) for three years under the RGESS.

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