India’s Finance Minister Shri. P. Chidambaram has approved a new tax relief scheme targeted at first time retail investors in the securities market. The Rajiv Gandhi Equity Saving Scheme (RGESS) will provide tax benefits to those investing up to INR50,000 (USD940) and whose annual income is less than INR1m. The investor will receive a 50% deduction of the amount invested from their taxable income for the year. To benefit small investors, these investments will be permitted to be made in installments during the year in which the tax claims are made.
The total lock-in period for investments under the RGESS will be three years, including an initial blanket lock-in period of one year, commencing from the date of the last purchase of securities. After the first year, investors will be allowed to trade in securities. Investors will however be required to maintain their level of investment during the following two years at the amount for which they have claimed income tax relief, or at the value of the portfolio before initiating a sale transaction, whichever is less, for at least 270 days in a year.
Where an investor fails to meet the conditions stipulated, the tax relief will be withdrawn. The Finance Ministry hopes that this initiative will substantially encourage retail participation in the securities market, and provide encouragement and re-assurance to first time investors. The scheme is also designed to further the government’s goal of financial stability and promote financial inclusion.
