New Delhi, Feb. 4: The government may make the Rajiv Gandhi Equity Savings Scheme (RGESS) more attractive to investors in the budget, a possibility that has sent mutual funds scurrying to set up products under this scheme.
The equity scheme is set to be launched later this week by finance minister P. Chidambaram.
The Union budget later this month may increase the investment limit under this scheme to Rs 75,000 from Rs 50,000 annually and allow 100 per cent tax deductions instead of 50 per cent.
Besides, the government is keen to relax the rule that allows only first-time investors to include any small investor who can be classified as an infrequent stock market investor.
Under the current rules, RGESS will attract only one-time investors, while shutting out a large number of people who are not first-timers but don’t invest in the markets regularly either because of lack of knowledge or for some other reasons.
Finance ministry sources said the broad contours of the improved scheme had been drawn up, but details were still being finalised.
However, this has not stopped a large number of mutual funds from applying to sell the scheme.
Some half a dozen mutual fund players such as HDFC Mutual, DSP BlackRock, UTI Asset Management, LIC Nomura, IDBI Mutual and SBI Mutual have approached the Securities and Exchange Board of India seeking to enter the market with RGESS products.
Former finance minister Pranab Mukherjee had announced the equity scheme last year as part of his budget proposals.
The scheme allows first time retail stock investors with an annual income of up to Rs 10 lakh to invest a maximum of Rs 50,000 in stocks and deduct half the amount from their taxable income.
Going by the current income-tax rate, this translates into a saving of a little more than Rs 7,500 for taxpayers who invest Rs 50,000.
However, in case the tax rebate is doubled and the amount permitted is increased to Rs 75,000, the tax rebate from this scheme could go up to Rs 22,500, say analysts.
Investments made by retail investors in BSE 100 and CNX 100 stocks, besides initial and follow up offerings by blue-chip public sector undertakings with an annual turnover of over Rs 4,000 crore for at least three consecutive years are eligible under the scheme.
Similar to other tax-saving schemes, investments through RGESS will have a three-year lock-in but investors will be allowed to trade in the securities after the first year, under certain conditions.