A little over a month back, in December 2012 the Securities Exchange and Board of India (SEBI) pronounced norms (vide ac circular) for investing in the Rajiv Gandhi Equity Scheme (RGESS). It clarified which securities would be eligible for availing tax benefit under the aforesaid scheme. It is noteworthy that the key features of the RGESS scheme are:
 

• It is available for only first time investors (who do not have a demat account, or have one but not made any transactions in equities till the date of notification of this scheme i.e. November 23, 2012)
• It is available for to those whose gross annual income is less than or equal to Rs 10 lakh
• Permits maximum investment upto Rs 50,000
• Provides a tax deduction under section 80CCG of the Income Tax Act, 1961 to the tune of 50% of the amount invested from the taxable income of that year
   

But now ahead of the Union Budget 2013 it seems that market entities aren’t happy and thus are trying to persuade the Finance Ministry to make some changes in the said scheme, with an aim to increase participation in RGESS. They are seeking greater tax benefit by increasing the investment limit and removing the one-time investment clause (thereby permitting investment in the scheme every year), as they think this would enable RGESS to draw more investors into the Indian equity markets.

However, a few in the Finance Ministry are of the view that allowing higher investment into the scheme could fuel unnecessary speculation and bubble like situation (due to large amount of money from the scheme chasing few stocks). In order to increase the scope of the scheme to facilitate greater participation by individuals in the Indian equity markets, what the Finance Ministry is considering ahead of Union Budget 2013 presentation is that, instead of allowing only first time investors (i.e. those who do not have a demat account, or have one but not made any transactions in equities till the date of notification of the scheme), making RGESS available to small investors who have very few investments reflecting in their demat account.

We are of the view that, while recommendations from market players may help in better participation of investors in Indian equities (vide RGESS); indeed bubble like situation and speculation cannot be ruled out. Even if small investors who have very few investments reflecting in their demat account are allowed as considered by the Finance Ministry (thereby broadening the scope of the scheme beyond only first time investors); the definition of a ‘small investors’ remains under question until guideline thereto are issued.

Overall there seems to be dissatisfaction amongst market players and yet indecisiveness on the part of the Government on how RGESS should be structured.

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ufkh1s3ko@mail.com Jan 07, 2015 Big help, big help. And sulivpatere news of course.

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