Draft has no mention of investment through mutual funds

The tax-saver Rajiv Gandhi Equity Scheme intends to allow investments in Maharatna, Navaratna and Miniratna shares, besides in top 100 shares on the BSE and the NSE. These are part of the draft guidelines approved by the Department of Economic Affairs.

However, the draft guidelines do not mention investments through mutual funds. This is despite the demand from the mutual fund industry, supported by the Securities and Exchange Board of India.

According to an official source, “This draft is now going to SEBI and then the Department of Revenue will notify. Since the scheme involves tax matters, a final notification has to come from the Department of Revenue.” The scheme was announced in this year’s Budget and is expected to be notified soon.

Approved amendments

According to the amendments approved by Parliament in the Finance Bill, the scheme will allow deduction of 50 per cent of the amount invested in equity shares to the extent that the deduction does not exceed Rs 25,000.

This means one can invest a maximum of Rs 50,000 to get the benefits. The condition is that the benefits will accrue only to first-time investors and will be given once.

On why not investment through mutual funds, the source said since the approved amendments in the Finance Bill talked about investments in listed equity shares, no diversion was possible without further amendments. The amendments have inserted a new Section 80CCG in the Income Tax Act.

The approved amendments also talk about a three-year lock-in period for investments under the scheme.

However, the draft guidelines propose churning of investments after the first year, but any point of time during the three-year period.

But, the minimum investment should be maintained at Rs 50,000.

Security & Liquidity

The source also added that investment in listed top scrips, besides Maharatna, Navaratna and Miniratna, will give not just give security but also liquidity at the time of churning.

At present, there are five Maharatna (Coal India, IOC, ONGC, SAIL and NTPC), 16 Navratnas (BHEL, HPCL, NMDC, Power Finance and Shipping Corporation, besides others) and 68 Miniratnas (MOIL, Engineer India, MRPL and MMTC, besides others).

The then Finance Minister, Mr Pranab Mukheerjee, while announcing the Budget for 2012-13, had said, “To encourage flow of savings in financial instruments and improve the depth of domestic capital market, it is proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme.

“The scheme would allow for income tax deduction of 50 per cent to new retail investors, who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh”.

shishir.s@thehindu.co.in

(This article was published on July 19, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.