The Government today sought to make trading in capital markets less costlier and simpler, with the first-ever tax benefit for direct investments in stocks and lowering of securities transaction tax, along with various other measures to boost equity, commodity and bond markets.

Announcing the budget proposals for 2012-13, the Finance Minister Mr Pranab Mukherjee also said that the process for Initial Public Offer of shares would be made simpler and the costs would be lowered in this regard.

Besides, he proposed to allow Qualified Foreign Investors in the corporate bond market and establish a mechanism for voting by shareholders electronically on important decisions by the companies.

Accepting a long-pending demand of the stock market for lowering the transaction costs in the capital markets, the Budget has proposed a reduction in Securities Transaction Tax (STT) by 20 per cent, from 0.125 per cent to 0.1 per cent, on cash delivery transactions.

Rajiv Gandhi Equity Savings Scheme

To further encourage flow of savings in financial markets, it also introduced 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, with annual income of below Rs 10 lakh, putting in up to Rs 50,000 directly in equities. The scheme will have a lock-in period of 3 years.

The steps were readily welcomed by the various capital market players, although some said that the tax benefits under the new scheme could be against the mutual fund and insurance sectors. So far, tax benefits have been available to investors putting in their money into markets through certain mutual funds and unit linked insurance schemes.

Mr Mukherjee also said that the process of issuing IPOs would be simplified and the costs would be lowered to help companies reach more retail investors in small towns.

He also allowed two-way fungibility in Indian Depository Receipts with the objective of encouraging greater foreign participation in Indian capital market. This would enable more foreign firms to list and issue shares in India, as against just one such entity, Standard Chartered Bank, as of now.

Lauding the budget proposals for capital markets, the country’s newest stock exchange MCX-SX’s MD and CEO Mr Joseph Massey said that Rajiv Gandhi Equity Saving Scheme, a lowered STT and introduction of electronic platform for the IPO subscription process would develop Indian capital markets and enhance retail participation.

ICICI Securities’ MD & CEO Mr Anup Bagchi said that initiatives like Rajiv Gandhi equity savings scheme, lowering of STT and higher tax-free infra bonds would lead to increased participation from retail investors.

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