In a bid to boost retail investors' participation in the capital markets, the government has introduced a tax exemption scheme for equity markets targeted at new investors in the Union Budget 2012-13. A scheme christened as Rajiv Gandhi Equity Saving Scheme is expected to deepen bourses investors base and reduce volatility.
Under the proposed scheme, a 50% deduction on short-term capital gains tax will be allowed for new investors in the equity market up to an annual investment limit of Rs500,000. Currently, short-term capital gains tax is levied at 15% on all listed securities and units of equity-oriented funds. This means, investors will end up paying Rs 7.5% tax.
Only those taxpayers with an income of up to Rs10 lakh per annum will be eligible for it.
Experts believe the key purpose of the scheme is to bring taxation in line with the proposed Direct Taxes Code.
Under the code, if equity shares or units of equity-oriented funds are held for less than 12 months, deduction of 50% of gains will be allowed and the balance will be taxed at gradual rates of 5%, 10% and 15% depending on the income of the assessee. If the assessee falls within the 10% slab rate, the tax on capital gains is 5% and for taxpayers within the bracket of 20% and 30%, it is 10% and 15% respectively.
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