Not enough tax incentives for middle-class investor to go for RGESS
Under the RGESS, an individual with an annual income of less than R10 lakh can invest up to R50,000 in blue-chip stocks (BSE-100 & CNX 100) and PSU shares (maharatna, navaratna and miniratna categorised PSUs), either directly or through mutual funds, and can claim deduction of 50% of this investment. This tax benefit, as per Section 80CCG of Income Tax Act, is over and above the R1 lakh deduction available under Section 80C.
As a part of the steps undertaken to unfurl the scheme, the Securities Exchange Board of India (Sebi) also released a circular in December 2012, clarifying on some of the hiccups noted by the markets and investors. Further, various asset management companies have lined up numerous mutual funds eligible for the newly created RGESS.
On paper, given the tax benefits and the plethora of mutual funds being made available to the potential RGESS investors, this looks to be a model “carrot approach” to entice investors to invest their savings in the capital market. However, considering that the scheme is aimed at enticing the middle-class retail investors who have been refraining from taking a bite out of the forbidden fruit, i.e., investing in the volatile capital market, one would opine that RGRESS’ incentives may fall short of the industry’s expectations.
While an additional tax deduction of up to R25,000 appears
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