Moving ahead with steps to revive investor sentiment and curb demand for gold, Finance Minister P. Chidambaram Friday cut withholding tax on overseas borrowings to five percent from the 20 percent.
The Minister also approved a new tax saving scheme called "Rajiv Gandhi Equity Savings Scheme (RGESS), exclusively for the first time retail investors in Securities Market. The RGESS, Chidambaram said, would give tax benefits to new investors, who invest up to Rs.50,000 and whose annual income is below Rs.10 lakh.
The Scheme not only encourages the flow of savings and improves the depth of domestic capital markets, but also aims to promote an 'equity culture' in India. This is also expected to widen the retail investor base in the Indian securities markets.
The total lock-in period for investments under the Scheme would be three years including an initial blanket lock-in period of one year, commencing from the date of last purchase of securities under RGESS.
After the first year, investors would be allowed to trade in the securities in furtherance of the goal of promoting an equity culture and as a provision to protect them from adverse market movements or stock specific risks as well as to give them avenues to realize profits.
The investors under the scheme would also be permitted to invest through Mutual Funds and listed Exchange Traded Funds (ETFs). As regards the withholding tax on overseas borrowings, Chidambaram said appropriate amendments would be made in the Income Tax Act, 1961, under which the interest income of a non-resident investor would be taxed at reduced rate of five percent instead of 20 percent.
While the RGESS is aimed at encouraging first time retail investors to invest in stock markets through tax concessions, the cut in withholding tax to five per cent seeks to lower the cost of foreign borrowings by the Indian companies.
by RTT Staff Writer
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