Union Budget 2012-13: New equity scheme for those who wants increased income tax exemption

In order to attract conventional investors who believe to invest their money in traditional and secure places like bank savings, property, real estate, gold etc., Union Finance Minister Pranab Mukherjee on Friday presented a new initiative small saving schemes for the new retail investors who have no demat account so far and usually who avoids investing in equities.

Presenting his Union Budget for 2012-13, FM Pranab announced a new 'Rajiv Gandhi Equity Saving Scheme' for attracting the new and conventional investors who believe to invest their money in more secure places rather than stock markets and mutual funds.

This new equity saving scheme will allow the investors a 50% income tax deduction who invest up to Rs.50,000 directly in equities and their income must be below Rs.10lakh. The scheme will have a lock-in period of three years.

With this new scheme, those who want greater tax exemption, can invest up to of Rs.50,000 directly in equities. By investing in this channel they can save more money by cutting in the taxable income, as currently for general investors, the tax on short-term capital gains tax is levied at 15 per cent on all listed securities and units of equity-oriented funds while through this channel, the new investors will end up paying just 7.5 per cent tax.

Moreover, this flow of fund will trim the volatility of the market as these investors will be Indian retail investors and their investments ensure a better cash flow in the market. The chances of saving will also increase with this scheme.

Though, Finance Minister has not revealed more about this scheme and its pros and cons will come when it is fully exposed, but market experts believe that the new investors who have no knowledge about the equities, share markets and mutual funds can choose wrong portfolio and it can becomes disastrous for them. But if they select a better option, they can get better returns rather than traditional investments.

This scheme is quite different from ELSS (Equity Linked Saving Scheme), market experts believe as with the implementation of propose Direct Tax Code (DTC), the tax benefit of this scheme may be phased out.