What is a Stock Market?
As per Securities Contract (Regulation) Act 1956, stock market means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying and selling or dealing in securities. The Stock Market a platform for buying and selling of securities. It facilitates the exchange of securities (share, debenture etc) in to money and vice versa.
Rajiv Gandhi Equity Savings Scheme (RGESS):
The Finance Minister has introduced a new scheme called ‘Rajiv Gandhi Equity Savings Scheme’ in the Union Budget 2012-2013. Rajiv Gandhi Equity Savings Scheme benefits investors to avail tax exemption by making direct equity investments in the stock market.
Rajiv Gandhi Equity Savings Scheme was announced by the Finance Minister to encourage the retail investors’ participation in the stock market. Retail investors are those who purchase small quantities of securities in the stock market as opposed to ‘institutional investors’.
A scheme similar to Rajiv Gandhi Equity Savings Scheme was first introduced in Belgium, followed by France and some East European countries. The scheme was highly successful in France and helped in increasing the retail investors’ participation to a greater percentage.
Features of RGESS:
– The scheme is applicable to investors whose annual income is below Rs. 10 Lakh
– The investment under this scheme must be made in direct equities
– The amount of investment in direct equities are subject to maximum of Rs.50,000
– The scheme is subject to a lock in period of 3 years
If the investor satisfies the above conditions, he will be able to avail a tax deduction of 50% of the investment made. For instance, if an investor invests Rs.50000 he can claim Rs. 25000 (50% of Rs. 50000) as tax deduction.
– The scheme helps to bring in large amount of equity investors and also helps in generating long-term money in to the stock market.
– Under this scheme the investors will be allowed to invest in the top 100 companies listed on BSE and NSE.
– Unlike mutual funds which are meant for indirect participation in the stock market, with no involvement of the asset holder, the RGESS aims at encouraging direct participation in the stock market.
– The retail investors can avail 50% tax deduction under this scheme.
– The 50% tax deduction will certainly be a big incentive to retail investors to enter into the stock market.
– The Finance Minister had also proposed to cut the Securities Transaction Tax (STT) from 0.125 per cent to 0.1 per cent with effect from July 1 to reduce transaction cost for equity investment.
– The scheme helps the government in channelizing household savings into stock markets
Key differences between RGESS and Equity Linked Savings Scheme (ELSS):
– The RGESS is limited to only a class of investors (i.e. whose annual income is less than Rs 10 lakh). In case of ELSS, the benefit is available to all retail investors.
– RGESS stresses on direct participation of investors in stock market. Under ELSS, indirect participation of investors takes place through Mutual Funds.
– RGESS offers an income tax deduction of 50% on the amount of investment. ELSS offers income tax deduction up to Rs 1 lakh under section 80C.