Here are some changes that the Retail investors expect in this year’s Budget that would benefit them.


Simplification of RGESS


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Deduction in respect of Rajiv Gandhi Equity Savings Scheme: The Rajiv Gandhi Equity Savings Scheme (RGESS) is a tax saving scheme that was announced in the 2012-13 Union Budget aimed at first time retail investors. The scheme is aimed at encouraging the flow of savings of small investors in the domestic capital market, and presents investors with tax benefits provisioned under a new section, 80CCG in the Income Tax Act, 1961. It is recommended to raise the income ceiling to Rs 25 lakh as compared to Rs 12 lakh at present.


To attract new investors into the equity markets, RGESS needs to be simplified and the entry gates should be widened. Also, the Association of mutual funds in India (Amfi) made a proposal to extend the tax benefits available under RGESS to all equity fund investors.

Also, all open-ended equity and balanced funds should be RGESS compliant schemes. Application forms should have the option “RGESS”.
 


Allowing Infrastructure Debt Funds to issue tax saving bonds


 


Infrastructure Debt Funds (IDFs) should be permitted to issue tax savings bonds, and such issuances may be limited to a percentage of the net-worth of the IDF. Such tax-savings bonds, which give retail investors a tax exemption on the interest payable to them, would provide an incentive for greater retail participation in IDFs.


 


Abolition of STT and CTT


 


Securities transaction tax (STT) adds to the cost of the transaction and serves as a major deterrent for the retail investor. Presently, all stock market transactions attract STT in the range of 0.017 to 0.125 percent. Imposition of a Commodities Transaction Tax (CTT) also impacts the volume and liquidity of commodity exchanges, thereby hampering the growth of a nascent market.


The commodity transactions in India are already heavily taxed, being subject to a plethora of taxes. Imposition of CTT impacts the volume of trading significantly and thus exporting our market to other global exchanges, as globally, the cost of a hedging transaction in commodities is significantly lesser than what is paid in India. It is recommended that the imposition of the transaction tax in the form of securities transaction tax and commodities transaction tax be abolished.



Capital gains tax on mutual funds


 


Mutual funds with lock-in period of 3-5 years should be provided exemption from capital gains tax under Section 54EC. This would give investors more options and help them realise long-term returns. It will also channelise money away from real estate and back into the capital markets.


Section 54 EC of Income Tax Act, 1961 provides an option to save tax on capital gain arising from transfer of long-term capital asset subject to certain conditions.


 



 


Lock-in period


 


Lowering of holding period in respect of long term debt fund units should be lowered to 12 months from 36 months.


 


Tax Exemption


 


Retail investors expect an increase in the investment limit for tax-saving equity mutual fund schemes to Rs 2 lakh from the current Rs 1.5 lakh. Further, debt-linked savings scheme should be given tax benefits under Sec 80 CCC of Income Tax Act.


Only equity-linked savings schemes (ELSS) qualify for tax benefits under Section 80 CCC of the Income Tax Act, for an investment limit of up to Rs 1.5 lakh in a fiscal year.


 


Taxation of National Pension Scheme


 


In order to encourage taxpayers to make voluntary higher contributions towards NPS, it should be made more tax-friendly as the objective of this scheme is to create a pensionable society. Accordingly, the tax regime of NPS should be made Exempt, Exempt, Exempt (EEE) from the current EET regime on the lines of other retirement schemes like Employee Provident Fund and Public Provident Fund.


Without prejudice to above, the benefit of 40% exemption for withdrawal from National Pension Scheme (NPS) by any employee be extended to withdrawals by any person and not just employees. It is suggested the sub-section (12A) of section 10 of the Act providing for exemption of 40% of payment from NPS Trust to “an employee” on closure of account or opting out of pension scheme, may be modified to allow such exemption to payment from the NPS Trust to “an individual”, since exemption under the said clause is available in respect of withdrawals from NPS by self-employed individuals also.