If you ever wanted to know how lobbying works, or how any government loots…read on:

The government makes a lot of money by introducing a Security Transaction Tax – paid by all buyers and sellers of equities. This is a fantastic tax – it collects a lot of money and the government has to collect it ONLY from 2 of the stock exchanges. It is very, very efficient.

Capital gains is a tax that you pay on the buy and sell transactions that you do IF YOU MAKE A PROFIT. Now the government has come out with a hair brained scheme which says the ‘small investor’ (the government does not know the difference between an investor and a trader, but that is another post, is it not?).

Here if a small investor (govt words) makes a capital gains, he would pay HALF the tax.

The government will make a lot more in security transaction tax – STT – than what it can ever lose by giving this 50% discount to a guy.

This is a fantastic scheme and will help brokerages earn more, and the government to earn more STT.

Will it improve the ‘equity culture’ of the country? You gotta be joking. Tickle me.

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  1. I totally agree with you on this Subra. Moreover the scheme full details are still not out but all that I read about it makes me feel its going to be quite complex and taking tax benefit via this mode would be cumbersome.

  2. I think the 50,000 is deduction in income in the year when the new small investor invests it (similar to section 80C). It has nothing to do with the profit or loss he makes. So, it is slightly better. However the small investor may save only Rs 2,500 in tax from this, but has to invest 50,000 for that. I doubt if he will take that risk.

  3. Am not sure about the fate of the Rs 50,000 either.
    Government will invest in equity? Fund managers like the pension scheme?

  4. @mail: Yes, those who are in 20% tax bracket will save more. Note that only 50% of the investment is used for tax deduction. Hence those ‘small investors’ in 20% tax bracket will save 5,000 and the ‘smaller’ investors who are in 10% will save 2,500. The question is will these ‘smaller investors’ keep 50,000 for investment at the end of the year??? may be.
    Looking at past on how people blindly ‘invested’ in LIC to save tax, sometimes I get a feel that they will also blindly buy some cheap stocks to “save” tax

  5. Isn’t this really complicated, instead of supposedly making life simpler through DTC.

    What if, the person invests much more than 50k per year in direct equity ? Which of those equities and by which mechanism will those equities be locked for 3 years ?
    Does he now have to mention the particular equities (in tax return ) he wants the Govt to kindly lock-in for the next 3 years? What if, in spite of all his good intention to hold the particular equity for 3 years, it turned out to be a KFA, Satyam ? Does he still have to hold it ? just because he saved princely sum of 5k in tax ?

  6. I heard the deduction is one time and not annual. Also, the investor should be first time investor (som whoever holds Demat A/c might not eligible for this)

  7. Sorry- withdraw my comment.
    This is stranger than I’d have thought.
    A first time investor in direct equity gets a tax break?!

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