More reform as LPG levies cut,borrowing from overseas easier

“Since some LPG cylinders will not be subsidised,we have amended the notification for the non-subsidised household LPG cylinders. Customs and excise will be zero,” said Finance Minister P Chidambaram who made the announcements. Non-subsidised commercial LPG cylinders,however,will continue to attract customs duty of 5 per cent and excise duty at 8 per cent.

The RGESS not only expects to promote a ‘equity culture’ in India and discourage investments in gold,but also aims to revive the mutual fund industry,which has now been included in the scheme along with exchange traded funds. The lower withholding tax will make overseas funds cheaper for domestic firms that are facing a funds crunch due to high interest at home. These measures were originally announced as part of the Union Budget 2012-13.

“The scheme not only encourages the flow of savings and improves the depth of domestic capital markets,it is also expected to widen the retail investor base in the Indian securities markets,” Chidambaram said,adding that it would be operational in the next two weeks.

The RGESS would be open to all new retail investors with annual income up to Rs 10 lakh,identified on the basis of their PAN numbers,and they can avail a 50 per cent tax deduction on investments up to Rs 50,000.

Investments in stocks listed on the BSE 100,CNX 100 or those of state-owned navratna,miniratna or maharatna firms,along with initial and follow-on public offers of PSUs will be eligible for the scheme. The government has also included MFs and ETFs in the scheme,based on suggestions from market regulator SEBI.

“We have interpreted the relevant Section of the Income Tax Act and are of the view that it can include ETFs and MFs,” the minister said. While investors can invest in the scheme in installments,the lock-in period would be three years.

To help Indian companies access cheaper funds abroad,the finance minister also announced lower tax rates on interest on overseas funds. “It is to encourage overseas borrowings. Interest rates are low abroad and these low-cost funds can come to India,” Chidambaram said.

Funds raised either under a loan agreement or by way of long-term infrastructure bonds that comply with External Commercial Borrowings will be eligible for the lower tax rate that will be in effect between July 1,2012 and June 30,2015. The government will also spell out generic guidelines for availing the lower tax rate rather than going for case by case approvals.

To cut down its subsidy bill,the government had last week capped the number of subsidised cylinders to six per year. Consumers requiring additional cylinders over this ceiling would have to buy it at market prices,which currently works out to Rs 895 per 14.2 kg cylinder. In Delhi,subsidised cooking gas is sold at Rs 399 per cylinder.

As an additional measure to help consumers,the finance minister also asked states to try and increase the number of subsidised cylinders. Congress-ruled states have already increased the number of subsidised cylinders per household to nine from six per year.