Industry analysts today welcomed the government's decision to allow mutual funds and exchange- traded funds in the Rajiv Gandhi Equity Savings Scheme (RGESS), and the steep cut in withholding tax on overseas borrowings to 5% from 20%.
Welcoming the notification of the new retail equity scheme, Goldman Sachs Asset Management India co-chief executive Sanjiv Shah said it is an excellent initiative to encourage small investors.
"Since penetration of investment in equities is very low in the country currently, this initiative will help overcome this," he said.
Tax consultancy PwC welcomed the decision to lower the tax on foreign borrowings to 5% from 20%.
"This is a significant relaxation in terms of administrative compliance. While immediate benefits will flow to the infrastructure sector, it should also help improve the foreign exchange position.
"Significantly, the concessional tax rate of 5% as per the Income Tax Act should find favour with foreign lenders, as generally the tax treaties prescribe a higher rate of tax on interest income," PwC India executive director for direct taxes Nikhil Rohera said.
Earlier in the day, Finance Minister P Chidambaram announced lowering of withholding tax on overseas borrowings to 5% from 20% and approved the Rajiv Gandhi Equity Scheme to attract more investment in stock markets.
The stock market lapped up the announcements with the BSE Sensex rallying 404 points to close at 18,753.
These decisions come within days of the government taking bold measures including raising diesel prices by Rs 5 a litre and allowing foreign direct investment in multi-brand retail, domestic airlines, power exchanges and non-news broadcasting services.
