More reform as LPG levies cut, borrowing from overseas easier

IN an apparent bid to maintain the momentum of its new reforms push, the UPA government Friday announced new measures that are expected to benefit domestic firms, retail investors as well as consumers.

The announcements included the launch of the Rajiv Gandhi Equity Savings Scheme (RGESS) and also a sharp cut in the withholding tax on interest payments on overseas borrowings by domestic firms to 5 per cent from 20 per cent. The government also withdrew customs and excise duties on non-subsidised LPG cylinders, a move that will help bring their prices down by about Rs 97 per cylinder.

"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.

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