RBI may ask the government for tax breaks for investments in Retail Direct Scheme

The Reserve Bank of India may seek tax benefits for investments in bonds under the Retail Direct Scheme, which offers a digital platform for buying and selling government securities.

Prime minister Narendra Modi launched the Retail Direct Scheme on Friday. Since then, more than 20,300 accounts have been opened under RDS.

The Economic Times, quoting experts has said that tax incentives can allure investors to the scheme. Global fintech companies could also be attracted with such incentives, they added. The report cited the example of Singapore-based BondEvalue, which is interested in entering India after the launch of the Retail Direct Scheme.

The newspaper report quoted Ananth Narayan, associate professor at SP Jain Institute of Management and Research as saying that retail interest can emerge if the taxation of direct debt investments is brought in line with tax benefits of investing in debt funds. This in turn can attract intermediaries including fintech companies, he added

Rahul Banerjee, CEO, BondEvalue, is quoted as saying that there is a good demand from NRIs to invest in India.

Retail investors do not see bonds as alluring as equities. A look at the global bond scene says in Japan the domestic retail bond market has funded the development. The US and Brazil have also explored the bond market.

In India, small savings schemes and debt mutual funds are more popular as they offer better returns

The Economic Times report, quoting data from Valueresearch Online, said Sukanya Samriddhi Yojana accounts earn 7.6% while the debt GILT funds offer on average 8.77% through a 10-year period, whereas benchmark bonds yield is 6.36%.

It quotes Vikram Dalal, CEO at Synergee Capital, as saying that tax benefit is needed to bring parity with savings plans such as mutual fund debt schemes. The bonds can also be an alternative to LIC annuity plans as retail investors can invest in the longest maturity until 2061, he added

According to the report, bonds come under 10% capital gain tax if held for more than a year and coupon rate is also taxed as per slabs.