The government also said it would halve the tax on dividends for those holding shares between a month and a year and that the changes would come into effect on Tuesday.
Full tax payment will be required for shareholders who hold shares for less than a month, the finance ministry said in a statement on its website.
The measures are the latest in a volley of policy moves Beijing hopes will halt a slide in Chinese equities that has rattled global investors and raised fresh doubts about the strength of the world's second-biggest economy.
Hours earlier, the Shanghai and Shenzhen Stock Exchanges and the China Financial Futures Exchange proposed introducing a "circuit breaker" on one of the country's benchmark stock indexes to stabilise the market, the Shanghai exchange said in a statement on its website.
The exchange is proposing that a 5 percent rise or fall in the CSI300 index from the previous day's close would trigger a 30-minute suspension of all the country's equity indexes if the move occurs before 2:30 p.m.
After that time, a 5 percent move would prompt a suspension until the market close.
Moves of 7 percent from the previous close would trigger a trade suspension for the rest of the day.
The exchanges are seeking comment from market participants on the proposals before Sept. 21.
There is no guarantee that Beijing will adopt the proposals, but, if enacted, they could prove a disincentive to investors who want to buy stocks, by restricting the market's potential to rise as well as to fall.
MIXED REACTION
"It prevents a degree of very unhealthy volatility from impacting the market and at the same time allows investors to trade their conviction but not to the point where it becomes dysfunctional and counterproductive," said Peter Kenny, chief market strategist at Clearpool Group in New York.
"This could actually help global markets quite a bit just in terms of investor psychology."
But the reaction among others was sceptical.
"What's the point? It merely delays the pace of the market fall," said Liu Ligang, China economist at ANZ in Hong Kong.
"If you resume market trading again (after the 30 minute suspension), the market will continue to fall. Why should they (even) have an equity market? This policy-making style is pushing China backwards to a planned economy."
Other market participants expressed doubts that volatility could be tamped down, as the myriad of measures taken by policymakers to reduce the wild swings in the stock market have been ineffective thus far.
"They tried to encourage long-term investment and also to curb volatility, but I don’t think that can be totally under control at this point," said Tracy Chen, a portfolio manager at Legg Mason unit Brandywine Global in Philadelphia.
"The market’s confidence in Chinese policymakers is a little bit shaky right now."
The CSI300 index comprises the largest listed companies in Shanghai and Shenzhen.
(Reporting by Meg Shen and Twinnie Siu in Hong Kong and Dominique Patton, Meng Meng and Nicholas Heath in Beijing, Chuck Mikolajczak in New York; Editing by Mike Collett-White and Cynthia Osterman)
