To promote the Retail Investor to invest in Shares and Mutual Funds, the Govt has introduced the Rajiv Gandhi Equity Saving Scheme (RGESS) which allows a deduction under Section 80CCG for Investment in specified equity shares and Mutual Funds.
The deduction allowed under Section 80CCG is over and above the Rs. 1,50,000 deduction allowed under Section 80C. These deductions can be claimed at the time of filing of income tax return and the income of the taxpayer (after reducing all deductions) would be taxable as per the income tax slab rates of the individual.
Budget 2017 Update: This Deduction is not allowed from Financial Year 2017-18 onwards.
Key Features of Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)
- Income Tax Deduction under Section 80CCG for Investment through Rajiv Gandhi Equity Saving Scheme is available to only individuals and not to HUF’s. Moreover, the individual should be resident in India and should not be a non-resident.
- The Income of the investor investing in the Rajiv Gandhi Equity Saving Scheme for the financial year in which the investment is being made should be less than 12 Lakhs to be eligible to claim deduction under Section 80CCG.
- There is a lock-in period of 3 years for the investments under the Rajiv Gandhi Equity Saving Scheme. The 1st year is the fixed lock-in period and the next 2 years are the flexible lock-in period.
- The Investor cannot sell the securities during the fixed lock-in period but he can sell the securities during the flexible lock-in period.
- Investors selling securities during the flexible lock-in period would be required to re-invest in any of the eligible securities in such a manner that they maintain their level of investment during these 2 years at the amount for which they have claimed income tax deduction under Section 80CCG or maintain their level of investment at the value of the portfolio before initiating a sale transaction, whichever is less, for at least 270 days in a year.
There are certain complications in the Rajiv Gandhi Equity Saving Scheme (RGESS) with respect to treatment of securities sold in the flexible lock-in period and the deductions allowed under Section 80CCG. These have been explained in detail in the FAQ’s on Rajiv Gandhi Equity Saving Scheme (RGESS) released by the Ministry of Finance on 5th Feb 2014.
- Refer: FAQ on Rajiv Gandhi Equity Saving Scheme (RGESS)
Individuals eligible to claim benefit of Rajiv Gandhi Equity Saving Scheme (RGESS)
This income tax deduction under Section 80CCG is only available to new retail investor. The new retail investor may invest in one or more financial years in a block of 3 consecutive financial years beginning with the initial year.
The word New Retail Investor means:-
- Any individual who has not opened a demat account and has not made any transactions in the derivative segment as on the date of notification of the Scheme;
- Any individual who has opened a demat account before the notification of the Scheme but has not made any transactions in the equity segment or the derivative segment till the date of notification of the Scheme,
Individuals who are the second holder of an account and don’t have any account as the first holder, are also eligible to be classified as a new retail investor and are allowed to claim deduction under Section 80CCG for the Rajiv Gandhi Equity Saving Scheme.
Moreover, it has also been clarified that Investors who don’t have a demat account but have physical shares of companies are allowed to claim deduction under Section 80CCG for the Rajiv Gandhi Equity Saving Scheme.
- Recommended Read: How to open a Demat Account?
Eligible Securities for Rajiv Gandhi Equity Saving Scheme (RGESS)
- The top 100 shares of NSE and BSE i.e. CNX-100/BSE-100
- Equity Shares of Public Sector Enterprises which are categorized by the Govt as Maharatna, Navaratna and Miniratna
- Units of Exchange Traded Funds (ETF’s) or Mutual Fund (MF) Schemes with RGESS eligible securities as mentioned in (1) and (2) above.
- Follow-on Public Offers (FPO’s) of securities mentioned in (1) and (2) above
- New Fund Offers (NFO’s) of (3) above
- Initial Public Offers (IPO’s) of PSU’s which are scheduled to get listed in the relevant financial year and where the Govt holding is less than 51% and whose annual turnover is not less than Rs. 4000 crore for each of the immediate past three financial years.
The list of eligible securities and eligible mutual funds for Rajiv Gandhi Equity Saving Scheme (RGESS) has been given in this link: – http://www.bseindia.com/rgess/eligible_securities.htm
Deduction allowed for Investment in Rajiv Gandhi Equity Saving Scheme (RGESS)
The deduction allowed for investing in Rajiv Gandhi Equity Saving Scheme (RGESS) is 50% of the total amount invested subject to a maximum investment of Rs. 50,000.
The above mentioned criteria for eligible deduction have been explained below with the help of a few examples:-
|Particulars||Case I||Case II||Case III|
|Amount invested in RGESS||50,000||90,000||20,000|
|Maximum eligible investment in RGESS|
(i.e. Rs. 50,000 or amt invested, whichever is higher)
|Deduction allowed = 50% of eligible investment||25,000||25,000||10,000|
Other Relevant Points regarding Rajiv Gandhi Equity Saving Scheme
- During the period of Fixed Lock-in, the investor is not allowed to sell, hypothecate or pledge any security. However, he may do so during the Flexible Lock-in period.
- The costs like brokerage and STT shall not be included while considering investments of up to Rs 50,000.
- A demat account is needed for investing under the RGESS. If the investor already has one, he will have to designate it for availing of the benefit under the scheme. For the purpose of designating an existing demat account for RGESS, the investor will be required to furnish Form A and a copy of the PAN Card.
- If the individual does not want to allocate certain securities to the Rajiv Gandhi Equity Saving Scheme (RGESS), he would be required to furnish Form B within 1 month of the date of transaction and such securities would not be allowed to be claimed as deduction nor would they be under the lock-in period.
- If the eligible securities are sold before the completion of the lock-in period, the income tax deduction under Section 80CCG allowed earlier would be reversed and taxed in the year in which such securities are sold.