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Investing in equity has always been a lucrative investment option to risk takers. Thousands of lakhs are gained and lost in the equity market every day. A segment with such a large cash flow did deserve a tax break. Thus came into existence, Section 80CCG of Income Tax, with the Rajiv Gandhi Equity Savings Scheme (RGESS), which aims at incentivising small, first-time investors to encourage investing in the equity market and directing more funds into the domestic capital markets.
The Rajiv Gandhi Equity Savings Scheme (RGESS), is a tax saving scheme designed exclusively for first-time individual investors in the securities market, whose gross total income for the year is below a certain limit. It was initially announced in the Union Budget of 2012-13 (para 35) and further expanded vide Union Budget 2013-14 (para 61 & 144) (para 61 & 144). The income ceiling criteria of Rs. 10 lakhs in 2012-13 was increased to Rs. 12 lakhs in 2013-14.
The scheme is under Section 80CCG of the Income Tax Act. As per the provisions of this section, first-time investors will get a specific deduction, from their taxable income for the year, up to a limit of 50% of the amount invested during the year in selected stocks. The maximum investment taken into consideration will be 50% of Rs. 50,000 per financial year. This rebate is available for three consecutive assessment years.
About Rajiv Gandhi Equity Savings Scheme (RGESS)
As stated earlier, the purpose of the scheme is to promote the flow of capital savings and improve the depth of domestic capital markets. This will help to foster an 'equity culture’ in India. The scheme intends to expand the institutional investor base in Indian capital markets and to further the objective of financial stability and financial inclusion.
This scheme is available for ‘New Retail Investors’. This definition includes individual investors meeting the following eligibility criteria –
Investment prospects under the scheme may be limited to the following types of securities:
Listed Equity Shares & Units
Unlisted Equity Shares & Units
Open a new demat account with any DP and enter it under RGESS or enter your current demat account under RGESS via Form A. If you wish to use the Basic Service Demat Account facility, you can tell your DP that your account will be designated accordingly. You can contact any licenced SEBI stock broker to open a trading account to make an investment in any eligible stock on the stock market or to apply for eligible IPOs.
In the event that you are invested in mutual funds through some distributor, you clearly need to include information of your demat account, such as Demat Account Number and DP ID, in order to claim credit from the mutual fund units in your demat account.
In order to invest in any IPO/NFO of eligible securities, you can subscribe to the same and provide information of your demat account, such as Demat Account Number and DP ID, in order to obtain credit from eligible securities in the demat account.
ELSS and RGESS are completely separate schemes: they belong to different asset groups, with ELSS providing passive investing options. ELSS is designed for indirect participation in the stock market, while RGESS seeks to promote direct participation in the stock market. The operating differences are given below:
Investments are strictly to be made in mutual funds
Investments need to be rendered directly in listed equity shares or in units of mutual funds and ETFs.
100% deduction is authorised under ELSS
Only 50% of the investment made up to a limit of Rs. 25,000 in any one year is permitted under RGESS.
ELSS incentives can be utilised by an investor every year.
RGESS incentives are limited to new investors and can only be accessed for 3 consecutive years.
The ELSS gain falls under Section 80C of the IT Act, which has an overall cap of Rs. 1.5 lakhs including all qualifying instruments such as LIC Policies, PPFs, etc.;
RGESS exclusion is applicable under Section 80CCG. There is a special investment quota specifically for RGESS over and above Section 80C Limit Rs. 1.5 lakh.
Lock-in period of three years
Lock-in duration of 3 years. However, trade is permitted after one year subject to restrictions.
Since investments are made in mutual funds, they are considered to be less risky
Since the investment is in equity, the risk is considered to be higher
You would be entitled to claim a tax exemption from the 80CCG of the Income Tax Act of 50% of the amount paid subject to a cap of Rs. 50,000 as an investment in each financial year.
For example, if you have invested Rs. 50,000 under RGESS, the amount available for tax deduction from your taxable income would be Rs. 25,000. Let’s say you invested Rs. 40,000 under RGESS, then the amount available for tax deduction would be Rs. 20,000 from your taxable income. This deduction is over and above the lakh limit of Rs. 1.5 lakhs set out in Section 80C.
You can contact any registered DP to open a demat account under RGESS. The list of DPs registered with NSDL and CDSL can be found on their website.
You are required to comply with the Know Your Customer (KYC) requirements specified by SEBI, if not done earlier, by submitting proof of identity, proof of address, etc. and to provide PAN to the DP with whom you intend to open a demat account along with a declaration in the prescribed format (i.e. 'Form A for RGESS benefits.)
All the below documents should be submitted in photocopies, duly self-attested:
Proof of Identity
Proof of Address
1. Are NRIs eligible to avail the benefits of RGESS?
No, the scheme is for an individual resident in India only. NRIs cannot avail the benefits.
2. Can the guardian claim an RGESS tax gain if the transaction is made in the name of a minor?
Yes, guardians may seek tax benefits for investments made in the name of a minor, subject to the maximum cap.
3. Are shares of unlisted companies eligible for RGESS tax benefit?
No. Unlisted shares are not eligible for RGESS tax benefit.
4. If I invest less than Rs. 50,000 in a financial year, can I invest more in the next financial year and avail the full tax benefit?
No, the deduction is capped at Rs. 50,000 for a particular financial year. Any unclaimed amount cannot be carried forward to the next year.
5. How often is the portfolio of the RGESS mutual fund scheme published?
The portfolio of closed mutual fund schemes shall be published on a monthly basis by the respective mutual fund and shall be made available on the website of the respective mutual fund. ETF portfolios are reported on the respective website of the mutual fund or on the website of the stock exchanges on a regular basis.
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