Section 80ccg

The Section 80CCG was made applicable to increase the investor base by the government and thus this was applicable for first-time investors. The question is who is called a new investor? The answer to this question is as follows-

A new investor is one who does not have a demat account or has a demat account but did not trade in the derivatives and equity segment. If you are a joint account holder then the first account holder is not considered a new investor. If you have received shares from ESOP, then you are not considered a new investor. If you are in possession of physical shares, then these are not yet dematerialised hence you will be considered a new investor.

Explanation to Section 80CCG

The Rajiv Gandhi Equity Savings Scheme was introduced in FY 2012-13. The tax benefit is meant for the first time investor investing through a Demat account. The tax benefit is available for investments up to Rs. 50,000 and the deduction available would be 50% of the eligible amount. The above information thus states that the maximum deduction that is available would be Rs. 25,000 in totality. The deduction here is in addition to the deduction available to the taxpayer under Section 80C of the Income Tax Act, 1961. The income limit to avail of this exemption is Rs. 12 lakhs. So, if the income exceeds this limit even the first time investor will not avail of this deduction for the financial year.

Let Us Understand This Concept Better With a Short Summary

Changes Made to this Section During the FY2013-14

When this section was introduced in the FY 2012-13, the income limit for this section was Rs. 10 lakhs and the deduction duration was only for one consecutive financial year. The government thus made the changes to this section and changes the income limit to Rs.12 lakhs and the deduction duration to be increased to three consecutive financial years. This deduction was always over and above the deduction available to the taxpayers under Section 80C. The major change in this section was also the type of investment for the deduction. In the first financial year when it was introduced, the type of investment was equity shares only. Now, the type of investment has broadened the scope and also included equity-oriented mutual funds. This section allows deductions for the taxpayer if the equity shares are listed on the stock exchange either fully or through a depository system. For Initial Public Offers, of PSU’s which are scheduled to get listed in the coming financial year and where at least 51% holding is by the government and whose annual turnover is not less than Rs. 4000 cr for the immediate three past years. To give maximum diversification and minimum risk advantage, ETFs and mutual funds set up as per the criteria allowed in the scheme are also allowed.

Here is a list of some eligible shares/ mutual funds/ STFs under the Rajiv Gandhi Equity Savings Scheme

• Bharat Electronics Limited
• Bharat Petroleum Corporation Limited
• Oil India Limited
• Power Finance Corporation Limited
• Rural Electrification Corporation Limited
• National Aluminium Company Limited
• Airports Authority Of India
• Central Warehousing Corporation
• Engineers India Limited
• Mazagaon Dock Limited
• NHPC Limited
• RITES Limited
• Western Coalfields Limited
• WAPCOS Limited
• Pawan Hans Helicopters Limited
• MECON Limited
• PEC Limited
• Rajasthan Electronics and Instruments Limited
• HSCC (India) Limited
• Central Mine Planning and Designing Institute Limited
• Ferro Scrap Nigam Limited
• Bharat Pumps and Compressors Limited
• State Trading Corporation Of India Limited
• SJVN Limited
• Cochin Shipyard Limited
• Balmer Lawrie and Company Limited
• Bharat Sanchar Nigam Limited
• Rashtriya Ispat Nigam Limited
• Power Grid Corporation Of India Limited
• Mahanagar Telephone Nigam Limited
• Hindustan Copper Limited
• Bharat Dynamic Limited
• India Tourism Development Corporation Limited

Section 80CCG Eligibility

The government has set some eligibility rules for claiming tax deductions under Section 80CCG. Some of the rules are mentioned below-

1. Only first-time investors can claim this deduction.

2. The gross income of the person should not exceed Rs. 12 lakhs.

3. The maximum investment limit under this scheme is Rs. 50,000.

4. The lock-in period for the investments is 3 years.

Let us look at an example to understand it better.

Mrs Sandhya a first time investor in equities chooses to invest Rs. 50,000 in equities. This is her first investment and she is eligible to get a tax deduction for this investment. Her taxable income before claiming this tax deduction is Rs. 5,60,000. Her annual income is less than Rs. 12 lakhs. For claiming a deduction, all the conditions are favourable to her. She will get a tax deduction of Rs. 25,000 and thus it reduces the taxable income to Rs. 5,30,000.

Features of Section 80CCG

1. There are two lock-ins for this section namely a fixed lock-in period and a flexible lock-in period. During the fixed lock-in period the investors cannot pledge, hypothecate or sell the securities. Whereas during the flexible lock-in period the investors can hypothecate, pledge or sell securities.

2. A demat account is necessary for claiming deduction under Section 80CCG. If a person already has a demat account he has to assign that account towards investment under the Rajiv Gandhi Equity Savings Scheme.

3. If any securities which have a lockin period according to the Rajiv Gandhi Equity Savings Scheme are sold, then the deduction is reversed and the amount is taxed in the respective financial year.

Documents Needed to Avail The Deduction

• The investor will need a demat account and hence the bank will take care of the account documents needed for opening a demat account. For designating the demat account to securities bought under Section 80CCG, the investor will have to summit FormA along with the PAN card.
• If the investor does not want certain securities to be assigned under Section 80CCG, the investor will have to furnish Form B within 1 month from the date of the transaction. Such securities will not have a lock-in period and would not be allowed as a deduction.

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