Rajiv Gandhi Equity Savings Scheme
Effective 1 April 2013, investors with a gross total income of up to Rs.10 lakh can invest in RGESS, Investors can park funds in MFs and listed shares and extended tax benefits to three successive years.
|Who can invest in RGESS?||New retail investors with an annual income of less than 10 lakhs.|
|How much can I invest?||The maximum amount eligible for claiming benefit under RGESS is Rs. 50,000.|
|Tax Benefit||Deduction u/s 80 CCG, is available on 50% of the amount invested. The benefit is in addition to deduction available u/s Sec 80C.|
|Lock-in Period||3 years. Fixed lock-in during first year followed by a flexible lock-in for subsequent two years.|
AIM: To encourage the savings of the small investors in domestic capital market.
Rajiv Gandhi Equity Savings Scheme (RGESS) is a new equity tax advantage savings scheme for equity investors in India. The scheme got it’s approval on September 21, 2012. It is exclusively for the first time retail investors in securities market.
The investors who invest up to Rs.50,000 in ‘Eligible Securities’ and have gross total annual income less than or equal to Rs.10 Lakhs will benefit from a new section 80CCG under the Income Tax Act, 1961 on ‘Deduction in respect of investment under an equity savings scheme’ has been introduced to give tax benefits.
Let us say, you invest Rs.50,000 under RGESS, the amount eligible for tax deduction from your income will be Rs.25,000. Alternatively, if you invest Rs.40,000 under RGESS, the amount eligible for tax deduction will be Rs.20,000. So you may save about Rs.2,575, Rs.5,150 for income tax slabs 10% and 20% respectively under this scheme.
RGESS Eligibility Criteria
Demat Account Not Opened
- No transactions in Equity or F&O
- Resident Individual
- Annual Income < =Rs. 10 lakh
- If Demat Account already Opened, No transactions in Equity or F&O
- 2nd & 3rd holder of an account can open a new account as 1st holder
The tax deduction under RGESS shall be available to a new retail investor whose gross total income for the financial year (1 April to 31 March) in which the investment is made under the Scheme is less than or equal to 10 lakh rupees.
A new retail investor is defined as follows:
- Any resident Individual who has not opened a demat account and has not made any transactions in the equity or derivative segment as on the date of notification of the scheme i.e., November 23, 2012. OR
- Any resident Individual who has opened a demat account as a first holder, but has not transacted in the equity or derivate segment till November 23, 2012. OR
- Any resident Individual who has a demat account as a joint holder.
RGESS Eligible Securities
Eligible securities under RGESS is defined as
1. Equity Shares in BSE-100 or CNX 100
2. Equity Shares of Maharatna, Navratna, Miniratna
3. Units of eligible ETFs or MFs
4. Eligible FPOs & NFOs
5. IPOs of eligible PSUs
List of eligible securities will be made available on the website of the stock exchanges (NSE, BSE).
The security should be RGESS eligible at the time of investment. Such security will be considered for RGESS investment, even if it becomes ineligible at a later date
RGESS Lock-in Period
The eligible securities brought into the demat account will be automatically locked-in from the date of investment till one year from the date of last purchase of RGESS eligible securities. This period is called ‘Fixed Lock-in’ during which you cannot pledge or sell these securities.
- Holding Period = 3 Years
- Fixed lock-in Period = 1 Year from the date of credit
- Flexible lock-in Period = 2 Years from the end of Fixed lock in period
During subsequent two years called as Flexible Lock-in, you can sell and buy RGESS securities. However, you will have to maintain the value of RGESS investment for cumulative period of 270 days during each of these two years.
Let us say, you have purchased eligible securities worth Rs. 50,000 in a RGESS designated demat account on December 31, 2012. The eligible securities will be in ‘Fixed lock-in’ till December 30, 2013 and for flexible lock-in till December 30, 2015.
In case you do not wish to claim tax deduction on a security, then a declaration in the prescribed format (Form B) should be submitted within one month from the date of credit to the DP.
Your demat account that was designated for RGESS will be converted into a regular or ordinary demat account at the end of the flexible lock-in period.
Illustration of RGESS lock-in period if investments are brought in at once.
Illustration of RGESS lock-in period if investments are brought are in installments.
RGESS DEMAT Account
In order to open DEMAT account for RGESS make sure the investor:
- does not have any other demat account as a first holder in CDSL OR
- has opened a demat account (as a first holder) in CDSL and not had
- any transactions in equity in the said account.
- does not have any other demat account in CDSL with RGESS
- is PAN compliant.
The retail investors are restricted to hold the securities only in “DEMAT” account provided by many Depository Participants (DPs) of CDSL. The list of DPs under CDSL can be found here.
In addition to KYC requirements like ID Proof, Address Proof, PAN Copy, you are also requested to provide a declaration form “Form A”, which you can get from the DP you’re applying to, in prescribed format for availing RGESS benefits. This declaration form will help you designate your new or existing demat account as RGESS.
In case the investor want to exclude any RGESS eligible scrip from his RGESS portfolio, he has to submit “Form B” within one month from the date of the credit in his demat account.
Please note you can have only one DEMAT account for the purpose of availing RGESS benefits.
After getting ready with your new DEMAT account or designation your existing DEMAT account as RGESS, you can approach any SEBI registered stock broker with your Demat Account Number and DP ID for investing in eligible securities.
RGESS vs ELSS vs PPF
comparision of RGESS with the top tax saving schemes available in India and the result is:-
|Eligibility||Annual Income less than 10 lakh.||None||None|
|Lock-in Period||1+2||3 years||15 Years|
|Tax Benefits||50% (80 CCG)||100% (80 C)||100% (80 C)|
|Maximum Investment for Deduction||Rs.50,000||Rs.100,000||Rs.100,000|
|Minimum Investment||NA||Rs.500 to Rs.5000||Rs.500|
|Need for DEMAT||Yes||No||No|
|Annual Return||Market Based||Market Based||8.8%|
|Interest Earned||Non Taxable||Non Taxable||Non Taxable|
|Risk||Medium to High||Medium to High||Low|
Note: You need a PAN Card, Bank Account or optionally DEMAT account for equity linked schemes with all the schemes compared above.