Tuesday, May 8, 2012

Rajiv Gandhi Equity Savings Scheme Section 80CCG New Deduction up to Rs 25000/-

on Tuesday, May 8, 2012

Update: while Passing the Finance Bill in Lok sabha, Govt has inserted a new Clause of deduction section 80CCG i.e for Rajiv Gandhi equity saving scheme (RGESS).Deduction u/s  80CCG can be claimed subject to  following conditions.
Newly inserted Section 80CCG provides deduction wef assessment year 2013-14 in respect of investment made under notified equity saving scheme. The deduction under this section is available if following conditions are satisfied:

(a) The assessee is a resident individual (may be ordinarily resident or not ordinarily resident) This scheme is not available to HUF.

(b) His gross total income does not exceed Rs. 10 lakhs;(Limit increased to 12 lakh from Fy 2013-14)

(c) He has acquired listed shares in accordance with a notified scheme;

(d) The assessee is a new retail investor as specified in the above notified scheme;

(e) The investor is locked-in for a period of 3 years from the date of acquisition in accordance with the above scheme;

(f) The assessee satisfies any other condition as may be prescribed.

Amount of deductionThe amount of deduction is at 50% of amount invested in equity shares. However, the amount of deduction under this provision cannot exceed Rs. 25,000. If any deduction is claimed by a taxpayer under this section in any year, he shall not be entitled to any deduction under this section for any subsequent year.(Wef  FY 2013-14 deduction can be claimed in three consecutive years )

Withdrawal of deduction If the assessee, after claiming the aforesaid deduction, fails to satisfy the above conditions, the deduction originally allowed shall be deemed to be the income of the assessee of the year in which default is committed.

After reading this proposal .Few doubts has been cleared but not all .Few point which needs clarification /details regarding actual implementation of the scheme.

  1. As per Condition (d) new retail investor can avail this deduction . New retail investor means a person who has not traded stock or in derivatives  before announcement of this scehme , though he may have opened a Demat account before schme announcement . 
  2. As per conditions laid down under section 80CCG ,deduction shall be withdrawn in case of  person fails to satisfy the conditions in after availing the deduction. Suppose a person has claimed the deduction when his income is less than 10 lakh (Limit increased to 12 lakh from Fy 2013-14) ,if his income for the next year increased from 10 lakh (Limit increased to 12 lakh from Fy 2013-14) then whether deduction will be revered or not it is not very much clear .If it is to be revered then person who's income is near to 10 lakh have to think twice before claiming this deduction.
  3. This deduction can be availed only once by Individual .If he has claimed any amount in a financial year then he can not claim deduction u/s 80 CCG again . Suppose person has invested Rs 10000 in Fy 2012-13 and claimed Rs 5000 u/s 80CCG then in next year he can not claim any amount even if he has invested more money in equity as per scheme .(Wef  FY 2013-14 deduction can be claimed in three consecutive years )
  4. The total lock-in period for investments under the Scheme would be three years including an initial blanket lock-in period of one year, commencing from the date of last purchase of securities under RGESS.
  5. After the first year, investors would be allowed to trade in the securities in furtherance of the goal of promoting an equity culture and as a provision to protect them from adverse market movements or stock specific risks as well as to give them avenues to realize profits 
  6. Investors would, however, be required to maintain their level of investment during these two years at the amount for which they have claimed income tax benefit or at the value of the portfolio before initiating a sale transaction, whichever is less, for at least 270 days in a year. The calculation of 270 days includes those days pursuant to the day on which the market value of the residual shares /units has automatically touched the stipulated value after the date of debit.
  7. Under the Scheme, those stocks listed under the BSE 100 or CNX 100, or those of public sector undertakings which are Navratnas, Maharatnas and Miniratnas would be eligible. Follow-on Public Offers (FPOs) of the above companies would also be eligible under the Scheme. IPOs of PSUs, which are getting listed in the relevant financial year and whose annual turnover is not less than Rs. 4000 Crore for each of the immediate past three years, would also be eligible.
  8. Scheme has been approved by Finance Minister on 21.09.2012
  9. Original Information in Budget Speech.

    A new scheme called Rajiv Gandhi Equity Savings scheme is proposed in the Union Budget 2012-13 to encourage flow of saving in financial instruments and improve the depths of domestic capital market. 

The Union Finance Minister ShriPranab Mukherjee in his Budget speech in LokSabha today said that the scheme allows for income tax deduction of 50 per cent to new retail investors, who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakhs. The scheme will have lock-in period of three years. The details will be announced in due course. 

No provision in Finance Bill 212 has been provided ,means details will be notified at later stage.

Finance Minister has mentioned above this scheme as said as under.
To encourage flow of savings in financial instruments and improve the depth of domestic capital market, it is proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme. The scheme would allow for income tax deduction of 50 per cent to new retail investors, who invest up to ` 50,000 directly in equities and whose annual income is below ` 10 lakh. The scheme will have a lock-in period of 3 years. The details will be announced in due course.

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  1. some how it is a good medium to save tax but it also have some flaw

  2. please give the implement date

  3. what is the rate of interest?

  4. Thank you so much Rajiv Gandhi Equity Saving Scheme is awesome scheme !

  5. after investment of 50000/-how much weget back after 3 years!

  6. how, where & when to apply for Rajiv Gandhi 80CCG equity scheme ?? plz tell me as soon as possible....

  7. cal me for more details

  8. In [ Rajiv Gandhi equity saving scheme ] After investment of 50000/-how much we get back after 3 years!

    1. This depends upon in which share/scheme you have invested the money eligible under RGESS

  9. One thing a lot of people haven't realised is the fact that RGESS only applies to *first time* investors, or people who have a DEMAT account that's never been used. Even then, it is not a lot of savings in tax. I think it's just about Rs:2500.

    This calculator here gives a nice idea of the thing breaks down - http://sensibull.com/rgess

  10. i want to invest in rgess. but do i qualify as a new investor to recieve tax benefits as i have been investing in equity mutual funds since last 3 yrs but NOT IN DEMAT FORM only WITH PANCARD ..
    some people say i can while some say i'm not eligible.do clarify pls. like icici mutual fund says no. where as birla,hdfc say i can hence i am confused.
    some say tax benefit for 1 yr some say 3 yrs

    1. Yes , you are eligible to invest in RGESS as you have physical mutual funds .Ministery of Finance has released FAQ on RGESS an as per qno 9 you are eligible .

      9. I am already having units of mutual fund and / or Exchange Traded Funds; Am I eligible for the

      Yes. Prior investments in mutual funds and Exchange Traded Funds do not make an investor ineligible for the Scheme. However, you need to invest afresh in RGESS eligible mutual fund /ETF schemes and hold them in a demat account to avail of the benefits under RGESS.

      Read more: http://www.simpletaxindia.net/2013/02/rgess-can-be-claimed-if-you-already.html#ixzz2NlJmCECH

  11. i need to invest on RGESS. Can any one call me @ 903177587