Preamble With an objective to encourage flow of savings and to improve the depth of the domestic capital market, the Government of India...
Preamble
With an objective to encourage flow of savings and to improve the depth of the domestic capital market, the Government of India announced a tax –saving scheme in the Union Budget 2012-13 named Rajiv Gandhi Equity Savings Scheme, 2012. The Scheme aims at widening the retail investor base in the Indian securities markets and also furthers the goal of financial stability and financial inclusion. A tax benefit u/s 80 CCG of Income-tax Act is available to the investors under this scheme.
Further, vide Finance Act, 2013, certain conditions under Rajiv Gandhi Equity Savings Scheme (RGESS) were liberalized. Ministry of Finance thereafter vide Notification no. 94/2013 F. No. 142/35/2012 -TPL dated December 18, 2013 notified RGESS, 2013 i.e. the amended RGESS.
Salient Features
- Only a New Retail Investor can avail deduction by investing in Eligible Securities in demat form under this scheme. A new retail investor would mean a person (resident Indian) not having a demat account or having a demat account but not having done any trades in the equity or derivative segment
- The gross total income of the New Retail Investor should not exceed Rs 12 lacs p.a.
- Eligible Securities are from a universe of top 100 companies from S&P BSE 100 or CNX 100, Maharatna, Miniratna, Navratna or securities of PSU, ETFs and Mutual Fund units
- Eligible Securities would be subject to a lock in of 3 years as explained in the RGESS 2013 notification
- Tax Deduction can be availed for investments made in a block of three consecutive financial years
Benefits
- An investment of Rs 50,000 is eligible for a tax deduction u/s 80 CCG of the Income Tax Act, 1961 for each financial year. 50% of the amount invested from his total income subject to a maximum of Rs 25,000 will be permitted for tax deduction
- This deduction u/s 80CCG is over and above the deduction available u/s 80C
- Dividends earned from equities shares and mutual funds are tax free
- Exposure to equities gives a potential of capital appreciation over three years.
- Flexible lock in offers some amount of liquidity in investments when compared with other tax saving instruments.
For understanding the features and procedures of the RGESS 2013 please refer to the detailed FAQs and the responses given below.
Frequently Asked Questions (FAQs) on RGESS-2013
1. What is the tax benefit under RGESS?
As per Section 80CCG of the Income Tax Act, 1961, a resident individual who acquires listed equity shares or listed units of equity oriented mutual fund in accordance with the RGESS, is entitled to a deduction of 50% of the amount invested from his total income to the extent the deduction does not exceed Rs.25,000/-. The deduction under Section 80CCG of the Income Tax Act, 1961 is in addition to the deduction available under Section 80C of the Income Tax Act, 1961. A New Retail Investor shall be eligible for the tax benefit under RGESS for a block of three consecutive financial years beginning with the Initial Year (as defined in RGESS), in respect of the investment made in each financial year.
The deduction shall be subject to following conditions:
- The gross total income of the investor for the relevant year does not exceed Rs.12 lakhs (increased from Rs.10 Lakhs (FY 2012-13) to Rs.12 Lakhs (FY 2013-14));
- The investor is a 'New Retail Investor' as specified in RGESS;
- The investment is made in such listed equity shares or listed units of equity oriented mutual fund as specified in RGESS;
- The investment is locked-in for a 3 year period as provided in RGESS; and
- Such other conditions as may be prescribed by the Ministry of Finance
If an investor, in a subsequent year fails to comply with any of the above conditions, the taxability would be as provided under RGESS.
2. What is initial year?
Initial Year means:
(a) the financial year in which the investor designates his demat account as RGESS account and makes investment in the Eligible Securities for availing deduction under RGESS; or
(b) the financial year in which the investor makes investment in Eligible Securities for availing deduction under RGESS for the first time, if the investor does not make any investment in Eligible Securities in the financial year in which the account is so designated.
For e.g.
Date of designating demat account as RGESS account: | January 1, 2013 i.e. in financial year 2012-13 |
Date of RGESS investment: | June 1, 2013 i.e in financial year 2013-14. |
Therefore initial year will be: | Financial year 2013-14 |
3. Who is a ‘New Retail Investor’?
(a) who has not opened a demat account and has not made any transactions in the derivative segment before the date of opening of a demat account or the first day of the Initial Year, whichever is later:
Provided that an individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purposes of RGESS; or
Provided that an individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purposes of RGESS; or
(b) who has opened a demat account but has not made any transactions in the equity segment or the derivative segment before the date he designates his existing demat account for the purpose of availing the benefit under RGESS or the first day of the Initial Year, whichever is later
In case of joint accounts, only the first account holder will be considered as the existing retail investor. All those existing account holders other than the first demat account holder (eg. second / third account holders or other joint holders) or nominees of the existing account holders will be considered as new retail investors for the purpose of opening of a fresh RGESS account, if otherwise eligible.
In case the demat account is opened as a first holder, but there are no transactions in the equity or derivate segment, still in such case the first account holder can be considered eligible for ‘New Retail Investor’.
In case the demat account is opened as a first holder, but there are no transactions in the equity or derivate segment, still in such case the first account holder can be considered eligible for ‘New Retail Investor’.
4. What is the procedure for investment under RGESS?
A new retail investor can invest in one or more financial years in a block of three consecutive financial years beginning with the initial year as defined above. The new retail investor shall be eligible for tax benefits under RGESS only for three consecutive financial years beginning with the initial year, in respect of the investment made in each financial year.
If the new retail investor does not invest in any financial year following the initial year, he may invest in the subsequent financial year, within a block of three consecutive financial years beginning with the initial year, in accordance with RGESS.
For e.g. : In the block of 3 years, if an investor invests first time in Eligible Securities under RGESS in the first year i.e. FY 2012-13 and avails deduction. Suppose, he does not make any investment in the second year, i.e. FY 2013-14 then he can claim tax deduction u/s 80 CCG only for investments made in the third year i.e. FY 2014-15.
5. I possess some physical shares; Am I eligible under RGESS?
Yes. You will be considered as a new retail investor, if otherwise eligible. However, you need to make fresh investments in RGESS eligible securities to avail of the benefits under RGESS. You will not be eligible to claim benefits under RGESS in case the shares held in physical are converted into dematerialisation prior to designating your demat account as RGESS demat account.
6. I am already having units of mutual fund and / or Exchange Traded Funds; Am I eligible for the RGESS?
Yes. Prior investments in mutual funds and Exchange Traded Funds do not make an investor ineligible for RGESS. However, you need to invest afresh in RGESS eligible mutual fund /ETF schemes and hold them in a demat account as per the conditions laid down under RGESS to avail the benefits.
7. What are Eligible Securities under RGESS 2013?
The eligible Securities are as follows:
a. equity shares, on the day of purchase, falling in the list of equity declared as “BSE-100? or ” CNX-100? by the Bombay Stock Exchange or the National Stock Exchange, as the case may be;
b. equity shares of public sector enterprises which are categorised as Maharatna, Navratna or Miniratna by the Central Government;
c. Units of Exchange Traded Funds or Mutual Fund schemes or equity oriented funds, which have eligible securities specified in sub-clause (a) or sub-clause (b) as underlying securities, provided they are listed and traded on a stock exchange and settled through a depository mechanism;
d. Follow on Public Offer of sub-clauses (a) and (b);
e. New Fund Offers of sub-clause (c);
f. Initial Public Offer of a public sector undertaking wherein the Government shareholding is at least fifty-one per cent. which is scheduled for getting listed in the relevant previous year and whose annual turnover is not less than four thousand crore rupees during each of the preceding three years.
8. Is there any lock-in period on the investment under RGESS 2013 for claiming tax deduction?
Yes. Eligible securities under RGESS 2013 as declared/designated for availing tax benefits shall be subject to lock-in-periods viz. fixed lock-in and flexible lock-in as specified under the notified RGESS. The total lock-in period for investments under RGESS would be three years including the fixed lock-in period and the flexible lock in period.
The fixed lock-in period will commence from the date of purchase of Eligible Securities under RGESS in the relevant financial year till March 31 of the year immediately following the relevant financial year.
For e.g. If Eligible Securities are purchased on 01.05.2014, the fixed lock-in period will be from 01.05.2014 to 31.03.2016 and the flexible lock-in period will be from 01.04.2016 to 31.03.2018.
For e.g. If Eligible Securities are purchased on 01.05.2014, the fixed lock-in period will be from 01.05.2014 to 31.03.2016 and the flexible lock-in period will be from 01.04.2016 to 31.03.2018.
The flexible lock-in period shall be the period of two years beginning immediately after the end of the fixed lock-in period. However, the investor is permitted to trade in eligible securities during this period. However, he needs to comply with the requirements mentioned in the RGESS Notification issued by Ministry of Finance.
The Depositories will be required to ensure the enforcement of the lock-in on Units under RGESS.
9. How to open RGESS demat account with a Depository Participant (DP)?
You may approach any registered DP to open a demat account under RGESS. The list of DPs registered with NSDL and CDSL is available on the NSDL website, www.nsdl.co.in and CDSL website, www.cdslindia.com
You are required to fulfill the Know your client (KYC) norms prescribed by SEBI by submitting proof of identity, proof of address, etc. and provide PAN to the DP with whom you wish to open a demat account along with a declaration in prescribed format (i.e., ‘Form A’) for availing RGESS benefits.
For more details see the FAQ given by NSDL and CDSL on their respective website.
10. How does the New Retail Investor claim tax benefit under RGESS?
The New Retail Investor will have to submit a declaration, as in Form ‘A’, to the Depository Participant (DP) at the time of account opening or designating his existing demat account for taking the benefits under RGESS.
Eligible securities, which are brought thereafter into such an account, will be automatically subject to lock-in upto a value of Rs. 50,000, unless the investor specifies otherwise through the Form ‘B’ specified in this regard.
11. What is Form A under RGESS?
Form A is declaration to be submitted by the investors to DP for availing the benefits under RGESS.
12. What is Form B under RGESS?
Form B is a declaration to be submitted by New Retail Investor to a DP on purchase of eligible securities which are not to be included as RGESS investment. This will ensure that these securities are not locked in by the depository. This form has to be submitted within 1 month from the date of purchase /allotment of eligible securities to the DP.
13. Can I claim tax deduction in respect of the amount invested in eligible securities which are specified in Form B?
No.
14. What will be the mode of holding eligible securities for availing tax benefit under RGESS?
The mode of holding eligible securities under RGESS will be in a ‘Demat account’. You cannot hold securities in physical form to avail the benefits of RGESS.
15. Can I designate or open more than one demat account for RGESS?
No. You can have only one demat account under RGESS, across depositories (i.e., NSDL / CDSL).
16. If the investor invests on the last day of the financial year in eligible securities under RGESS 2013 will the person be eligible to take tax benefit u/s 80 CCG of the Income Tax Act, 1961?
The new retail investor shall be permitted a grace period of seven trading days from the end of the financial year so that the eligible securities purchased on the last trading day of the financial year also get credited in the demat account and such securities shall be deemed to have been acquired /purchased in the financial year itself.
17. Is the tax benefit for investment in RGESS over and above of Rs 1 lakh deduction currently available under section 80C of the Income- tax Act, 1961?
Yes, the tax deduction for RGESS is u/s 80CCG and it is over and above the Rs. 1 lakh limit specified u/s 80C of the Income-tax Act, 1961.
18. How much tax deduction will I be eligible for under RGESS?
You will be eligible to get tax deduction u/s 80CCG on 50% of the amount invested. Let us say, you invest Rs.50, 000 under RGESS, the amount eligible for tax deduction will be Rs.25, 000 from your taxable income. Let us say, you invest Rs.40, 000 under RGESS, the amount eligible for tax deduction will be Rs.20,000 from your taxable income. This deduction is over and above Rs. 1 lakh limit specified under Section 80C.
19. If I make a onetime investment of Rs 50,000 under RGESS 2013, can I claim the deduction for the same investments in each of the three financial years for Rs 50,000?
No, the new retail investor, who has once claimed a deduction under sub- section (1) of section 80CCG of the Act, in any assessment year, shall not be allowed any deduction under RGESS for the same investment for any other subsequent assessment year.
20. How many times can I invest in RGESS securities to avail tax benefits under section 80CCG of the Income Tax Act, 1961?
The investor may invest in one or more financial years in a block of three consecutive financial years beginning with the Initial Year. If the investor does not invest in any financial year following the Initial Year, he may invest in the subsequent financial year, within the three consecutive financial years beginning with the Initial Year. The investor shall be eligible for the tax benefit under RGESS in respect of the investment made in each financial year.
For e.g.: If an investor invests first time in Eligible Securities under RGESS in FY 2013-14 and avails deduction, he may also invest in either or both of FY 2014-15 and FY 2015-16 and avail deduction for the relevant year(s).
21. Will I get tax deduction every year for investment in RGESS?
Yes. Deduction can be claimed for investments made in each of the three financial years. For each year, the maximum permissible Investment for claiming deduction under RGESS is Rs.50, 000 and the investor would get a 50% deduction of the amount invested from the taxable income.
22. Can I invest more than Rs.50, 000 and claim tax benefit under RGESS?
You may invest any amount in a demat account designated under RGESS, but the tax benefit under RGESS can be claimed only on investment up to Rs. 50,000 in each financial year.
23. If a person has invested under the RGESS 2012, is he eligible to invest under the new notification?
Yes. Investors who invested under RGESS 2012 are also eligible to invest in Financial Years 2013-14 and 2014-15 and avail benefits under RGESS 2013. Investments made under RGESS 2012 will be governed by the provisions of RGESS 2012 only to the extent the provisions of RGESS 2012 are not in contravention of RGESS 2013.
24. If the investor who designated his demat account under RGESS 2012 and claimed tax benefit u/s 80 CCG does any equity share trading subsequently will he be eligible to invest under RGESS 2013?
Yes. The investor will be eligible to make an investment under RGESS 2013 in the same demat account which has been designated as RGESS demat account in 2013 subject to the terms and conditions mentioned under the relevant notification.
To know more about RGESS read -
- (i) RGESS Notification
a) Dated November 23, 2012 b) Dated December 18, 2013(ii) Section 80CCG of the Income-tax Act, 1961
- (iii) FAQs on RGESS available at –
HDFC Rajiv Gandhi Equity Savings Scheme - Series 2 NFO period - January 30, 2014 to February 24, 2014 |
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