Investment in RGESS under Section 80CCG

Rajiv Gandhi Equity Saving Scheme or RGESS is an equity tax advantage scheme which is mainly targeted for equity investors in India. The Union Finance Minister, P Chidambaram approved this scheme in September, 2012.

The tax benefit for investments under Rajiv Gandhi Equity Saving Scheme (RGESS) is covered under section 80CCG of The Income Tax Act. The RGESS was introduced to encourage investments in the stock market, but it was not able to attract the investments. Therefore, during the budget 2013-14, major changes were announced to make the scheme more attractive to lure the investors.

Who are eligible to claim deduction under section 80CCG?

The deduction under section 80CCG is available for:

  1. New retail investors with annual gross total income is less than or equal to 12 Lakhs INR.
  2. The Individual has made investments after satisfying the terms and conditions as stated in RGESS.

What are the conditions specified in RGESS?

RGESS lays down the following conditions to satisfy for making investments:

  1. If you are already a first holder of DEMAT account as on November 23, 2012, you should not be involved in any equity and derivative transactions on or before November 23, 2012.
  2. you are the second joint holder of a DEMAT account which was opened on or before November 23, 2012,you are required to open a new DEMAT account as a first joint holder.
  3. If you do not have a DEMAT account, you should apply account for a new one.

The basic essence of the above mentioned conditions is that you should be a new investor and should not be involved in any type of equity and derivative transaction on or before November 23, 2012.

How to invest in RGESS?

For investment in Rajiv Gandhi Equity Saving Scheme you must have a DEMAT account.

If you have a DEMAT Account, you can link your existing account with RGESS. For more information, contact your Depository Participant along with Form-A (specified under the rules of RGESS 2012) with a copy of your PAN card.

If you do not have a DEMAT account or if you are the second holder of an existing DEMAT account, contact your Depository Participant for opening a new RGESS designated Demat Account.

What are the eligible securities specified in RGESS?

  1. Equity shares which are listed in BSE 100 and CNX 100 indices
  2. Equity shares of public sector units which are categorized as Maharatna, Navratna or Miniratna.
  3. Units of Mutual Fund or exchange-traded funds with RGESS-eligible securities as underlying.
  4. Follow on public offer of points 1 and 2.
  5. New Fund Offers (NFOs) of point 3.
  6. Initial public offer of a public sector company in which the Government holds at least 51 per cent stake    and whose annual turnover is not less than INR 4,000 Crores in the preceding three years.

What is the maximum deduction allowed under section 80CCG?

You are allowed a maximum deduction of 50% of amount of investment in RGESS or INR 25000 whichever is less. Further, you can claim deduction under section 80CCG of the income tax act only for three consecutive years. Thereafter,from the fourth year,you will not be treated as a new retail investor and therefore you will not be allowed deduction from fourth year onwards even though you have invested in RGESS prescribed securities.

Furthermore, the lock-in period for amount invested in Rajiv Gandhi Equity Saving Scheme is three years. If you sell any investment made under RGESS and for which the deduction under section 80CCG was claimed in previous year,such deduction shall be reversed and treated as the income of the individual for the relevant previous year.

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