Rajiv Gandhi Equity Savings Scheme, 2013 (RGESS) is a new equity tax advantage savings scheme for equity investors in India, with the stated objective of "encouraging the savings of the small investors in the domestic capital markets.” Vide notification dated December 18, 2013 the scheme has been notified by the Department of Revenue, Ministry of Finance (MOF)... It is exclusively for the first time retail investors in securities market.
The objective of the scheme is to encourage flow of savings in the financial instruments and improve the depth of the domestic capital market
- 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 to ‘New Retail Investors’ who invest up to Rs. 50,000 in ‘Eligible Securities’ and have gross total annual income less than or equal to Rs.12 Lakhs. The investor would get a 50% deduction of the amount invested from the taxable income for that year.
- The new retail investor may invest in one or more financial years in a block of three consecutive financial years beginning with the initial year.
- Gains, arising of investments in RGESS, can be realized after a year. This is in contrast to all other tax saving instruments.
- Investments are allowed to be made in instalments in the year in which the tax claims are filed.
- Dividend payments are tax free.
- This scheme has a long run benefit of educating the retail investment segment and thereby moving towards financial inclusivity in the country.
- Success of this scheme can lead to transfer of assets from traditional savings instruments such as bank deposits and FDs to the capital markets, leading to diversification in retail investor portfolio and also leading to more productive "capital formation" assets.
The deduction under the Scheme will be available to a ‘new retail investor’ who complies with the conditions of the Scheme and whose gross total income for the financial year in which the investment is made under the Scheme is less than or equal to twelve lakh rupees.
The deduction under the Scheme shall be available to a new retail investor who:-
- Is a resident individual (the benefit cannot be availed by HUF, corporate entities / trusts etc).
- Has not opened a Demat account and has also not done any trading in the derivative segment till RGESS account opening date or the first day of the “initial year” in which he brings in the RGESS eligible investment into the account, whichever is later.
- Has opened a Demat account and has not made any transactions in equity and /or in the derivative segment till designating such account as RGESS or the first day of the “initial year” in which he brings in the RGESS eligible investment into the account, whichever is later.
- In case the demat account is opened as a first holder, but there are no transactions in the equity or derivative segment, then the first account holder is eligible to be a new retail investor.
- For taking the benefits 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.
- In case of joint accounts, only the first account holder will not be considered as a new 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.
- Has gross total income for the financial year less than or equal to Rs. 12 Lakh.
A new retail investor can make investments under the Scheme in the following manner:
- Open a demat account with a Depository Participant by providing an undertaking Revised link (Form A) that he wishes to designate his existing account or open a new account as RGESS account.
- An investor can invest in eligible securities in one or more transactions during the year in which the deduction has to be claimed.
- An investor can make any amount of investment in the demat account but the amount eligible for deduction, under the Scheme will not exceed fifty thousand rupees.
- The eligible securities brought into the demat account, as declared or designated by the new retail investor, will automatically be subject to lock-in during that year, unless the new retail investor specifies otherwise and for such specification, the new retail investor will submit a declaration in Revised link Form B / Application indicating that such securities are not to be included within the above limit of investment.
- An investor will be eligible for a deduction under subsection (1) of section 80CCG of the Act in respect of the actual amount invested in eligible securities, in the first financial year in respect of which a declaration in Revised link Form B / Application has not been made, subject to the maximum investment limit of fifty thousand rupees.
- The investor would get under Section 80CCG of the Income Tax Act, a 50% deduction of the amount invested during the year, upto a maximum investment of Rs. 50,000 per financial year, from his/her taxable income for that year, for three consecutive assessment years.
- An investor will 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 will be deemed to have been purchased in the financial year itself.
- An investor may also keep securities other than the eligible securities in the demat account through which benefits under the Scheme are availed.
- An investor can make investments in securities other than the eligible securities covered under the Scheme and such investments will not be subject to the conditions of the Scheme nor will they be counted for availing the benefit under the Scheme.
- The investment under the Scheme will consist of an investment in any of the eligible securities covered under the Scheme.
- Deductions claimed will be withdrawn if the lock-in period requirements of the investment are not complied with or any other condition of the Scheme is violated.