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Rajiv Gandhi Equity Savings Scheme / Section 80 CCG


11 Feb, 2013 10:05p.m.

In the last Union Budget, then Finance Minister (FM) Pranab Mukherjee announced a new Section 80 CCG, which would give you deductions in respect of investments made under the Rajiv Gandhi Equity Savings Scheme.

So what is Rajiv Gandhi Equity Savings Scheme

Rajiv Gandhi Equity Savings Scheme (RGESS) is a new tax benefit scheme introduced for equity investment in select stocks, mutual funds and ETFs (exchange traded funds) as declared by the Ministry of Finance. The new Section 80 CCG is created 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. 10 lakh.

Who is a ‘new’ retail investor?
A ‘new’ retail investor is 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
  • Who has opened a demat account as a first holder, but has not transacted in the equity or derivative segment till November 23, 2012.
How much you can invest: 
  • You can make any amount of investments, but the amount eligible for an income tax deduction is a maximum amount of Rs 50,000.

How you can invest: 
  • To invest in RGESS, you will need to open a demat account. You will also have to fill in declaration Form A to the Depositary Participant (DP).

Is there lock in period
  • There is a lock-in period of total three years. This lock-in period is further divided into two – fixed and flexible.
    • Fixed Lock-in: The first one year from the date of investment is a fixed lock-in. During this period, you cannot sell any securities or pledge them to get loans.
    • Flexible Lock-in: The flexible lock-in period is for next two years from the date of the end of the fixed lock-in period. During this period, you are permitted to buy and sell eligible securities, provided that for a cumulative period of 270 days each year, you are maintaining the value of your initial investment. In short, the value of the investment portfolio should be equal to or more than the amount you’ve claimed as investments for the purpose of deduction under Section 80 CCG.

Other details: As a retail investor, you can either invest a lumpsum or in parts (in one financial year). The treatment as to how the lock-in period works will really depend on the type of investment option, you’ve chosen.
  • Option 1: You’ve made a lumpsum investment in RGESS.
    Let’s assume you’ve invested a lumpsum on 23 November 2012 for the amount of Rs 50,000. So, your first year fixed lock-in-period begins on 23 November 2012, and ends on 22 November, 2013. On 23 November, 2013, your first year of flexible lock-in-period begins and ends on 22 November 2104. Likewise, on 23 November, 2014, your second year lock-in-period begins and ends on 22 November, 2015. Here, as shown in the graphic, the applicable financial year for compliance (270 days clause mentioned above) will be 2014-15. On 23. November 2015, the demat will be converted into an ordinary demat account.
  • Option 2: Here’s how the lock-in-period will work of your investments are bought in instalments. Let’s assume that instead of making a single lumpsum investment, you made three part investments in one financial year. First was Rs 10,000 on 23 November, 2012, second was Rs 30,000 on 15 January, 2013 and Rs 10,000 on 11 March 2013. In this case, the fixed lock-in- ends only on 12 March, 2104. So, the first part of your investment is invested for one year, three months and sixteen days.
    The second part for one year, one month and the third part for one year. And, the one year flexible lock-in-period ends 10 March, 2015 while second year flexible lock-in-period ends 10 March, 2016. Keep in mind that the RGESS portfolio is allowed to be changed during the flexible period, provided to compliance clause mentioned above is met.

Expiry of period
  • Once the period of holding expires, the demat account will be converted automatically into an ordinary demat account.

Tax benefits: 
  • Under RGESS, you are eligible for a tax deduction for 50% of the amount invested. 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.
Is this tax deduction of maximum of Rs. 50,000 over and above limit of Rs. 1 lakh currently available under Section 80C of Income Tax Act?
  • Yes. You can avail Rs. 1 lakh under Section 80C of Income Tax Act and Rs. 25,000 for investment of Rs. 50,000 under 80CCG.
What will be the mode of holding eligible securities?
  • The mode of holding eligible securities under RGESS will be in a ‘demat account’.
What are eligible securities?
  • Equity shares of companies which are included in either ‘BSE-100’ or ‘CNX-100’ or equities of public sector enterprises which are categorised as Maharatna, Navratna or Miniratna by the central government.
  • Exchange traded funds and mutual fund schemes with RGESS eligible securities as underlying. 
  • Follow on public offer of BSE-100 or CNX-100 and public sector enterprises which are categorised as Maharatna, Navratna or Miniratna.
  • New fund offers of eligible mutual fund schemes.
  • IPOs (initial public offerings) of eligible public sector undertakings.

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