Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)
The Rajiv Gandhi Equity Saving Scheme (RGESS), which enables a deduction under Section 80CCG for investments in specific equity shares and mutual funds, was created by the government to encourage retail investors to invest in shares and mutual funds.
The deduction granted under Section 80CCG is in addition to the Section 80C deduction of Rs. 1,50,000. These deductions can be claimed when submitting an income tax return, and the taxpayer’s income (after deducting all deductions) will be taxable at the individual’s income tax slab rates.
Key Features of Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)
Individuals and not HUFs are eligible for the income tax deduction under Section 80CCG for investments made through the Rajiv Gandhi Equity Saving Scheme. Furthermore, the individual must be a resident of India and not a non-resident.
To be eligible for a deduction under Section 80CCG, the income of the investor investing in the Rajiv Gandhi Equity Saving Scheme for the financial year in which the investment is made must be less than 12 lakhs.
The Rajiv Gandhi Equity Saving Scheme has a three-year lock-in period for investments. The first year is a fixed lock-in period, followed by two years of flexible lock-in.
During the fixed lock-in term, the investor is unable to sell the securities; but, during the flexible lock-in time, he can sell the assets.
Investors who sell securities during the flexible lock-in period must reinvest in any eligible security for at least 270 days in a year, or maintain their level of investment at the amount for which they have claimed an income tax deduction under Section 80CCG or maintain their level of investment at the value of the portfolio before initiating a sale transaction, whichever is less.
Individuals eligible to claim benefits of the Rajiv Gandhi Equity Saving Scheme (RGESS)
This Section 80CCG income tax deduction is exclusively accessible to new retail investors. Beginning with the first year, the new retail investor may invest in one or more financial years in a block of three consecutive financial years.
The word New Retail Investor means:
- Any person who has not opened a Demat account or performed any derivative trades as of the Scheme’s notice date.
- Any individual who has opened a Demat account before the notification of the Scheme but has not made any transactions in the equity segment or the derivative segment till the date of notification of the Scheme.
Individuals who are the second holder of an account but have no account as the first holder are also eligible to be categorized as new retail investors and can claim a deduction for the Rajiv Gandhi Equity Saving Scheme under Section 80CCG.
Furthermore, it has been established that investors who do not have a Demat account but own physical shares of firms can claim a deduction for the Rajiv Gandhi Equity Saving Scheme under Section 80CCG.
Eligible Securities for Rajiv Gandhi Equity Saving Scheme (RGESS)
- The top 100 shares of NSE and BSE i.e. CNX-100/BSE-100
- Equity Shares of Public Sector Enterprises which are categorized by the Govt as Maharatna, Navaratna and Miniratna
- Units of Exchange Traded Funds (ETFs) or Mutual Fund (MF) Schemes with RGESS eligible securities as mentioned in (1) and (2) above.
- Follow-on Public Offers (FPOs) of securities mentioned in (1) and (2) above
- New Fund Offers (NFOs) of (3) above
- Initial Public Offers (IPOs) of PSUs which are scheduled to get listed in the relevant financial year and where the Govt holding is less than 51% and whose annual turnover is not less than Rs. 4000 crore for each of the immediate past three financial years.
Additional Information Regarding Rajiv Gandhi Equity Saving Scheme
- The investor is not permitted to sell, hypothecate, or pledge any security during the Fixed Lock-in term. During the Flexible Lock-in period, however, he may do so.
- When considering investments of up to Rs 50,000, charges such as brokerage and STT are not included.
- To invest in the RGESS, you’ll need a Demat account. If the investor already has one, he must designate it to be eligible for the scheme’s benefits. The investor will be required to provide Form A and a copy of their PAN card to designate an existing Demat account for RGESS.
- If an individual does not want to contribute particular assets to the Rajiv Gandhi Equity Savings Scheme (RGESS), he must file Form B within one month of the transaction date, and such shares will not be eligible for a deduction or be subject to the lock-in period.
- If the qualified stocks are sold before the lock-in period ends, the previous income tax deduction under Section 80CCG will be reversed, and the proceeds will be taxed in the year the securities are sold.