Rajiv Gandhi
Equity Savings Scheme or 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.". It was
approved by The Union Finance Minister, Shri. P. Chidambaram on September 21,
2012. It is exclusively for the first time retail investors in securities
market. This Scheme would give tax benefits to new investors who invest up to
Rs. 50,000 and whose annual income is below Rs. 10 lakh.
The Scheme not only encourages the flow of savings and improves the depth of
domestic capital markets, but also aims to promote an 'equity culture' in
India. This is also expected to widen the retail investor base in the Indian
securities markets.
The maximum Investment permissible under the Scheme is Rs. 50,000 and the
investor would get a 50% deduction of the amount invested from the taxable
income for that year.
·
It
provides additional tax benefits over and above the present tax savings schemes
under the Income Tax Act.
·
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 installments 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.
A new retail investor can make investments under the Scheme in the
following manner:
1.
Open a demat
account
2.
An investor can
invest in eligible securities in one or more transactions during the year in
which the deduction has to be claimed.
3.
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.
4.
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 its first
year, unless the new retail investor specifies otherwise and for such
specification, the new retail investor will submit a declaration in Form B indicating that
such securities are not to be included within the above limit of investment.
5.
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 has not been made, subject
to the maximum investment limit of fifty thousand rupees.
6.
An investor who has
claimed a deduction under sub- section (1) of section 80CCG of the Act, in any
assessment year, will not be allowed any deduction under the Scheme for any
subsequent assessment year;
7.
An investor will be
permitted a grace period of three 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.
8.
An investor may
also keep securities other than the eligible securities in the demat account
through which benefits under the Scheme are availed.
9.
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.
10.
The investment
under the Scheme will consist of an investment in any of the eligible
securities covered under the Scheme.
11.
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.