All new retail investors are allowed to invest up to Rs. 50,000 directly in equities, an income tax deduction of 50%. The scheme would have a lock-in period of three years and churning of portfolio is not permitted during the first one year. The scheme can be availed only once in a lifetime.
As proposed, this scheme will allow small investors to purchase shares only in the top 100 stocks traded on BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). The investors will likely be offered a ‘no frills’ demat account to encourage them getting started without worrying about the hefty annual charges for maintaining a demat account, which varies from Rs.500 to Rs. 1,000.
Read on to know more about RGESS.
What is Rajiv Gandhi Equity Savings Scheme, 2012?
With an objective to encourage flow of savings of the small investors in domestic capital market, the Government of India announced a scheme named Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS).
Does RGESS offer any tax benefits?
A new section 80CCG under the Income Tax Act, 1961—on deduction 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. 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.
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.
The details of eligible securities are available on the Bombay Stock Exchange & National Stock Exchange websites.
What is the maximum investment amount required for availing tax benefits in RGESS?
You can invest any amount up to Rs. 50,000 for availing tax benefits in RGESS.
How much tax deduction will I be eligible under RGESS?
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’.
How can I open a demat account?
You can open a demat account with any depository participant (DP) of CDSL (Central Depository Services (India) Ltd).
What are the formalities that I need to fulfill at the time of opening demat account?
You will be required to fulfill the KYC (know your customer) requirements i.e. submit proof of PAN/identity, address, etc. as prescribed by SEBI (Securities and Exchange Board of India) to DP where you wish to open a demat account along with declaration in prescribed format for availing RGESS benefits.
Can I use an existing demat account for RGESS?
In case you already have a demat account and are otherwise eligible for RGESS benefit, you can designate your existing demat account as a RGESS account by approaching your DP.
Is there any specific document to be submitted to the DP for designating the demat account for RGESS?
Yes. You should submit a declaration in ‘Form A’ duly signed by the account holder(s) for designating the demat account for RGESS.
Where will I get ‘Form A’?
You can get ‘Form A’ from your DP, where you want to designate your demat account for RGESS or download the same by clicking on SEBI Circular-Rajiv Gandhi Equity Savings Scheme-2012, under the What’s New menu of CDSL.
Can I hold other securities i.e., other than eligible securities in my demat account designated for RGESS?
Yes, other securities (viz., equity shares, debentures, bonds, mutual fund units, etc) can be held in the demat account designated for RGESS.
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