Rajiv Gandhi Equity Savings scheme – Update

After a long delay, government has clarified on this new tax saving scheme.   Rajiv Gandhi Equity Savings Scheme (RGESS) is introduced  to encourage small investors to channelize their savings into domestic capital markets.

The scheme has been framed consequent to the introduction of Section 80-CCG in the Finance Act 2012.  Under this scheme, a one-time deduction for income tax purposes will be available to a “new retail investor.” The new retail investor will be eligible for a deduction on the actual amount invested in ‘eligible securities’ in the first financial year, subject to maximum deduction limit of Rs 50,000.

No subsequent deduction

If the new retail investor has claimed a deduction in any assessment year, then no income tax deduction will be available for any subsequent assessment years under the scheme. The deduction will be available to a ‘new retail investor’ whose gross total income for the financial year, in which investments are made under the scheme, is less than or equal to Rs 10 lakh.

Eligible securities will include equity shares falling in the list of equity declared as “BSE-100” or “CNX-100”; equity shares of public sector enterprises that are categorised as maharatna, navaratna or miniratna by the Central Government. Also, units of exchange-traded funds or mutual fund schemes with RGESS-eligible securities as underlying, will be counted as eligible securities for investment.

Eligibility Criteria

Any resident individual, who has not opened a demat account and has not made any transactions in the derivative segment as on the date of notification of the scheme, will fall under the definition of ‘new retail investor’.

Also, any individual who has opened a demat account before the scheme’s notification, but has not made any transactions in the equity segment or the derivative segment till the date of notification, will be considered as ‘new retail investor’.  The holding period of eligible securities is three years, with fixed lock-in of first year and a flexible lock-in period of two years.

Final word

This scheme is just to popularize former PM name to get brownie points in forthcoming election.  Many investors who have already burnt their fingers would not be interested and therefore govt is targeting fresh investors to boost equity market.  Please be aware that there is no  guarantee on returns of your investment and this is high risk investment as shares are purchased by newbie investors who often make mistake.  Young investors with high-risk appetite can use this to save tax.

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