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Rajiv Gandhi Equity Saving Scheme (RGESS)…what’s in for you!!!….

By   /   March 13, 2013  /   No Comments

 

RGESS IMAGE

GET TAX BENEFIT

By investing up to Rs.50,000 in the Stock Market

If you are among those who are planning to invest in Shares or Mutual Funds, CHEERS!!!… one more reason to invest in these instruments is the tax deduction u/s 80 CCG included from the FY 2012-13 and will continue up till FY 2014-15 i.e. you can invest for three consecutive years.

For the FY 2012-13, one is eligible to invest in RGESS only if his Gross Income is less than or equal to Rs. Ten lacs. For the FY 2013-14 & 2014-15, only individuals earning up to Rs Twelve lacs can invest in RGESS.

 

MAXIMUM ALLOWABLE INVESTMENT IN EACH YEAR:

YEAR INCOME  MAX. ALLOWABLE INVESTMENT
2012-13 <= 10 lacs 50,000
2013-14 <=12 lacs 50,000
2014-15 <= 12 lacs 50,000

 

You will be eligible to get tax deduction u/s 80CCG on 50% of the amount invested. Let us say, you invest Rs.50,000 under RGESS, the amount eligible for tax deduction will be Rs.25,000 from your taxable income. Let us say, you invest Rs.40,000 under RGESS, the amount eligible for tax deduction will be Rs.20,000 from your taxable income. This deduction is over and above Rs. 1 lakh limit specified under Section 80C.

 

Following table help you better understand how it works:

Investment Amount Amount to be Deducted            Tax Saved
         Rs. (50%of Amount Invested) 10%Tax Bracket 20%Tax Bracket 30%Tax Bracket
50000 25000 2575 5150 7725
40000 20000 2060 4120 6180
30000 15000 1545 3090 4635
20000 10000 1030 2060 3090
10000 5000 515 1030 1545
5000 2500 258 515 772

 

ELIGIBILITY:

The Scheme is open for all New Retail Investors. A new retail investor is one:

  1. Who is a Resident Individual .
  2. Who has not opened a Demat account and has also not done any trading in the derivative segment till RGESS account opening date.
  3. Those who have opened the Demat account and have not made any transactions in equity and /or in the derivative segment till designating such account as RGESS.

 

The new retail investor will have to submit a declaration, as in Form ‘A’, to the Depository Participant (DP) at the time of account opening or designating his existing demat account for taking the benefits under RGESS.

Eligible securities, which are brought thereafter into such an account, will be automatically subject to lock-in up to a value of Rs.50,000, unless the investor specifies otherwise through the Form ‘B’ specified in this regard.

FORM – A

FORM – B

 

WHERE TO INVEST:

Investments can only be made in:

  • Companies belonging to BSE-100 or CNX-100 and their Follow On Public Offers
  • PSUs designated as Maharatna, Navratna or Miniratna and their Follow On Public Offers
  • Mutual Fund or Exchange Traded Fund Schemes investing in RGESS eligible securities and their New Fund Offers
  • Initial Public Offers of PSU with 51% or more government holding

 

Mode Of Holding:

The eligible securities under RGESS should be held in ‘Demat Account’ only.

 

How to Invest ?

Investments into the RGESS are made through the DEMAT account. Eligible securities bought through the DEMAT account will automatically be subject to a lock-in during the first year. The investor will not be permitted to sell or pledge any eligible security during the fixed lock-in period. Trading of these securities is allowed after the completion of the fixed lock in period, subject to certain conditions.Lock in Period:The total lock-in period for investments under the Scheme would be three years including an initial blanket lock-in period of one year, commencing from the date of last purchase of securities under RGESS

 

Benefits of RGESS as compared to other tax saving instruments:

Allowed tax deduction u/s 80CCG will be over and above the Rs. 1 Lakh limit permitted under Section 80C of the Income Tax (IT) Act, making it thus attractive for the middle class investors.

1. Further, the Dividend income is also tax free.

2.  Investor is free to trade / churn the portfolio after the lock-in period in         each of the years following the first year of investment, subject to certain conditions.

3. Gains arising out of higher market valuation of RGESS eligible securities can be realized after a year viz: fixed lock-in period. Provisions exist to protect the investor from general declines in the market to a certain extent. This is in contrast to all other tax saving instruments

4.You can meet emergencies through pledging or even by selling off some stocks after the fixed lock-in period.

5. For investments up to Rs.50,000 in your sole RGESS demat account, if you opt for Basic Service Demat Account, annual maintenance charges for the demat account is zero and for investments upto Rs.2 lakh, it is stipulated at Rs 100.

6. The investments can be made in installments in a Financial Year.

 

Frequently Asked Questions:

1. Already holding Shares/MF/ETF :

Prior investments in mutual funds and Exchange Traded Funds do not make an investor ineligible for the Scheme. However, you need to invest afresh in RGESS eligible mutual fund /ETF schemes and hold them in a demat account to avail of the benefits under RGESS

 

2. Why RGESS Investments are limited to top 100 stocks?

The Scheme is designed for new investors who are venturing in the equity markets for the first time. The choice of investments have been restricted to the stocks included in BSE 100 or CNX 100 and to selected PSU stocks as they generally have shown relatively lower volatility, higher liquidity, and there is adequate reporting and analysis available in the market. The range of 100 stocks also provides enough scope for diversification of investments.

 

3. Can I invest more than Rs.50,000 and claim tax benefit under RGESS

You may invest any amount in a demat account designated under RGESS, but the benefit under the Scheme can be claimed only on investment up to Rs.50,000. However, you have the freedom to select the stocks to be kept under lock-in for up to Rs.50,000 for claiming benefits under RGESS. It may be noted that the depository would be automatically locking-in all the eligible securities which comes into an RGESS designated demat account during the financial year up to a value of Rs.50000. Hence, ensure that you intimate the depository participant through Form B within one month from the date of transaction, about those investments which you do not want to keep as part of RGESS investment, such that you have the right to sell / pledge those securities at any time. Once an application is made through Form B, that particular security cannot be brought back under RGESS while claiming for tax benefit. In subsequent years of flexible lock-in period, if that stock is still an eligible security under RGESS provisions, then the same will be counted towards valuation of RGESS portfolio irrespective of its status as an “eligible security” during the first year.

 

4. I have purchased shares of Company ‘A’ which is an eligible security under RGESS for Rs. 70,000; How can I free the investments beyond Rs. 50,000/-

If you have purchased shares under RGESS for Rs. 70,000/-, the depositories will place shares amounting to only Rs. 50,000/- under fixed lock-in. Shares amounting Rs. 20,000 will not be under lock-in. However, if you are selective about the stocks to be kept under lock-in, then intimate the depository by filling in FORM B.

 

5. When should I submit Form B?

You need to submit Form B to the depository participant, if you wish to keep any securities outside RGESS’s terms and conditions. This needs to be submitted within one month from the date of purchase / allotment of that security.

 

ConclusionWhether one should invest in Shares or Mutual Funds is altogether a different topic & will talk about this in the coming articles, but that’s for sure that if your time horizon is above 5 years & you are planning to include equity in your portfolio, RGESS offers you a lot !!!!….

 

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www.financialkundali.com

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About the author

Hi My name is Hari Om Tripathi. I am an engineer by chance & a Personal Financial Planner by choice. Currently residing in Kanpur & writing full time for Financial Kundali. In case you have any query about Personal Financial Planning such a buying a MF or ULIP, going for a life insurance plan or a term plan, to surrender your policy or not or any other questions related to your Personal Financial Planning, write to me at financialkundali@gmail.com

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