More details on Rajiv Gandhi Equity Savings Scheme u/s 80CCG

Rajiv Gandhi Equity Savings Scheme details

– Exemption u/s 80 CCG

Updates proposed in Budget 2013-14:

1.  Proposed to increase eligible investors income limit for exemption form  existing 10 Lacks to 12 Lacks

2.  New Retail Investors can claim exemption of tax for three continuous years. Before this proposal one can claim investments upto 50000 in one financial year only.

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. Rajiv Gandhi Equity Savings Scheme would give tax benefits to new investors who invest up to Rs. 50,000 and whose annual income is below Rs. 10 lakh.

Rajiv Gandhi Equity Savings 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 Rajiv Gandhi Equity Savings Scheme is Rs. 50,000 and the investor would get a 50% deduction of the amount invested from the taxable income for that year.

Important features of Rajiv Gandhi Equity Savings Scheme

    1. It provides additional tax benefits over and above the present tax savings schemes under the Income Tax Act.

2.  Gains, arising of investments in RGESS, can be realized after a year. This is in contrast to all other tax saving instruments.

3.  Investments are allowed to be made in installments in the year in which the tax claims are filed.

4.  Dividend payments are tax free.

5.  This scheme has a long run benefit of educating the retail investment segment and thereby moving towards financial inclusivity in the country.

6.  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.

Who can invest : New equity investors with an annual income less than  10 Lakh
Investment amount :  50,000 (maximum amount one can invest under the scheme)
Deduction available on :  25,000 (50% of  50,000)
Maximum benefit :  5,000 (investors with an annual income of 10 Lakh fall under the 20% income tax slab)
Lock in period : 3 years (to get a tax deduction over & above Section 80C)