RAJIV GANDHI EQUITY SAVINGS SCHEME 2012
The Hon’ble Finance during the presentation of his budget 2012 proposals, had indicated that a new scheme of tax saving investment in Equity shares will be notified for new investors to enable them to claim deduction from their total income in respect of investment in equity shares made by them.
The Income-tax department has formulated a scheme for the same and issued a Notification with regard to terms & conditions for the Investment scheme.
The Salient features of this scheme are as follows :-
When it will come into force ?
It shall come into force on the date of its official publication in the official gazette.
What is the section under which deduction can be claimed ?
Deduction from Total income can be claimed by the assessee under sub-section (1) of Section 80 CCG of the Income-tax Act, 1961.
What is the objective of this scheme ?
The main objective of this scheme is to encourage savings amongst new and small investors in domestic capital market.
Where should the amount be invested ?
The amount invested in the following securities are eligible for deduction under this scheme :-
(a) Equity shares, (on the date of purchase) which are included in the list of equity declared as “BSE-100” or “CNX-100” by the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) , as the case may be;
For List of BSE-100 shares as on date , Click here.
For List of CNX-100 shares as on date , Click here.
(b) Equity Shares of Public Sector Enterprises which are categorized as Maharatna, Navratna or Miniratna by the Central Government;
For List of Maharatna/Navratna/Miniratna companies as on date, click here
(c) Units of Exchange Traded Funds (ETFs) or Mutual Funds (MF) schemes with Rajiv Gandhi Equity Savings Scheme (RGESS) eligible securities as underlying, provided they are listed in the stock exchange and traded in Demat form.
(d) Follow-on public offers (FPO) or New Fund offers (NFO) of (a) , (b) or ( c) above. As the case may be.
(e) Initial Public offer (IPO) of a Public Sector undertaking where the government holds atleast 50% of the shareholding, which is scheduled to be listed during the previous year and whose annual turnover is not less than Rs. 4000 crore during each of the preceeding three years.
Who are eligible to invest & claim this deduction ?
This deduction can be claimed by the assessees who satisfies the following conditions :-
1) The assessee should be resident Individual; and
2) The assessee’s Gross Total Income (i.e.,) before claiming section 80 deductions (80C,80D,80G,etc…,) does not exceed Rs. 10 Lakhs in the financial year in which investment is made under this scheme; and
3) The Assessee should be a “New Retail Investor”.
Who are considered as New Retail Investors ?
New retail investor means the following resident Individuals :-
(i) any 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;
(ii) any individual who has opened a demat account before the notification of the Scheme but has not made any transactions in the equity segment or the derivative segment till the date of notification of the Scheme,
and any individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purposes of this Scheme
What is the procedure for opening the demat Account ?
The new retail investor shall follow the following procedure at the time of opening or designating a demat account :-
(a) the new retail investor shall open a new demat account or designate his existing demat account for the purpose of availing the benefit under the Scheme;
(b) the new retail investor shall submit a declaration in Form A to the depository participant who will forward the same to the depository for verifying the status of the new retail investor;
(c) the new retail investor shall furnish his Permanent Account Number (PAN) while opening the demat account or designating the existing account as a Rajiv Gandhi Equity Savings Scheme eligible account, as the case may be.
What is the procedure for investment under scheme ?
A new retail investor shall make investments under the Scheme in the following manner :-
(a) the new retail investor may make investment in eligible securities in one or more than one transactions during the year in which the deduction has to be claimed;
(b) the new retail investor may make any amount of investment in the demat account but the amount eligible for deduction, under the Scheme shall not exceed fifty thousand rupees;
(c) 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, as per the provisions of paragraph 7, unless the new retail investor specifies otherwise and for such specification, the new retail investor shall submit a declaration in Form B indicating that such securities are not to be included within the above limit of investment;
What is the amount that can be claimed as deduction from Gross Total Income
The new retail investor will be eligible for a deduction under section 80 CCG(1) in respect of the actual amount invested in eligible securities , in the first financial year in respect of which a declaration in Form B has not been made, subject to a maximum of Rs. 50000/-
What is the lock in period for the investments under this scheme ?
The period of holding securites under this scheme will be 3 years counted in the manner as detailed below.
The Three year lock year period is divided into two as follows :-
1) Fixed Lock-in Period
2) Flexible Lock in Period.
Fixed Lock in period shall commence from the date of purchase of such securities in the relevant financial year and, end one year from the date of purchase of last set of eligible securities (in the same financial year) on which deduction is claimed under this scheme.
The new retail investor will not be allowed to sell,pledge or hypothecate any eligible security during the Fixed Lock-in period.
The period of two year beginning immediately after the end of fixed lock in period will be called the flexible lock-in period.
The new retail investor shall be permitted to trade the eligible securities after the completion of the fixed lock-in period subject to the following conditions:-
(a) the new retail investor shall ensure that the demat account under the Scheme is compliant for a cumulative period of a minimum of two hundred and seventy days during each of the two years of the flexible lock-in period as laid down hereunder:-
(A) the demat account shall be considered compliant for the number of days where value of the investment portfolio of eligible securities , within the flexible lock-in period, is equal to or higher than the amount claimed as investment for the purposes of deduction under section 80CCG of the Act;
(B) in case the value of investment portfolio in the demat account falls due to fall in the market rate of eligible securities in the flexible lock-in period, then notwithstanding sub clause(A), –
(i) the demat account shall be considered compliant from the first day of the flexible lock-in period to the day any such eligible securities are sold during this period;
(ii) where the assessee sells the eligible securities mentioned in sub-clause (B) from his demat account, he shall have to purchase eligible securities and the said demat account shall be compliant from the day on which the value of the investment portfolio in the account becomes –
(I) at least equivalent to the investment claimed as eligible for deduction under section 80CCG of the Act or;
(II) the value of the investment portfolio under the Scheme before such sale,
whichever is less.
What happens to the demat account opened under this scheme after 3 years period ?
The new retail investor’s demat account created under the Scheme shall, on the expiry of the period of holding of the investment, be converted automatically into an ordinary demat account.
What happens if the retail investor fails to fulfill any of the conditions ?
If the new retail investor fails to fulfil any of the provisions of the Scheme, the deduction originally allowed to him under sub-section (1) of section 80CCG of the Act for any previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax for the assessment year relevant to such previous year.
What are the other features of this scheme ?
The new retail investor who has claimed a deduction under sub- section (1) of section 80CCG of the Act, in any assessment year, shall not be allowed any deduction under the Scheme for any subsequent assessment year.
The new retail investor shall 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 shall be deemed to have been purchased in the financial year itself.
The new retail investor may also keep securities other than the eligible securities covered under the Scheme in the demat account through which benefits under the Scheme are availed.
The new retail investor can make investments in securities other than the eligible securities covered under the Scheme and such investments shall not be subject to the conditions of the Scheme nor shall they be counted for availing the benefit under the Scheme.
The deduction claimed shall be withdrawn if the lock-in period requirements of the investment are not complied with or any other condition of the Scheme is violated.
For the purpose of valuation of investment during the flexible lock-in period, the closing price as on the previous day of the date of trading, shall be considered.
While making the initial investments upto fifty thousand rupees, the total cost of acquisition of eligible securities shall not include brokerage charges, Securities Transaction Tax, stamp duty, service tax and all taxes, which are appearing in the contract note.
Where the investment of the new retail investor undergoes a change as a result of involuntary corporate actions like demerger of companies, amalgamation, etc. resulting in debit or credit of securities covered under the Scheme, the deduction claimed by such investor shall not be affected.
In case of voluntary corporate actions like buy-back, etc. resulting only in debit of securities, where new retail investor has the option to exercise his choice, the same shall be considered as a sale transaction for the purpose of the Scheme.
Assessees shall be liable to submit the relevant records to the income-tax authorities for verification, as and when required.
You can download the Income-tax Notification in this regard from the link below :
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