The Union Finance
Minister Shri P. Chidambaram approved a new tax saving scheme called
“Rajiv Gandhi Equity Saving Scheme“(RGESS),exclusively for the first
time retail investors in Securities Market. This Scheme would give tax
benefits to new investors who invest up to Rs. 50,000 and whose annual
income is below Rs. 10 lakh.
The 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.
Salient features of the Scheme are as under:
a. Scheme is open to new retail investors, identified on the basis of
their PAN numbers. This includes those who have opened the Demat Account
but have not made any transaction in equity and /or in derivatives till
the date of notification of this Scheme and all those account holders
other than the first account holder who wish to open a fresh account.
b. Those investors whose annual taxable income is ≤ Rs. 10 lakhs are
eligible under the Scheme.
c. The maximum Investment permissible under the Scheme is Rs. 50,000 and
the investor would get a 50% deduction of the amount invested from the
taxable income for that year.
d. Under the Scheme, those stocks listed under the BSE 100 or CNX 100,
or those of public sector undertakings which are Navratnas, Maharatnas
and Miniratnas would be eligible. Follow-on Public Offers (FPOs) of the
above companies would also be eligible under the Scheme. IPOs of PSUs,
which are getting listed in the relevant financial year and whose annual
turnover is not less than Rs. 4000 Crore for each of the immediate past
three years, would also be eligible.
e. In addition, considering the requests from various stakeholders,
Exchange Traded Funds (ETFs) and Mutual Funds (MFs) that have RGESS
eligible securities as their underlying and are listed and traded in the
stock exchanges and settled through a depository mechanism have also
been brought under RGESS.
f. To benefit the small investors, the investments are allowed to be
made in instalments in the year in which tax claims are made.
g. 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.
h. After the first year, investors would be allowed to trade in the
securities in furtherance of the goal of promoting an equity culture and
as a provision to protect them from adverse market movements or stock
specific risks as well as to give them avenues to realize profits.
i. Investors would, however, be required to maintain their level of
investment during these two years at the amount for which they have
claimed income tax benefit or at the value of the portfolio before
initiating a sale transaction, whichever is less, for at least 270 days
in a year. The calculation of 270 days includes those days pursuant to
the day on which the market value of the residual shares /units has
automatically touched the stipulated value after the date of debit.
j. The general principle under which trading is allowed is that whatever
is the value of stocks / units sold by the investor from the RGESS
portfolio, RGESS compliant securities of at least the same value are
credited back into the account subsequently. However, the investor is
allowed to take benefits of the appreciation of his RGESS portfolio,
provided its value, as on the previous day of trading, remains above the
investment for which they have claimed income tax benefit.
k. For the purpose of valuation of shares, the closing price as on the
previous day of the date of trading will be considered so that new
investors are certain about their debits and credits into the account.
l. In case the investor fails to meet the conditions stipulated, the tax
benefit will be withdrawn.
Like all financial products which have reached out substantially to the
retail investors (post office savings, life insurance policies etc)
through tax benefits, this tax break for direct investment in equity is
expected to substantially encourage the retail participation in
securities market as well as to enhance their participation in the
growth of Indian industry. Entry of more retail investors are expected
to further deepen the securities markets as they bring in long-term
stable funds, which can counteract the volatility created by the
liquidity providers of the market. The Scheme, thus, also furthers the
goal of financial stability and promotes financial inclusion. Since
Exchange Traded Funds and Mutual Funds have also been brought under the
Scheme, the Scheme should provide encouragement and re-assurance to the
first time investors.
The broad provisions of the Scheme and the income tax benefits under it
have already been incorporated as a new Section - 80CCG - of the Income
Tax Act, 1961, as amended by the Finance Act, 2012.
Department of Revenue will notify the Scheme and SEBI will issue the
relevant circulars to operationalize the Scheme in the next two weeks.