Rajiv Gandhi Equity Savings Scheme (RGESS)


Rajiv Gandhi Equity Savings Scheme (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.
 Salient Features of the Scheme
(i) The scheme is open to new retail investors identified on the basis of their permanent account numbers (PAN).
(ii) The tax deduction allowed will be over and above the Rs. 1 lakh limit permitted allowed under Section 80 C of the Income Tax Act.
(iii) In addition to the 50 per cent tax deduction for investments, dividend income is also tax free.
(iv) For investments up to Rs. 50,000 in the sole RGESS demat account, if the investor opts for a basic service demat account, annual maintenance charges for the demat account are zero and for investments up to Rs. 2 lakh, Rs. 100.
(iv) Stocks listed under BSE 100 or CNX 100, or stocks of public-sector undertakings (PSUs) that are Navratnas, Maharatnas, and Miniratnas will be eligible under the scheme. Follow-on public offers (FPOs) of these companies will also be eligible.
(v) IPOs of PSUs, which are scheduled to get listed in the relevant financial year and whose annual turnover is not less than Rs. 4,000 crore for each of the immediate past three years, will also be eligible.
(vi) Exchange-traded funds (ETFs) and 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 the RGESS to provide the advantage of diversification and consequent risk minimization.
(vii) To benefit the small investors, investments are allowed in instalments in the year in which tax claims are made.
(viii) The total lock-in period for investments will be three years including an initial blanket lock-in of one year.
(ix) After the first year, investors will be allowed to trade in the securities. Investors are free to trade / churn their portfolios for around 90 days in each of the years following the first year of investment.
(x) 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.
(xi) 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 benefit of the appreciation of his RGESS portfolio, provided its value remains above the investment for which he has claimed income tax benefit.
(xii) In case the investor fails to meet the conditions stipulated, the tax benefit will be withdrawn.
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. The operational guidelines were issued by SEBI on 6 December 2012.

Friday, 14th Mar 2014, 08:26:10 PM

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