Rajiv Gandhi Equity Savings Scheme (RGESS)
Rajiv Gandhi Equity Savings Scheme or RGESS is the latest equity tax advantage savings scheme available for equity investors in India, with the sole purpose of "motivating small investors to invest their savings in the domestic capital markets."
'Rajiv Gandhi Equity Savings Scheme 2013' (RGESS guidelines) can be used for claiming deduction in the computation of total income of the assessment year related to a previous year, in consideration of investment in eligible securities, under sub-section (1) of section 80CCG of the Income Tax Act, 1961.
The tax deduction in terms of RGESS guidelines will be offered to a 'new retail investor' who complies with the conditionsof the RGESS and who has a gross total income for the financial year in which the investment made under RGESS is not more than or equal to twelve lakh rupees.
Maximum Investment permissibleThe maximum investment allowed for claiming deduction under RGESS is Rs. 50,000.
Tax Benefit The investor will be eligible to get a 50% deduction of the amount invested from the taxable income of that year u/s 80CCG. The benefit is over and above the deduction available u/s Sec 80C.
Lock-in PeriodThe whole lock-in period for investments under the RGESS can be divided into 'fixed lock-in period' and 'flexible lock-in period'. The primary period of lock in is termed as Fixed Lock-in Period, which will be acknowledged from the date of purchase of such securities in the related financial year and mature on the 31st day of March of the year immediately following the relevant financial year. The two year period that commence instantly after the end of the fixed lock-in period will be termed as the flexible lock-in period.
About Rajiv Gandhi Equity Savings Scheme
Consequently, the deduction will be offered for three consecutive years and subject to following conditions.
- The investor's gross total income for the relevant assessment year should not exceed Rs. 12 lacs (w.e.f from April 1, 2014, before that total income should not exceed Rs. 10 lacs);
- The investor should be a new retail investor as mentioned in RGESS;
- The investment should be made in listed equity shares or listed units of equity oriented mutual funds as stated in RGESS;
- The investment is locked-in for a period of 3 years from the date of purchase with RGESS; and
- Such other conditions as may be mentioned
If an investor, in a subsequent year does not comply with any of above conditions, the deduction that was originally agreed upon will be considered as income in the year in which such condition is not adhered to. The main motive of RGESS is to encourage the investment of savings by the small investors in the domestic capital market. RGESS guidelines will be implemented for claiming deduction in the computation of total income of the calculation year relevant to a previous year in consideration with investment in eligible securities under sub-section (1) of section 80CCG of the Income tax Act, 1961.
Below mentioned are some of the salient features of RGESS:
- Eligibility: The tax deduction in terms of RGESS will be offered to a 'new retail investor' who agrees with the conditions of the RGESS and whose gross total income for the financial year in which the investment made under RGESS does not exceed or is equal to twelve lakh rupees.
- 'New Retail Investor' shall include the following resident individual:
- Anyone who is yet to open a demat account and has not done any transaction in the derivative segment before the date of opening a demat account or the first day of the initial year, whichever comes later.;
- Anyone who has opened a demat account prior to notification from RGESS but has not done any transactions in the equity segment or the derivative segment before the date he entitles his current demat account with an intention to reap the benefits under RGESS or day one of the initial year, whichever comes later. Furthermore, 'Initial Year' means
- The financial year in which the investor entitles his demat account as RGESS account and does investment in RGESS securities for availing deduction under RGESS; or
- The financial year in which the investor invests in eligible securities for availing deduction for the first time under RGESS, if the investor doesn't invest in eligible securities in the financial year designated for the account
- 'Procedure at time of opening or designating of demat account: The new retail investor must adhere to following process during opening or designating a demat account:
- the new retail investor openinga new demat account or designating his existing demat account should be for the purpose of availing the benefit under RGESS;
- the new retail investor should submit a declaration in prescribed form to the depository participant who will forward to the depository to verify the status of the new retail investor;
- the new retail investor is required toprovide his Permanent Account Number (PAN) during opening the demat account or designating the existing demat account as a Rajiv Gandhi Equity Savings Scheme eligible account, as the case may be.
- The new retail investor can qualify for a deduction under sub-section (1) of section 80CCG of the Income Tax Act, 1961 considering the actual amount invested in eligible securities, subject to the maximum investment cap of fifty thousand rupees.
- Amongst other Eligible Securities, the Units of Exchange Traded Funds (ETFs) or Mutual Fund (MF) that come under RGESS eligible securities as their underlying and the ones that are listed and traded in the stock exchanges and settled through a depository mechanism have also been treated as eligible securities under RGESS.
- The maximum Investment allowed for claiming deduction under RGESS is ` 50,000 and the investor would be eligible to get a 50% deduction of the amount invested that year from the taxable income.
- The new retail investor who has appealedfor a deduction under sub-section (1) of section 80CCG of the Act, for the assessment year 2013-14, will not be eligible for any other deduction under the Scheme for any subsequent assessment year; Simply put, for the assessment year 2013-14, deduction under section 80CCG happens only once and is offered only in one assessment year to the extent of acceptable deduction. However, this provision has been revised from the assessment year 2014-15. The modified provision affords you with deduction for three continuous assessment years, starting with assessment year relevant to the former year in which the eligible securities under RGESS are first attained. The investor has the option to invest in one or more financial years in a block of three successive financial years starting with the first Year. If the investor choose not to invest in any financial year after the Initial Year, he has the option to invest in the subsequent financial year, within the three successive financial years starting with the Initial Year.
- Accordingly, investor who has invested in agreement with Rajiv Gandhi Equity Savings Scheme, 2012 shall continue to be administered by the provisions under RGESS 2012 to the extent it is not in infringement of the provisions under RGESS 2013 and shall also be entitled for the advantage of investment made in agreement with Rajiv Gandhi Equity Savings Scheme, 2013 for the financial years 2013-14 and 2014-15.
- To give more advantage to the investors, the investments can also be made in instalments in the year.
- The eligible securities brought into the demat account, as confirmed or selected by the New Retail Investor, will automatically be considered to lock-in during its first year unless the New Retail Investor gives a declaration (within one month from the date of transaction) in the prescribed format to the depository participant specifying that such securities should not be incorporated within the above limit of investment for claiming tax deduction.
- The new retail investor will not be allowed to sell, pledge or hypothecate any eligible security during this fixed lock-in period.
- LOCK-IN PERIOD (please also refer illustration given below for lock-in period in RGESS):
- The total lock-in period for investments under the RGESS would be bifurcated into 'fixed lock-in period' and 'flexible lock-in period'. The initial period of lock in will be termed as Fixed Lock-in Period, which shall begin from the purchase date of such securities in the relevant financial year and end on the 31st day of March of the year instantly following the relevant financial year.
- The period of two years commencinginstantly after the end of the fixed lock-in period shall be termed as the flexible lock-in period.
- Thus, at the end of the fixed lock-in period, new retail investors would be eligible to trade in the eligible securities. Investors would, however, be expected to uphold their level of investment during the next two years (i.e. the flexible lock-in period) at the amount for which they have requested income tax benefit or at the value of the portfolio before starting a sale transaction, whichever is less, for at least 270 days in each of these 2 years. Such investment value willdismiss the value of investment which is under the fixed lock-in period.
- The balance of the investment portfolio of Eligible Securities in the RGESS Demat Account, at any point of time during the flexible lock-in period, must not be less than the amount corresponding to the value of the securities in the fixed lock-in.
- The general principle under which trading is permissible 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 should be credited back into the account subsequently.
- However, the investor can take benefits of the appreciation of his RGESS portfolio, if its value, as on the earlier day of trading, remains above the investment for which they have claimed income tax benefit.
- The Depositories will be required to ensure the enforcement of the lock-in on Units under the Scheme in terms of RGESS guidelines.
- The depository participant shall furnish an annual statement of the Eligible Securities invested in or traded through the demat account to the investor (demat account holder).
- In case the investor is unable to meet the conditions specified under RGESS and the provisions laid under Section 80CCG, the tax benefit will be withdrawn i.e. the deduction originally permitted shall be measured as income in the year in which such condition is not observed with.
For complete details, investors are requested to read section 80CCG of the Income-tax Act, 1961, the amended notification on Rajiv Gandhi Equity Savings Scheme, 2013 and the Finance Act 2013 issued by Ministry of Finance. The same is also available on our website, www.birlasunlife.com. Investors are also advised to consult their tax advisors for the RGESS related tax implications before investing in the Scheme.
Investors should be aware that the information given above is included only for general purpose and the Unitholders should be aware that the relevant fiscal laws/rules or their interpretation may vary from time to time and there can be no assurance that the current tax position may continue in the future. In view of the individual nature of tax consequences, each unitholder is advised to consult his / her own professional tax advisor.
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