All about the RGESSThere are many issues that are confusing about the Rajiv Gandhi Equity Savings Scheme. Heresto getting them sorted out..Author : iFast ContentThe Rajiv Gandhi Equity Savings Scheme (RGESS) is a tax-saving scheme announced in the Union Budget2012-13. The scheme is designed exclusively for the first-time retail investor in the securities market,whose gross total income for the year is less than or equal to Rs 10 lakh.Here’s to a complete understanding of this scheme and the answers to various circumstances you couldface.Situation: You don’t have Rs 50,000 to invest, can you still avail of this scheme?With regards to the RGESS, an investor gets a tax benefit under Section 80CCG of the Income Tax Act.This is a new section under the Income Tax Act, 1961 on deduction in respect of investments under anequity savings scheme.Section 80CCG offers the tax payer a 50% deduction of the amount invested, up to a maximuminvestment of Rs 50,000, from his/her taxable income for that year.There is no restriction on the amount to be invested – minimum or maximum. However, only Rs 50,000is considered for tax purposes. Of this, only 50%, or Rs 25,000, is allowed as deduction. Even if you investless than the upper limit of Rs 50,000, only 50% of what you invest is allowed as a deduction.Do note that additional expenses incurred on the acquisition of eligible securities like brokerage, stampduty, securities transaction tax (STT), service tax etc will not be considered.Situation: You opened a demat account a year ago but never invested in equity. Are youeligible?Yes you are. To qualify under this scheme, there are a few criteria that the individual has to fulfill: A resident individual, non-resident Indians (NRIs) are not eligible. Neither can corporates or trusts avail of this benefit. The individual’s gross total income in the financial year should be less than or equal to Rs 10 lakh. The individual should not have opened a demat account before November 23, 2012. Or, if he had opened an account, he should not have bought any shares or traded in the Futures and Options (F&O) segment. In the case of a joint demat account, only the first account holder will be considered as the existing retail investor.
Situation: You opened a demat account a year ago but invested in a Gold ETF. Are youeligible?If you opened a demat account to invest in a Gold Exchange Traded Fund (ETF), then you are still eligibleunder this scheme since a Gold ETF is not considered an equity security.Situation: You do not have a demat account but possess physical share certificates. Are youstill eligible under RGESS?Yes. You will still be considered as a new retail investor. However, you need to make fresh investments viayour newly opened demat account to avail of the benefits under RGESS. You will not be eligible to claimbenefits of RGESS on dematerialization of such shares.The new retail investor will have to submit a declaration, as in Form A, to the Depository Participant (DP)at the time of account opening, designating his existing demat account for taking the benefits underRGESS.Eligible securities, which are bought in such an account, will be automatically subject to the lock-in periodup to a value of Rs 50,000. Unless the investor specifies otherwise through the Form B specified in thisregard.Situation: You would like to invest in a few mid-cap stocks. Can investment in any stockavail of this benefit?Only certain equity securites are eligible under this scheme. Stocks that are constituents of BSE 100 and Follow-on Public Offers (FPOs). Stocks that are constituents of CNX 100 and Follow-on Public Offers (FPOs). Stocks of public sector enterprises which are categorised by the government as Maharatna, Navaratna and Miniratna and FPOs. Click here for the complete list of such stocks. Units of Exchange Traded Funds (ETFs) or mutual fund schemes investing in RGESS eligible shares provided these units are listed and traded on the stock exchange and settled through the depository mechanism. Initial Public Offers (IPOs) of public sector units (PSUs) which are scheduled to get listed in the relevant financial year and where the government holds at least 51% and whose annual turnover is not less than Rs 4,000 crore for each of the immediately past three years.Situation: You invested in a particular stock that was an index component (BSE 100 orCNX 100). After investment, it was removed from the index. Is your investment still validwhen you file your returns?A stock has to be in the BSE 100 or CNX 100 only at the time of the investment being made. So even if thestock is removed from the index constituents, the investor is still deemed to be complaint for RGESS.However, additional purchases, once it is out of the index, will not be counted as part of the RGESSportfolio.
Situation: You applied for the IPO in March but the company got listed only in April. Isyour investment eligible?You invested in one financial year but the stock got listed in the next financial year. So it will not beeligible. It must be listed in the same financial year to be eligible.Situation: You cannot afford to invest Rs 50,000 in this financial year. Can you split it overtwo financial years?No, you cannot split it over two financial years. This scheme is only valid during the first financial year inwhich the investment is made.Situation: I do get a tax benefit under Section 80C. Can I still avail of this benefit underSection 80CCG?Yes, you can. The tax deduction for RGESS is under Section 80CCG and is different from, and over andabove, the benefits under Section 80C. Neither is it mandatory to exhaust the limit of Rs 1 lakh underSection 80C to make investments under Section 80CCG.Situation: I purchased shares of a stock eligible under RGESS for Rs 70,000. How can Ifree investments beyond Rs 50,000?If you have purchased shares under RGESS for Rs 70,000, the DP will place shares amounting to only Rs50,000 under the fixed lock-in component. Shares amouting to Rs 20,000 will not be under lock-in.However, if you are selective about the stocks to be kept under lock-in, intimate the DP through Form Bwithin one month from the date of transaction about those investments which you do not want to keep aspart of RGESS.To read about the benefits of tax-saving funds under Section 80C, click on All about Section 80CTo buy and sell mutual funds online, click hereContent Team,Fundsupermart.com | iFAST Financial India Pvt Ltd.DISCLAIMER iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of theAsset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materiallyinterested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of anymutual fund. No investment decision should be taken without first viewing a mutual funds scheme information document includingstatement of additional information. Any advice herein is made on a general basis and does not take into account the specificinvestment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legaladvice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of thefuture or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise.Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website .Please read ourdisclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is noguarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, theNAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets.Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name ofthe Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement ofAdditional Information and Scheme Information Document carefully before investing.