FAQ: Rajiv Gandhi Equity Savings SchemeThe RGESS has been creating quite a stir. Here are the basics on this tax-saving option...Author : iFast ContentThe Rajiv Gandhi Equity Savings Scheme (RGESS) is creating quite a buzz. Under this scheme,first-time equity investors can invest in approved stocks and mutual funds and claim an incometax deduction on 50% of the amount invested under Section 80CCG of the Income Tax Act.Here is what you need to know to grasp the facts. Who qualifies?There are 3 requirements that an individual has to pass to be eligible for this scheme: Resident individual Gross total income less than Rs 10 lakh How does one define a first time investor? - That would be an individual who opened a demat account as a ‘first holder’ after November 23, 2012. What if he opened a demat account prior to this date but never bought any shares or traded in the Futures and Options (F&O) segment? - Then he too qualifies to be eligible under this scheme. And if his name appeared second in a joint demat account before this date? - He still qualifies to open one under this scheme as a first holder. If an investor opened a demat account to invest in a Gold ETF does that disqualify him? - No. Since the demat account has no equity security, the individual will be considered a new retail investor. How much needs to be invested?There is no restriction on the amount to be invested – minimum or maximum. However, only Rs50,000 is considered for tax purposes. Of this, only 50%, or Rs 25,000, is allowed as deduction.Even if you invest less than the upper limit of Rs 50,000, only 50% of what you invest is allowedas a deduction.Do note that additional expenses incurred on the acquisition of eligible securities like brokerage,stamp duty, securities transaction tax (STT), service tax etc will not be considered.
What can be bought? Stocks from the universe that comprise the BSE-100 or CNX-100 Shares of listed Navratna, Maharatna and Miniratna public sector enterprises - Click here to see which stocks fall into this category Initial Public Offerings (IPOs) of PSUs with turnover more than Rs 4,000 crore and where the government shareholding pattern is at least 51% 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 mechanismSince a direct investment in equity needs considerable expertise, a first-time investor is notadvised to take the plunge. They can opt for the mutual fund route.Various mutual fund houses have also started filing offer documents for eligible schemes withthe Securities and Exchange Board of India (SEBI). A few new fund offerings (NFOs) are alsoexpected to hit the market soon.As per regulations, the initial offering period of any mutual fund should not be more than 15days. But schemes eligible under RGESS have it extended right up to 30 days. Will investment in a regular open-ended diversified equity fund qualify?Only mutual fund schemes whose units are listed and traded on the stock exchange and settledthrough the depository mechanism qualify for Section 80CCG benefits. Since open-endedmutual fund schemes are currently not allowed to be listed on the stock exchange, investmentsin any fund will not qualify. Is there a lock-in period?There is an overall lock-in period of 3 years which is further divided.The first year is the fixed lock-in period. During this time frame, the investor will not bepermitted to sell, pledge or hypothecate any of the shares.The next two years are the flexible lock-in years. The investor can sell but will have to buy othereligible securities with the proceeds in the same financial year. Meaning that the buying andselling will have to be done in the same financial year. This is to ensure adherence to acumulative holding period of 270 days during each of the 2 years of flexible lock-in. Is this over and above the Section 80C limit?Yes. This benefit is over and above the Rs 1 lakh limit under Section 80C.
Should you?Before an investor decides to go ahead, bear one very important fact in mind. The tax savingsare only for the first year, not subsequent years. So to avail of the maximum amount ofdeduction (Rs 25,000), the investor would need Rs 50,000 to invest. If you are running short ofmoney, then maybe it would make sense to hold on till the next next financial year. Since this isa once-in-a-lifetime benefit, make the best use of it.Also, the maximum savings would be Rs 5,000 (20% tax bracket) and Rs 2,500 (10% taxbracket). So if you invest a small amount, the tax saving would be negligible.To read about the benefits of tax-saving funds under Section 80C, click hereTo 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.