The document discusses the Rajiv Gandhi Equity Savings Scheme (RGESS), which aims to encourage first-time investors to invest in capital markets. Under RGESS, new retail investors with annual income under Rs. 12 lakhs can claim a tax deduction of up to 50% of the amount invested in eligible securities up to Rs. 50,000. Eligible securities include stocks in the CNX 100 and BSE 100 indices and PSU stocks. Investments must be held for 3 years to receive the tax benefits, with a one year initial lock-in period. The maximum potential tax savings are relatively small at around Rs. 7,500 over 3 years. Overall, RGESS provides limited incentives for first-time

1. Rajiv Gandhi Equity Saving
Scheme
PROFESSOR
• Priyank Misra DR. Kumar Bijoy
• 75140 (CFA,Msc,MA)
CLASS
• Puneet Arora
• 75141 BFIA 2B(2012-13)
• Shantanu Vashishth PAPER
• 75150 Financial Markets , Institutions
and Instruments

2. Contents
• What is RGESS?
• Meaning of a ‘new retail investor’?
• Eligible Securities
• Procedure of Investment
 Procedure for investors with a newly opened Demat account
 Procedure for investors having Demat account but no prior trading
• Tax Benefits
 Illustration 1
 Illustration 2
 Illustration 3
• Holding Period & related matters
• Effect of Non-compliance
• Status of RGESS Demat accounts
• ELSS v/s RGESS

3. What is RGESS?
 Rajiv Gandhi Equity Saving Scheme (RGESS) is a new
initiative by the government of India aimed encouraging
first time investors to channelize their savings into the
capital markets.
 As an incentive, a one-time deduction will be
available to the new retail investor, whose gross total
annual income does not exceed Rs. 12 lakhs, on the
50% of the amount invested in ‘eligible securities’ in the
financial year, subject to maximum investment limit of
Rs 50,000.
 For the purpose of claiming benefit under RGESS, the
investor needs to invest in select approved securities as
notified by the government.

4. Meaning of new retail investor
 “New Retail Investor” means the following resident
individuals:-
 (a) any individual who has not opened a demat account and has
not made any transactions in the derivative segment as on the
date of notification of the Scheme;
 (b) any individual who has opened a demat account before the
notification of the Scheme but has not made any transactions in
the equity segment or the derivative segment till the date of
notification of the Scheme,
 and any individual who is not the first account holder of an
existing joint demat account shall be deemed to have not
opened a demat account for the purposes of this Scheme

5.  Equity shares included in the NSE CNX-100 & BSE-100.
 Equity shares of PSU categorized as Maharatna, Miniratna
or Navratna.
 Units of ETFs & MFs with eligible securities as underlying
and provided they are listed and traded on a stock
exchange and settled through a depository mechanism.
 FPO or NFOs of above eligible securities.
 IPO's of PSUs with at least 51% government holding and 3
year annual turnover of more than Rs. 4000 crore.
Note: The security should be RGESS eligible at the time of investment. Such security will be
considered for RGESS investment, even if it becomes ineligible at a later date

6. PROCEDURE FOR EXISTING
INVESTORS:
•Designate existing demat account for RGESS .
•Open a broking account, if not opened
•PAN compliant account.
•Submit declaration in Form A to DP.

7. PROCEDURE FOR RGESS
INVESTMENT:
 A new retail investor can make investments under the Scheme in the
following manner:
 Open a Demat account with a broker.
 An investor can invest in eligible securities in one or more transactions during the year
in which the deduction has to be claimed.
 An investor can make any amount of investment in the Demat account but the amount
eligible for deduction, under the Scheme will not exceed fifty thousand rupees.
 The eligible securities brought into the Demat account, as declared or designated by the
new retail investor, will automatically be subject to lock-in during its first year, unless
the new retail investor specifies otherwise and for such specification, the new retail
investor will submit a declaration in Form B indicating that such securities are not to be
included within the above limit of investment.
 An investor will be eligible for a deduction under subsection (1) of section 80CCG of the
Act in respect of the actual amount invested in eligible securities , in the first financial
year in respect of which a declaration in Form B.

8.  An investor who has claimed a deduction under sub- section (1) of section
80CCG of the Act, in any assessment year, will not be allowed any deduction
under the Scheme for any subsequent assessment year;
 An investor will be permitted a grace period of three trading days from the end
of the financial year so that the eligible securities purchased on the last trading
day of the financial year also get credited in the Demat account and such
securities will be deemed to have been purchased in the financial year itself.
 An investor may also keep securities other than the eligible securities in the
Demat account through which benefits under the Scheme are availed.
 An investor can make investments in securities other than the eligible securities
covered under the Scheme and such investments will not be subject to the
conditions of the Scheme nor will they be counted for availing the benefit under
the Scheme.
 The investment under the Scheme will consist of an investment in any of the
eligible securities covered under the Scheme.
 Deductions claimed will be withdrawn if the lock-in period requirements of the
investment are not complied with or any other condition of the Scheme is
violated.

9. TAX BENEFITS
 Tax Benefit u/s 80CCG – deduction from total income.
 Deduction of 50% of amount invested. Deduction not to
exceed Rs. 25,000.
 Deduction permitted 3 years.

10. ILLUSTRATION
• Case 1:Taxable income<500000
Particulars Individual A Individual B
GTI 5,00,000.00 5,00,000.00
less:deduction under
section 80c to 80u 1,00,000.00 1,00,000.00
less:deduction under
section 80ccg 25,000.00 0.00
GTI after deduction 3,75,000.00 4,00,000.00
taxable income 1,75,000.00 2,00,000.00
tax payable 17,500.00 20,000.00
tax saving 2,500.00
no. of years 3
total savings 7,500.00

11. • Case 2:Taxable income <100000
Particulars Individual A Individual B
GTI 10,00,000.00 10,00,000.00
less:deduction under section
80c to 80u 1,00,000.00 1,00,000.00
less:deduction under section
80ccg 25,000.00 0.00
GTI after deduction 8,75,000.00 9,00,000.00
tax payable 1,05,000.00 1,10,000.00
tax saving 5,000.00
no. of years 3
total savings 15,000.00

12. Case 3: Taxable income<1000000
Particulars Individual A Individual B
GTI 12,00,000.00 12,00,000.00
less:deduction under section
80c to 80u 1,00,000.00 1,00,000.00
less:deduction under section
80ccg 25,000.00 0.00
GTI after deduction 10,75,000.00 11,00,000.00
tax payable 1,52,500.00 1,60,000.00
tax saving 7,500.00
no. of years 3
total savings 22,500.00

13. • Holding Period
① Investments are required to be held for a period called the fixed lock-in period. The
fixed lock-in period will commence from the date of first investment in the relevant
financial year and end one year from the date of last eligible investment in the same
financial year.
② An investor is not permitted to sell, pledge or hypothecate any eligible investment
during the fixed lock-in period.
③ The period of two years beginning immediately after the end of the fixed lock-in

14. ④ The new retail investor is permitted to trade the eligible securities after the
completion of the fixed lock-in period subject to the following conditions:
 The new retail investor will ensure that the Demat account under the Scheme is
compliant for a cumulative period of a minimum of two hundred and seventy days
during each of the two years of the flexible lock-in period as laid down hereunder:
A. The Demat account will be considered compliant for the number of days where
value of the investment portfolio of eligible securities , within the flexible lock-
in period, is equal to or higher than the amount claimed as investment for the
purposes of deduction under section 80CCG of the Act
B. In case the value of investment portfolio in the Demat account falls due to a fall
in the market rate of eligible securities in the flexible lock-in period, then
notwithstanding sub clause(A),
I. The Demat account will be considered compliant from the first day of the
flexible lock-in period to the day any such eligible securities are sold during this
period

15. II. Where the assessee sells the eligible securities mentioned in sub-clause (B) from his
Demat account, he will have to purchase eligible securities and the said Demat account
will be compliant from the day on which the value of the investment portfolio in the
account becomes:
i. at least equivalent to the investment claimed as eligible for deduction under
section 80CCG of the Act or;
ii. the value of the investment portfolio under the Scheme before such sale,
whichever is less

16. ⑤ An investor's Demat account created under the Scheme will automatically convert
into an ordinary Demat account on the expiry of the holding period of the eligible
investment.
⑥ For the purpose of valuation of investment during the flexible lock-in period, the
closing price as on the previous day of the date of trading, will be considered.
⑦ The total cost of acquisition of eligible securities will not include brokerage
charges, securities transaction tax, stamp duty, service tax and all taxes, which are
appearing in the contract note.
⑧ If the eligible investment undergoes a change as a result of involuntary corporate
actions like demerger of companies, amalgamation, etc. resulting in debit or credit of
securities covered under the Scheme, the deduction claimed by such investor will
not be affected.
⑨ In case of voluntary corporate actions like buy-back, etc. where a new retail investor
has an option to exercise his/her choice, the resulting debit will be considered as a
sale transaction for the purpose of the Scheme.
⑩ SEBI will notify the corporate actions allowed under the Scheme in this regard.

17. Effect of Non-Compliance
 Deduction claimed will be withdrawn.
 Deemed to be income of the assesse of such previous year
.
 Liable to tax .

19. Status of Rajiv Gandhi Equity Savings
Scheme, 2012 (RGESS)
RGESS accounts with NSDL

20. ELSS v/s RGESS
BASIS RGESS ELSS
Eligibility Annual Income<1200000 none
Lock-in period 1+2 years 3 years
Tax Benefits 50%(80CCG) 100%(80C)
Max. Investment limit for 50000 100000
Exemption
Need for Demat Yes no
Equity linked Yes yes
Annual Return Market based Market based
Investment Channel Investments are to be made Investments are in mutual
directly in selected equity or funds which invests mostly in
into a combination of equity equity (80-100% in equity)
including mutual funds,
Exchange Traded Funds, and
select IPOs of PSUs
Since investments are in Since investments are in
Risk equity / risk / ownership mutual funds, it is perceived
capital, risk is perceived to be to be less risky.

21. Final Verdict
While an additional tax deduction of up to Rs 25,000 appears good , the real impact
on your tax savings is not substantial.
The maximum tax benefit one can gain after all the above complications is up to a
maximum of Rs.7500/- depending on the individual’s tax bracket.
Though the scheme was started with provision of deduction for one year only, this
budget the provision for deduction has been extended to 3 years, however, still the
benefit that will accrue is insignificant.
Investors who have stayed away from stock markets have a very small incentive of
entering stock market. Even this incentive will be washed away by the complicated
‘holding period’ norms and exposure to the vicissitudes of the market.
Up till now, BI, IDBI and DSP BlackRock are the only ones who have filed offer
documents with SEBI to launch RGESS funds. This ,again, reflects the lukewarm
sentiment towards this scheme.
Even for those who might consider this scheme,the investment universe of RGESS is also
very narrow. Only, Shares in NSE 100 or BSE 100 and a set of other PSUs are eligible.

22. The government has failed to realize that what has kept investors away from mutual
funds is the failure of Mutual Funds and stocks. Tiny tax benefits are unlikely to motivate
investors. As such, the RGESS scheme is more regress than progress.
Essentially, one can see that RGESS was more to promote Rajiv Gandhi than
equity savings scheme!

23. References
 http://rgess.com/eligibility
 https://nsdl.co.in/index.php
 http://www.cdslindia.com/
 http://www.sebi.gov.in/sebiweb/
 http://www.bseindia.com/
 http://nseindia.com/