BANKING CONCEPTS: RAJIV GANDHI EQUITY SAVINGS SCHEME

Rajiv Gandhi Equity Savings Scheme

Rajiv Gandhi Equity Savings Scheme or 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.

Important Facts about the Scheme:

1. Who can invest under this scheme?

i. Anybody who has not invested in equities before and has a gross total annual income of Rs12 lakh or less. Which means, you have not opened a demat account in the past. You have not made any transactions in equity and derivatives in the past (until November 23, 2012.) 

ii. However, if you do have a demat account but have not done equity or futures and options transaction in the past (until November 23, 2012), you can invest in RGESS. If you are a joint demat account holder (2nd or 3rd account holder), you can open a new demat account as the 1st holder and invest in RGESS.

2. How much you can invest?

i. You can make any amount of investments, but the amount eligible for an income tax deduction is a maximum amount of Rs 50,000.

3. How to invest?

i.  To invest in RGESS, you will need to open a demat account. You will also have to fill in declaration Form A to the Depositary Participant (DP).

4. What is the lock in period?

There is a lock-in period of total three years. This lock-in period is further divided into two – fixed and flexible.

i. Fixed Lock-in: The first one year from the date of investment is a fixed lock-in. During this period, you cannot sell any securities or pledge them to get loans.

ii. Flexible Lock-in: The flexible lock-in period is for next two years from the date of the end of the fixed lock-in period. During this period, you are permitted to buy and sell eligible securities, provided that for a cumulative period of 270 days each year, you are maintaining the value of your initial investment. In short, the value of the investment portfolio should be equal to or more than the amount you’ve claimed as investments for the purpose of deduction under Section 80 CCG.

5. Expiry of period?

Once the period of holding expires, the demat account will be converted automatically into an ordinary demat account.

6. Tax benefits?

i. To avail of tax deduction, an investor has to open a new RGESS designated demat account or designate for this purpose his existing demat account, where no trading has taken place before 23 November. 

ii. As per the Indian Income tax, a deduction is up to 50 percent of the amount invested in such equity shares to the extent such deduction does not exceed Rs 25,000. So, if you are in the lowest tax bracket of 10 percent your tax benefit will be Rs 2,500. And, if you are in the 20 percent tax bracket, your tax benefit will be Rs 5,000.

7. Listed securities in which investment can be made?

The eligible securities include stocks listed on the BSE-100, CNX 100 indices, Maharatna, Navratna or Miniratna PSU companies, IPOs of PSUs with an annual turnover of more than Rs 4,000 crore and RGESS-compliant mutual fund ETFs.

NOTE: i. A first-timer has been defined as the one who has not opened a demat account as a 'first holder' before the notification date of 23 November 2012, even if his name appears in a joint demat account opened before this date.

ii. The investor who has opened a demat account as first holder before the notification date but has not bought any shares or traded in the futures and options segment will also be considered as a first-time investor.