Rajiv Gandhi Equity Saving Scheme (RGESS) has emerged as new equity saving scheme along with tax advantage for investors who want to explore the benefits in equity markets. This scheme is meant for new investors, who do not have prior experience of investing in the equity markets earlier. Each and every investment they make under this scheme would be a fresh addition to the stock market. RGESS is meant for new investors who are generally not aware of risk involved in the stock market. An individual investor should take cautious steps to invest in stocks because of the ever fluctuating financial markets. Hence, mutual fund equity oriented schemes should be included with direct equity investment option to protect investors from loss. RGESS offers just the same!
The Rajiv Gandhi Equity Savings Scheme was launched in 2012. Its purpose was to draw investors to the equity market for the first time. It was allowed for only those investors whose annual income was less than Rs. 12 lakhs. Contrary to the expected positive response from first-time equity investors, the RGESS scheme failed and was withdrawn by the Finance Minister Arun Jaitley during this year’s Union Budget.
The RGESS was framed to target and bring in investment to equities from such investors who didn’t have a demat account. Under Sec 80CCG of the Income Tax Act, 50% of the total investment in RGESS is allowed as a tax deduction with a cap on maximum investment up to Rs. 50,000. It means if you invest Rs. 50,000, you can claim a deduction of Rs. 25,000. So, depending on your slab rate, you can save from Rs. 2,500 (in the 10% slab) to Rs. 7,500 (in the 30% slab).
RGESS investments have a lock-in. The fixed lock-in period is one year while the flexible lock-in is two years after the fixed lock-in. Under the fixed lock-in, you can’t sell or pledge your RGESS investments.
Under the RGESS, you can invest in eligible stocks, Mutual Funds and ETFs to get tax benefits. In the equity segment, you can invest in shares listed on CNX 100, BSE 100, and stocks of PSUs.
After the 2017 Union Budget announcement, it is clear now that deductions under Section 80CCG won’t be allowed for the assessment year 2018-19. Investors who have already taken positions under the RGESS scheme shall be allowed to get the benefit of deduction till the assessment year 2019-20, provided that such investors opt to receive the deduction till that period.
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