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Friday, September 21, 2012

Rajiv Gandhi Equity Saving Scheme(RGESS)



RGESS was proposed by the former finance minister Mr. Pranav Mukharji -now president of the nation in budget. This scheme shall provide income tax benefits to investors having annual income below Rs. 10 lakh . RGESS is restricted to first time investors only.

What is this scheme?

First time investor with annual income not exceeding Rs. 10 lakh can invest up to Rs. 50,000 in equities, mutual funds and ETFs (Exchange Traded Funds) to avail a deduction of 50 %  of the investment from the taxable income for that year.

If Mr. Verma who is a first time investor in equity with annual income of Rs. 6,00,000, invests a sum of Rs. 50,000 under this scheme  then he shall get a deduction of Rs. 25,000.
So, taxable income for Mr. Verma shall be Rs. 5,75,000. This scheme is besides the 80-C investment scheme.
Under RGESS, investment should be done in top-100 shares of BSE’s ‘BSE 100’ or NSE’s ‘CNX 100’ or public sector companies of Mahratna, Navratna or Miniratna stature .
Besides this, investment in IPOs and FPOs of public sector undertakings having a turnover over Rs. 4,000 crore shall also qualify as investment under RGESS scheme.
For this,Mutual funds and ETF’s should be RGESS compliant that means they should also invest in aforementioned shares only . Investment in RGESS-non-compliant mutual funds shall not qualify for the deduction under this scheme.

FAQ:

   (1)    I have an old demat account. Shall I qualify for this scheme?
Ans: Provided you have not invested in shares before. Only first time investors shall qualify for this scheme.
   
   (2)    How government will find out my old transactions?
Ans: Your PAN shall speak for that.
   
   (3)    Which IT section will incorporate this scheme?
Ans: new section- 80CCG
    
   (4)    Is there any lock in period?
Ans: Yes. A lock-in period of 3 years. However, an investor can sell his holding after completion of the first year.Conditions under this clause are ambiguous and it’s better to wait for further clarification from the government over it.
     
     (5)    I never transacted in shares but I have invested in mutual funds before.
Again, FM shall have to clarify this ambiguity. I hope that FM shall consider  investors with prior investment in mutual funds as eligible for this scheme.



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