What is RGESS?
Rajiv Gandhi Equity Savings Scheme (RGESS), is a tax saving scheme announced in the Union Budget 2012-13 (para 35). The scheme is designed exclusively for the first time retail individual investors in securities market, whose gross total income for the year is less than or equal to Rs. 10 lakh. The investor would get under Section 80 CCG of the Income Tax Act, a 50% deduction of the amount so invested, upto a maximum investment of Rs. 50,000, from his/her taxable income for that year.
What is the objective of the Scheme?
As announced in the Union Budget 2012-13, the objective of the Scheme is to encourage the flow of savings and to improve the depth of domestic capital markets. This would help in promoting an equity culture’ in India. The Scheme aims at widening the retail investor base in the Indian securities markets and also furthers the goal of financial stability and financial inclusion.
What is the legal provision for RGESS?
A new section 80 CCG under the Income tax Act, 1961 on ‘Deduction in respect of investment under an equity savings scheme’ was introduced, vide Finance Act 2012, to give tax benefits to ‘New Retail Investors’ who invest up to Rs.50,000 in ‘Eligible Securities’ and whose gross total annual income is less than or equal to Rs.10 Lakhs. The details of the RGESS Scheme were notified on 23 November 2012(Section No. 2777(E); Notification No. 51) and vide subsequent corrigendum dated 5 December 2012(Section No. 2835(E); Notification No. 53) by Department of Revenue. The operational guidelines were issued by SEBI on 6 December 2012.
Would first time investors not lose money in the equity market? Would it be too dangerous for them to invest in it?
The investors in the RGESS run the risk of losing money in the equity market, like any other investor in the securities market. The Scheme does not provide any guarantee of assured returns. Therefore, investors under RGESS are advised to do due diligence before making any investments in the equity market. However, while designing the Scheme, safeguards like, restricting the investments to select large cap stocks, lock-in period with enough flexibility to take benefits of the positive market movements etc. have been provided to protect the interests of the first time investors. To give the benefit of diversification and consequent risk minimization, investments into Exchange Traded Funds (ETFs) or Mutual funds, set up as per the criteria laid down in the scheme, are also allowed under the Scheme.
What are the benefits/ highlights of RGESS compared to other tax saving schemes?
The following are the benefits of RGESS:
- The allowed tax deduction u/s 80 CCG will be over and above the Rs. 1 Lakh limit permitted under Section 80C of the Income Tax (IT) Act, making it thus attractive for the middle class investors.
- Further, the Dividend income is also tax free.
- Investor is free to trade / churn the portfolio after the lock-in period in each of the years following the first year of investment, subject to certain conditions.
- Gains arising out of higher market valuation of RGESS eligible securities can be realized after a year viz: fixed lock – in period. Provisions exist to protect the investor from general declines in the market to a certain extent. This is in contrast to all other tax saving instruments.
- You can meet emergencies through pledging or even by selling off some stocks after the fixed lock in period.
- For investments upto Rs.50,000 in your sole RGESS demat account, if you opt for Basic Service Demat Account, annual maintenance charges for the demat account is zero and for investments upto Rs. 2 lakh, it is stipulated at Rs 100.
- The investments can be made in installments during the first financial year in which tax deduction is claimed.
Why RGESS Investments are limited to top 100 stocks?
The Scheme is designed for new investors who are venturing in the equity markets for the first time. The choice of investments have been restricted to the stocks included in BSE 100 or CNX 100 and to selected PSU stocks as they generally have shown relatively lower volatility, higher liquidity, and there is adequate reporting and analysis available in the market. The range of 100 stocks also provides enough scope for diversification of investments.
Read more FAQs about RGESS here: – http://www.rrfinance.com/PDF_Files/Faqs_2013-0024-Policy-FAQs-on-RGESS.pdf