The Union
Finance Minister, Shri. P. Chidambaram approved a new tax saving scheme
called “Rajiv Gandhi Equity Saving
Scheme“(RGESS), exclusively for the first time retail investors in securities
market. This Scheme would give tax
benefits to new investors who invest up to Rs. 50,000 and whose annual income
is below Rs. 10 lakh.
The Scheme not only encourages
the flow of savings and improves the depth of domestic capital markets, but also
aims to promote an ‘equity culture’ in India.
This is also expected to widen the retail investor base in the Indian securities markets.
Salient features of the Scheme
are as under:
a. Scheme is open to new retail
investors, identified on the basis of their PAN numbers. This includes those
who have opened the Demat account but have not made any transaction in equity
and /or in derivatives till the date of notification of this Scheme and all
those account holders other than the first account holder who wish to open a
fresh account.
b. Those investors whose annual
taxable income is ≤ Rs. 10 lakhs are eligible under the Scheme.
c. The maximum Investment
permissible under the Scheme is Rs.
50,000 and the investor would get a 50% deduction of the amount invested from
the taxable income for that year.
d. Under the Scheme, those stocks
listed under the BSE 100 or CNX 100, or those of public sector undertakings which are Navratnas, Maharatnas and Miniratnas
would be eligible. Follow-on Public Offers (FPOs) of the above companies would also be eligible under
the Scheme. IPOs of PSUs, which are
getting listed in the relevant financial year and whose annual turnover is not
less than Rs. 4000 cr for each of the immediate past three years, would also be
eligible.
e. In addition, considering the
requests from various stakeholders, Exchange Traded Funds (ETFs) and Mutual Funds
(MFs) that have RGESS eligible securities as their underlying and are listed
and traded in the stock exchanges and settled through a depository mechanism
have also been brought under RGESS.
f. To benefit the small
investors, the investments are allowed to be made in instalments in the year in
which tax claims are made.
g. The total lock-in period for
investments under the Scheme would be three years including an initial blanket lock-in
period of one year, commencing from the date of last purchase of securities
under RGESS.
h. After the first year,
investors would be allowed to trade in
the securities in furtherance of the goal of promoting an equity culture and as
a provision to protect them from adverse market movements or stock specific risks as well as to give them avenues
to realize profits.
i. Investors would, however, be
required to maintain their level of investment during these two years at the amount
for which they have claimed income tax benefit or at the value of the portfolio
before initiating a sale transaction, whichever is less, for at least 270 days
in a year. The calculation of 270 days includes those days pursuant to the day
on which the market value of the residual shares /units has automatically
touched the stipulated value after the date of debit.
j. The general principle under
which trading is allowed is that whatever is the value of stocks / units sold
by the investor from the RGESS portfolio, RGESS compliant securities
of at least the same value are
credited back into the account subsequently. However, the investor is allowed
to take benefits of the appreciation of his RGESS portfolio, provided its
value, as on the previous day of trading, remains above the investment for which
they have claimed income tax benefit.
k. For the purpose of valuation
of shares, the closing price as on the previous day of the date of trading will
be considered so that new investors are certain about their debits and credits
into the account.
l. In case the investor fails to
meet the conditions stipulated, the tax benefit will be withdrawn.
Like all financial products which
have reached out substantially to the retail investors (post office savings,
life insurance policies etc) through tax
benefits, this tax break for direct investment in equity is expected to
substantially encourage the retail participation in securities market as well
as to enhance their participation in the growth of Indian industry. Entry of
more retail investors are expected to further deepen the securities markets as
they bring in long-term stable funds, which can counteract the volatility
created by the liquidity providers of the market. The Scheme, thus, also furthers the goal of financial stability and promotes
financial inclusion. Since Exchange Traded Funds and Mutual Funds have also
been brought under the Scheme, the Scheme should provide encouragement and
re-assurance to the first time investors.
The broad provisions of the Scheme and the income tax benefits under it
have already been incorporated as a new Section -80CCG- of
the Income Tax Act, 1961, as amended by the Finance Act, 2012.
Department of Revenue will
notify the Scheme and SEBI
will issue the relevant circulars to operationalize
the Scheme in the next two weeks
