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+ Expand AllRajiv Gandhi equity saving scheme (RGESS) FAQs
QWhat is the purpose of Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS)?A
The objective of RGESS is to encourage flow of savings of the small investors in domestic capital market.
QWhat benefits does RGESS offer to small investors?A
Under RGESS, a new section 80CCG has been introduced in the Income Tax Act, 1961.It offers tax benefits to 'New Retail Investors' whose gross total income is less than or equal to Rs.10 Lakhs and who wish to invest up to Rs.50,000 in 'Eligible Securities'.
QWho is a 'New Retail Investor'?A
New Retail Investor' means any resident Individual who has:
- opened no demat account and done no transaction in the derivative segment as on the date of notification of the scheme i.e., November 23, 2012 OR
- opened a demat account [as a 'Sole/First Holder'] but done no transaction in the equity or derivatives segment till November 23, 2012 OR
- opened a joint demat account [not as a 'First Holder'] and done no transaction in the derivatives segment till November 23, 2012
QWhich are the 'Eligible Securities' under the scheme?A
- Equity shares of selected companies which includes:
- Companies falling in the list of 'CNX-100' of NSE or 'BSE-100' of BSE
- Public sector enterprises categorized as Maharatna, Navratna or Miniratna by the Central Government Anytime between 3.30 p.m. to 9.00 a.m.
- Units of Exchange Traded Funds(ETFs)and Mutual Fund (MF) schemes which are RGESS compliant
- Equity shares of selected companies which includes:
QWhat is the maximum amount that you may invest under RGESS for availing tax benefits?A
You may invest any amount up to Rs.50,000 in eligible securities to be held in your demat account designated for RGESS for availing tax benefits.
QCan you invest more than Rs.50,000 and claim tax benefit under RGESS?A
You may invest any amount in a demat account designated under RGESS but the benefit under the Scheme can be claimed only on investment up to Rs. 50,000.
QWhat will be the basis for valuation of initial investment made under RGESS for availing tax benefit?A
Valuation of investments (up to Rs.50,000) for availing tax benefits under RGESS will be based on the cost of acquisition of eligible securities excluding brokerage charges, Securities Transaction Tax, stamp duty, service tax and all taxes which are appearing in the contract note issued by the stock broker.
QHow much tax benefit will I avail under RGESS?A
Under RGESS, you are eligible to claim deduction of 50% on the amount invested in eligible securities from your taxable income for the financial year in which such investment is made.
Let us say, you invest Rs.50,000 under RGESS, the amount eligible for deduction from your taxable income will be Rs.25,000. Similarly, if you invest Rs.40,000 under RGESS, the amount eligible for deduction from your taxable income will be Rs.20,000.
QIs this deduction under RGESS over and above the limit of Rs.1,00,000 currently available under Section 80C of Income Tax Act ?A
Yes. The deduction of Rs.25,000 (provided you invest Rs.50,000 under RGESS) offered under Section 80CCG for RGESS is in addition to the deduction of Rs.1,00,000 currently available under Section 80C of Income Tax Act.
QWhat are the formalities that I need to fulfill to open demat account?A
You are required to fulfill the KYC norms prescribed by SEBI by submitting proof of identity, proof of address, copy of PAN card, etc. to the DP with whom you wish to open a demat account along with a declaration in prescribed format (i.e., 'Form A') for availing RGESS benefits.
QCan I designate an existing demat account under RGESS?A
Yes, provided you are eligible as a 'new retail investor' under RGESS. To designate your existing demat account under RGESS you need to submit a declaration in prescribed format (i.e., 'Form A') to your DP. You may invest any amount in a demat account designated under RGESS but the benefit under the Scheme can be claimed only on investment up to Rs. 50,000.
QWhere will I get 'Form A'?A
You can get 'Form A' from your DP.
QCan I designate or open more than one demat account for RGESS?A
No. You can have only one demat account under RGESS across depositories (i.e., NSDL / CDSL).
QWhat will be the mode of holding eligible securities?A
The mode of holding eligible securities under RGESS will be in a 'Demat account'.
QCan I hold other securities i.e., other than eligible securities in my demat account designated for RGESS?A
Yes. Other securities (viz., equity shares, debentures, bonds, mutual fund units, etc.) can be held in the demat account designated for RGESS.
QHow to make RGESS eligible investments?A
- Open a new demat account with any DP and designate it under RGESS or designate your existing demat account under RGESS.
- You may approach any SEBI registered stock broker for making investment in any eligible securities from the secondary market.
- In case you are investing in mutual funds through any distributor, you need to simply provide your demat account details like Demat Account Number and DP ID for receiving credit of the mutual fund units into the demat account.
QWhat is the holding period for investments made under RGESS?A
Investment holding period under RGESS is of three years which includes 'Fixed Lock-in' of one year and 'Flexible lock-in' of two years.
Let us say, you have purchasedeligible securities worth Rs. 50,000 in a RGESS designated demat account on December 31, 2012. The eligible securities will be in 'Fixed lock-in' till December 30, 2013 and for flexible lock-in till December 30, 2015.
In case you intend to sell investment made under RGESS within three years, it can be done only after completion of 'Fixed Lock-in' period, subject to certain conditions.
QHow long is the 'Fixed Lock-in' period?A
'Fixed Lock-in' period shall commence from the date of purchase of first set of eligible securities in the relevant financial year and end one year from the date of purchase of the last set of eligible securities (in the same financial year).
If you have purchased first set of eligible securities worth Rs. 20,000 on December 25, 2012 and next set of eligible securities worth Rs. 20,000 on December 31, 2012 in a RGESS designated demat account, then the 'Fixed lock-in' period for both set of eligible securities will start from December 25, 2012 and will end on December 30, 2013.
QHow will the eligible securities be locked-in? Can I invest in eligible securities into the same account and not subject such investments for RGESS lock-in?A
The eligible securities brought into the demat account will be automatically locked-in subject to investment limit of Rs.50,000/-
However, if you do not want certain securities credited to your demat account to be considered for the RGESS, then a declaration in the prescribed format (i.e. 'Form B') should be submitted to the DP within a period of one month from the date of the transaction.
QCan I sell eligible securities declared for RGESS during 'Fixed Lock-in' period?A
No. You are not allowed to sell, pledge or hypothecate eligible securities during 'Fixed Lock-in' period.
QCan I claim tax deduction in respect of amount invested in eligible securities which are specified in Form B?A
QWhat is 'Flexible Lock-in' period?A
The period of two years beginning immediately after the end of the fixed lock-in period shall be called the 'Flexible Lock-in' period.
During 'Flexible lock-in' period, you can sell eligible securities held in your demat account, subject to certain conditions which are as follows:
A) In case you sell eligible securities during 'Flexible lock-in' period and value of investment portfolio held under RGESS within 'Flexible lock-in' period remain equal to or higher than the amount claimed as investment for the purpose of deduction under section 80CCG of IT Act, for a cumulative period of a minimum of two hundred and seventy days during each of the two years of the flexible lock-in period
In short - You can sell the shares provided the value of holding remains the same as the amount invested in year 1 on which you've claimed the tax benefit
Example - If you've invested Rs 30,000 in year 1, and if the value appreciates to Rs 50,000, you may sell up to Rs 20,000 in year 2
B) In case value of investment portfolio held under RGESS within 'Flexible lock-in' period fall due to fall in the market rate of eligible securities and you sell eligible securities during 'Flexible lock-in' period, then value of investment portfolio under RGESS for a cumulative period of a minimum of two hundred and seventy days during each of the two years of the flexible lock-in period should be equal to or higher than:
i) The amount claimed as investment for the purpose of deduction under section 80CCG of the IT Act
ii) The value of investment portfolio held under RGESS before such sell whichever is lower.
If you invested Rs. 40,000 in year 1, and if the value falls to Rs 30,000 in year 2 and you sell securities worth Rs. 20,000, then you need to maintain the minimum shares worth Rs. 30,000 in year 2 for a period of 270 days cumulatively.
QWhat will happen to my demat account at the end of flexible lock-in period?A
Your demat account designated for RGESS will be converted into a regular or ordinary demat account at the end of the flexible lock-in period.
QWhat will happen in case I fail to comply with any condition specified in the scheme?A
The deduction availed under the scheme will be added back to your taxable income for the financial year in which you have failed to comply with any condition specified under RGESS and you shall be liable to tax as per the provisions of the Income Tax Act, 1961.
Why Demat Account?
- Mandatory by SEBI
- Easy Portfolio Management
- Security of Equity Investments.
Read about RGESS