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Top Questions Answered About the Rajiv Gandhi Equity Savings Scheme

There has been a lot of buzz lately surrounding the new Section 80 CCG introduced in last year’s Union Budget that allowed investors to claim deductions in lieu of investments made in the Rajiv Gandhi Equity Savings Scheme.

Popularly known as the RGESS, the investment scheme was launched with the ultimate objective of providing investors an additional avenue to save tax as well as grow their investments.

 There have been a lot of queries revolving around the nitty-gritty of how exactly one can go ahead and make investments in the scheme and whether it would be worthwhile to invest in the scheme.

This article aims to answer some of the most common questions investors have regarding the scheme.

Who Qualifies for the Scheme?

Any investor who has a gross total annual income of 10 lakhs or less and has not invested in equities in the past is eligible to invest in the scheme.

Once again, investors need to be aware of the fact that for them to quality for investments, they shouldn’t have opened a demat account or made any transactions in equity or derivatives in the past.

Those of whom who do indeed have a demat account but haven’t made any equity investments or transactions are, however, eligible to opt for the scheme.

What is the Quantum of Investments I Can Make?

There is no upper limit fixed on the amount of investment you can make, however, investor’s need to make note of the fact that the tax deduction offered is up to a maximum amount of Rs. 50,000.

How Do I Go About Investing in the Scheme?

All you need to do to make investments in the scheme is to open a demat account and submit a declaration form A to the depositary participant you have opened the demat account with.

Do We Have a Lock-In Period?

Like any other investment avenue that offers tax benefits, the RGESS too comes with a 3-year lock-in period.   The primary differentiator, however is that the lock-in period is split into two phases – a fixed phase and a flexible phase.

The fixed lock-in period basically covers the investments done in the first year of investment effective the date on which you make the investment.  The investor cannot do any transaction with the invested amount during the fixed lock-in period.

On the other hand, the flexible lock-in period constitutes of the remaining 2 years of the lock-in period where investors are allowed to buy or sell the accumulated securities under the scheme.   Investors, however, need to maintain the value of their portfolio that is more than or equal to the amount they have claimed as tax deduction in the previous year.

What Happens to the Demat Account After the Lock-In Period?

At the completion of the lock-in period, the demat account is by default converted to a regular demat account.

How Much Tax Do I Get to Save?

As stated earlier in the article, the maximum deduction you can claim for your investments is Rs. 50,000 and you get to avail deductions of up to 50% of the eligible invested amount.  For instance, those of whom who fall in the 10% bracket stand to gain a benefit of Rs. 2,500 while those in the 20% tax bracket can expect to save up to Rs. 5,000.

Should I Go Ahead and Invest in the Scheme?

The Rajiv Gandhi Equity Savings Scheme offers an excellent opportunity for new retail investors who are just starting to make investments in equity schemes and equity markets.  Mentioned below are some salient benefits of the scheme:

 

Ø It’s a great opportunity for small retail investors to make an entry in the equity market and at the same time save tax.

 

Ø The scheme offers additional avenue for claiming tax benefits over and above the existing tax saving avenues under the Indian IT Act.

 

Ø Investors can choose to capitalize on the gains made during the first year of investment right from the second year onwards (flexible lock-in period).  This is a one-of-its kind feature not available with other tax saving schemes.

 

Ø You can make investments in easy installments during the year you intend to file your claims.

 

Ø Dividend payments are treated as tax free.

 

 Disclaimer: Kotak Securities Limited, Reg office: Bhaktawar, 1st floor, 229, Nariman Point, Mumbai 400021 Tel no: 022 - 66341100. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Tel no: 66056825. SEBI Reg Nos: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MCXSX INE 260808130, NSDL: IN-DP-NSDL-23-97, CDSL: IN-DP-CDSL-158-200. Investments in securities are subject to market risk, please read the SEBI prescribed Risk Disclosure Document prior to investing. Mutual Fund Investments are subject to market risks, please read the offer document carefully prior to investing.

 

Author Bio:

Kotak Securities Limited is a distributor of IPO and Mutual Fund. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile, and the like and take professional advice before investing. Author Bio: Kotak Securities is one of India’s largest share broking firm offering demat account services, mutual fund & IPO investing service’s along with a research division specializing in Sectoral Research and Company Specific Equity Research. We also provide you with the opportunity to invest in the renowned RGESS (Rajiv Gandhi Equity Savings Scheme) thus helping you diversify your investments.

 

 

 

 

 

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