Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS) was introduced in Budget 2012-13 as a new tax saving investment by investing in eligible stocks and mutual funds through Demat account.
RGESS would offer tax benefit under the Income Tax Act, 1961 under section 80CCG. (Read more here)
‘New Retail Investors’ who invest maximum of Rs 50,000 in ‘Eligible Securities’ and have gross total annual income less than or equal to Rs.
10 Lakhs 12 Lakhs (changed in Budget 2013) are eligible for tax deduction.
For RGESS A ‘New Retail Investor’ is any resident Individual
- who has not opened a demat account as on the date of notification of the scheme i.e., November 23, 2012. OR
- who has opened a demat account as a first holder, but has not transacted in the equity or derivate segment till November 23, 2012. OR
- who has a demat account as a joint holder.
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RGESS: Eligible Stocks & Mutual Funds
For complete list of RGESS eligible stocks and Mutual Funds Click here.
- Shares of companies included in ‘CNX-100’ Index of NSE or BSE-100 Index of BSE
- Public sector enterprises which are categorized as Maharatna, Navratna or Miniratna by the Central Government.
- Follow on public offer of above eligible shares of companies
- Exchange Traded Funds and Mutual Fund schemes with RGESS eligible securities as underlying.
- New fund offers of eligible mutual fund schemes.
- IPO of public sector undertaking wherein the government shareholding is at least fifty-one per cent, which is scheduled for getting listed in the relevant previous year and whose annual turnover is not less than four thousand crore rupees during each of the preceding three years.
How much tax can be saved by investing in RGESS?
Under RGESS, you are eligible for a tax deduction on 50% of the amount invested.
Let us say, you invest Rs 50,000 under RGESS, the amount eligible for tax deduction from your income will be Rs 25,000. Alternatively, if you invest Rs 40,000 under RGESS, the amount eligible for tax deduction will be Rs.20,000.
Also you can invest in eligible securities above the limit of Rs. 50,000, but benefit under the Scheme can be claimed only on investment upto Rs. 50,000.
What is the holding period for investments made under RGESS?
Once the investments are made in the eligible securities, they will be locked-in from the date of investment till one year from the date of last purchase of RGESS eligible securities. This period is called ‘Fixed Lock-in’ during which you cannot pledge or sell these securities.
During subsequent two years called as Flexible Lock-in, you can sell and buy RGESS securities.
However, you will have to maintain the value of RGESS investment for cumulative period of 270 days during each of these two years.
Let us say, you have purchased eligible 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
What is ‘Flexible Lock-in’ period?
During ‘Flexible lock-in’ period, you can sell your eligible securities, subject to certain conditions which are as follows:
If you sell eligible securities during ‘Flexible lock-in’ period, then investment under RGESS must be
- at least equivalent to investment claimed as eligible for deduction or
- Equal the value of investment portfolio before such sale, whichever is less
This can be by way of increase in market value. This condition must be met for cumulative period of 270 days in a year for two years.
How 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?
The eligible securities brought into the demat account will be automatically locked-in. 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 (Form B) should be submitted within one month from the date of credit to the DP.
FAQs on RGESS:
Can I use an existing demat account for RGESS?
In case you already have a demat account and are otherwise eligible for RGESS benefit, you can designate your existing demat account as a RGESS account by approaching your DP.
Is there any specific document to be submitted to the DP for designating the demat account for RGESS?
Yes. You should submit a declaration in ‘Form A’ duly signed by the account holder(s) for designating the demat account for RGESS.
Can I hold other securities i.e., other than eligible securities in my demat account designated for RGESS?
Yes. Other securities (viz., equity shares, debentures, bonds, mutual fund units, etc.) can be held in the demat account designated for RGESS.
What will be the effect of different types of corporate actions like split, consolidation, bonus, rights, etc. on RGESS eligible investment during flexible lock in period?
If there is any change in the RGESS investment due to corporate actions where investors do not have any choice (involuntary) e.g. split / demerger etc., there will not be any effect on compliance status of the account during flexible lock in.
If there is any change in the RGESS investment due to corporate actions where investors have the option to exercise their choice and results in debit of securities during flexible lock in, the same will be considered as a sale transaction.
What will happen to my demat account at the end of flexible lock-in period?
Your demat account that was designated for RGESS will be converted into a regular or ordinary demat account at the end of the flexible lock-in period.
If the security which was eligible under RGESS at the time of investment is no longer eligible, will my RGESS investment be affected?
The security should be RGESS eligible at the time of investment. Such security will be considered for RGESS investment, even if it becomes ineligible at a later date.