RGESS is a scheme for first-time equity investors with an annual income of up to Rs 12 lakh and who have not invested in stocks before 23 November 2012. Under this scheme, first-time retail investors investing up to Rs 50,000 in approved  mutual funds can claim 50 per cent of the amount as tax deduction under Section 80CCG of the Income Tax Act. This is over and above the Rs 1 lakh limit under Section 80C.

What is the legal provision for RGESS?

A new section 80CCG in the Income tax Act, 1961 on ‘Deduction in respect of investment under an equity savings scheme’ was introduced vide Finance Act, 2012 and amended vide Finance Act, 2013, to give tax benefits to ‘New Retail Investors’ whose gross annual income is less than or equal to Rs.12 Lakhs, for investments in ‘Eligible Securities’ up to Rs.50,000 in a single financial year, for three consecutive assessment years.
The details of the RGESS Scheme were first 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. Subsequent to the Union Budget 2013-14, Section 80CCG was amended vide Finance Act, 2013, to expand the scope of the Scheme. The notification dated 23 November, 2012 was accordingly amended vide Notification dated 18 December 2013 (Section No. 3693 (E); Notification No.94).

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 80CCG 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 tax free, if the company is liable to dividend distribution tax.
  • The benefits can be availed for three consecutive years.
  • Investor is free to trade / churn the portfolio after the fixed lock-in period, 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.
  • Facility for pledging 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 financial year in which tax deduction is claimed.

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