- May 2014
- December 2013
Ruby Jacob, 09 Mar 2013
RGESS introduced in the last budget remained a non-starter with hardly any takers. In budget 2013 the government has loosened its strings somewhat. Annual income limit for eligible investors has been raised to Rs 12 lakhs from Rs 10 lakhs. Income tax benefit on the scheme has also been extended to 3 years. New changes will be effective from 1 April 2013.
Rajiv Gandhi Equity Savings Scheme (RGESS) became operational in December 2012. A new section 80CCG was created to add RGESS to the list of tax saving deductions, over and above other deductions under 80C, 80D etc. Originally it allowed deductions purely in listed equity shares but after much lobbying equity mutual funds and ETFs were brought under RGESS.
Under RGESS first time investors in equity shares or equity mutual fund investing through a demat account get income tax deduction of maximum Rs 25,000. Presently tax deduction under Rajiv Gandhi Equity Saving Scheme is capped at 50% of investment amount. Though there is no restriction on how much amount can be invested through the designated demat account, currently you can claim rebate on maximum Rs 50,000 of investment.
The Finance Minister has proposed to extend the scheme benefit to 3 years from the current 1 year limit. This means for the next 3 years if you invest Rs 50,000 in RGESS eligible securities every year you save Rs 2500 every year on tax if you are in the 10% bracket, or Rs 5000 if you are in the 20% bracket or Rs 7500 if you are in the 30% bracket provided your income is less than Rs 12 lakhs.
For 2012-13 there were just a handful of ETFs eligible for RGESS scheme, besides BSE/NSE 100 stocks, certain PSUs and IPOs of PSUs having turnover over Rs 4000 crores. Fund houses either have to launch new RGESS eligible schemes or make some existing schemes RGESS compliant. Towards Jan- Feb a few fund houses rushed to launch RGESS mutual fund schemes to rope in investors anxious to save every paisa possible on tax. However very few investors responded because there still was lack of clarity on how RGESS scheme would work.
We have always advised investors to avoid NFOs and funds less than 3 years old, especially if similar and older schemes, whose long term past performance records are available. Moreover investing in shares directly is risky, compared to investing through mutual funds or ETFs. New investors should first get a taste of stock market by investing their money in equity based mutual funds.
Now that the changes make more investors eligible for RGESS and tax rebate can be availed for 3 years the scheme is expected to get more attention and more fund houses could join the wagon in launching RGESS mutual funds.
If you are a first-timer, spend time educating yourself on identifying good equity funds for long term and give RGESS more time until there are good funds under it to be recommended. And be careful not to burn your fingers by giving in to an agent's 'advice' on best RGESS shares or funds in pursuit of retaining your 7500 rupees!