Fintotal News Analysis | RGESS on Its Mark to Get Set and Go
RGESS on Its Mark to Get Set and Go
Ruby Jacob, 07 Dec 2012

SEBI has notified stock exchanges, depositories and mutual fund companies to take steps to get Rajiv Gandhi Equity Savings Scheme (RGESS) up and running. The Finance Ministry finally completed laying the floor for implementing the new Income Tax benefits scheme for new retail investors introduced in Union Budget 2012.


Introduction of Rajiv Gandhi Equity Savings Scheme, 2012 was announced by finance minister P Chidambaram in this year's budget speech. Under RGESS new retail investors with gross annual income less than Rs 10 lakhs can reduce their income tax liability by up to Rs 50,000 for investing in RGESS eligible securities through a special demat account. RGESS securities for which tax deduction has been claimed will have a three year lock-in period. If they are sold before the end of lock-in period tax benefit will be forfeited. The deductions fall under sub section (1) of section 80 CCG of the I-T Act. The scheme is aimed at channelizing savings of small investors into capital markets.

What's happening now?

Finance ministry has notified that equity shares from BSE 100, CNX 100 and shares of PSUs falling under categories of Maharatna, Navratna or Minratna are eligible. Exchange traded funds (ETFs) and stock exchange listed Mutual Funds investing in these shares will also be eligible for deduction under this section. Sounds too complicated for a to-be first time retail investor like you? Fret not, SEBI understands. It has asked Mutual fund AMCs, stock exchanges and depositories to put up the list of RGESS eligible stocks, ETFs and mutual funds on its website and give the scheme wide publicity. The scheme will be in force soon once it is notified in the Official Gazette.

How RGESS will work

If you satisfy the income criteria for this deduction and are a new retail investor you can create a demat account for this purpose and start buying eligible securities as lump sum or in a series before the end of this financial year. After the 3 year lock-in period the demat account will turn into an ordinary demat account.

During the lock-in period you can buy other securities not eligible under RGESS with the same demat account. RGESS eligible securities bought with this demat account will automatically be subject to lock-in period in the first year. If you do not wish to include any securities bought in the first year for the scheme you would have to fill in 'Form B' and submit it to your DP.

Too complicated?

With all the tax restrictions, investment limit in terms of choice of shares, first time demat account user etc RGESS is not going to be easy on investors and that too first time investors.

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