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Monday, February 11, 2013

What is Rajiv Gandhi Equity Savings Scheme (RGESS)

What is RGESS?
Rajiv Gandhi Equity Savings Scheme (RGESS) is a new equity tax advantage savings scheme for equity investors in India. The scheme got it's approval on September 21, 2012. It is exclusively for the first time retail investors in securities market.


Who can invest?
Any new retail investor can start investing in this scheme. An investor is defined as a new investor if he or she satisfies the following terms before investing in the scheme.
  • Demat Account Not Opened
  • No transactions in Equity or F&O
  • Resident Individual
  • Annual Income < =Rs. 10 lakh
  • If Demat Account already Opened, No transactions in Equity or F&O
  • 2nd & 3rd holder of an account can open a new account as 1st holder
How much can you invest?
There is no limit to the amount of money that you can invest but the maximum amount eligible for claiming benefit under RGESS is Rs. 50,000.

Exclusive Tax Rebate Features
(a) This Scheme provides for claiming deduction in the computation of total income of the assessment year relevant to a previous year on account of investment in eligible securities under subsection (1) of section 80CCG of the Income-tax Act,1961. 
(b) Deduction u/s 80 CCG, is available on 50% of the amount invested. 
(c) The benefit is in addition to deduction available u/s Sec 80C.
(d) Interest earned is also non taxable in the hands of the investor.

Lock In Period
The eligible securities brought into the demat account will be automatically 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.
  • Holding Period = 3 Years
  • Fixed lock-in Period = 1 Year from the date of credit
  • Flexible lock-in Period = 2 Years from the end of Fixed lock in period
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.

RGESS Vs ELSS Vs PPF

RGESSELSSPPF
Eligibility Annual Income less than 10 lakh. None None
Lock-in Period 1+2 3 years 15 Years
Tax Benefits 50% (80 CCG) 100% (80 C) 100% (80 C)
Maximum Investment for Deduction Rs.50,000 Rs.100,000 Rs.100,000
Minimum Investment NA Rs.500 to Rs.5000 Rs.500
Need for DEMAT Yes No No
Equity Linked Yes Yes No
Annual Return Market Based Market Based 8.8%
Interest Earned Non Taxable Non Taxable Non Taxable
Risk Medium to High Medium to High Low

RGESS tries to encourage a new investor to come into the world of equities but what remains to be seen is that whether a new investor who has never invested in equities would be ready to take the risk plunge for saving a maximum of 50% rebate on a max investment of Rs. 50,000.

Cheers

Manoj Arora

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