Deduction in respect of investment mode under on Equity Savings Scheme (w.e.f. 01.04.2013) [Section 80CCG]
Where an assessee, being a resident individual, who has acquired listed equity shares (or listed units of an equity oriented fund) in accordance with a scheme notified by the Central Government in this behalf, shall be allowed a deduction of 50%, of an amount invested in such equity shares (or units) to extent such deduction does not exceed twenty five thousand rupees.
Eligibility for 80CCG
The deduction under this section shall be subject to the following conditions, namely:-
(1) the gross total income of the assessee for the relevant assessment year shall not exceed twelve lacs rupees.
(2) Should be a new retail investor. New Investor means :-
(a) who has not opened a demat account and has not made any transactions in the derivative segment before the date of opening of a demat account or the first day of the initial year, whichever is later:
Provided that an individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purposes of this Scheme; or
(b) who has opened a demat account but has not made any transactions in the equity segment or the derivative segment before the date he designates his existing demat account for the purpose of availing the benefit under the Scheme or the first day of the initial year, whichever is later;
(3) the investment made in such listed equity shares or listed units of equity oriented funds as may be specified under the scheme referred to in sub-section(1);
(4) the investment is locked-in for a period of 3 years from the date of acquisition in accordance with the scheme referred to in sub-section(1); and
(5) such other condition as may be prescribed: if the assessee, in any previous year fails to comply with any condition specified in this section (4), the deduction originally shall be deemed to be the income of the assessee of such previous year and shall be liable to tax for the assessment year relevant to such previous year.
(6). NRIs cannot avail this tax benefit. RGESS tax rebate under section 80CCG is applicable only for residents.
Maximum deduction limit under 80CCG RGESS
Maximum investment is capped at Rs. 50,000. You can claim only 50% deduction on the amount invested. Maximum Deduction available is 50% of Rs. 50000/- i.e. Rs. 25000/-. This deduction can be availed for three consecutive years, based on investments you make in those years, complying with RGESS requirements.
Investments will have a total lock-in period of three years. The first year will be a fixed lock-in period where you cannot alter the securities on which deduction has been claimed under 80CCG and the next two years will be flexible lock-in period where you can sell the securities while ensuring that value of the portfolio on which tax benefit has been claimed is maintained.
This Deduction is in addition to deduction U/s. 80C.
How to get 80CCG deduction for RGESS
RGESS one of the Chapter VI-A deductions so you can put it in the cell allocated for 80CCG in the ITR form while filing income tax returns to get tax deduction. Or you can submit details of your investments to the company HR in the relevant financial year who will apply less TDS on your salary.
HOW TO INVEST:
To be eligible for investment under this scheme, you must open a demat account and designate the de-mat account for RGESS by submitting the duly signed ‘Form A’, which is available with brokerage houses.
You can invest in any of the eligible mutual funds or stocks in lump sum or in installments during the year in which the deduction is to be claimed. Though any amount can be invested through the de-mat account, tax benefit will be available only on an investment of up to Rs 50,000.
One can invest in non-RGESS stocks and mutual funds through the same demat account and those investments would not be subject to conditions such as the lock-in of the scheme.
If you invest on the last trading day of the financial year, you get a three-day grace period so that the securities get credited in the de-mat account and you can avail tax benefit under the scheme
Differences with ELSS
Equity Linked Savings Scheme (ELSS) and RGESS are entirely different schemes: They pertain to different asset classes with ELSS offering passive investment avenues. ELSS is meant for indirect participation in the stock market, whereas RGESS aims at encouraging direct participation in the stock market. The operational differences are given below:
|Investments are in mutual funds which invests mostly in equity (80-100% in equity)||Investments are to be made directly in selected equity or into a combination of equity including mutual funds, Exchange Traded Funds, and select IPOs of PSUs|
|100% deduction (upto Rs. 1,00,000) is allowed under ELSS||Only 50% deduction (upto max. of Rs. 25,000 per year) is allowed under RGESS. However, this benefit can be claimed for the first three years of investments|
|The ELSS benefit is coming under Section 80-C of the IT Act which has an aggregate limit of Rs. 1,00,000 for all such eligible instruments like LIC policy, PPF etc||Separate investment limit exclusively for RGESS over and above the Section 80 C Limit|
|Lock-in period of 3 years||Lock-in of 3-years. However, trading allowed after one-year subject to conditions.|
|Since investments are in mutual funds, it is perceived to be less risky||Since investments are in equity / risk / ownership capital, risk is perceived to be higher|
(CA Deepak Rathore – For any clarification please contact at [email protected])