Budget 2012 had proposed introduction of a new tax saving scheme called the Rajiv Gandhi Equity Savings Scheme (RGESS) for investors with an income below Rs 10 lakh per annum, to be effective from the financial year 2012-2013 relevant to the assessment year 2013-2014. This scheme has been approved and the features of the scheme are as follows:
- 50 % deduction from taxable income (upto Rs 10 lakh per annum) up to an investment of Rs. 50,000/- in equities.
- The investments can be made in specified categories of listed stocks- listed on BSE 100, CNX 100, PSU Stocks, equity mutual funds and Exchange traded funds with these stocks as their underlying.
- The lock-in period would be 3 years with an initial blanket lock-in of 1 year.
- Trading is permitted after 1 year subject to maintaining the minimum balance amount on which the rebate has been claimed (Rs 50,000/- in most cases) failing which, the tax benefit would be withdrawn.
- The investments can be made as a lump sum or in multiple instalments in the financial year for which the rebate has to be claimed.
- This rebate would be available under a new section 80 CCG of the income tax act.
- This rebate is available only to first time investors in the stock market.
- Non Resident individuals and HUFs cannot avail of this rebate.
The RGESS aims at encouraging more retail participation in the equity markets and widening the retail base thus increasing the stability and reducing the volatility of the securities market. Further clarity and details on how to execute this transaction will be out soon.