Rajiv Gandhi Equity Savings Scheme or RGESS is a new equity tax advantage savings scheme for equity investors in India, with the stated objective of "encouraging the savings of the small investors in the domestic capital markets.". It was approved by The Union Finance Minister, Shri. P. Chidambaram on September 21, 2012. It is exclusively for the first time retail investors in securities market. This Scheme would give tax benefits to new investors who invest up to Rs. 50,000 and whose annual income is below Rs. 10 lakh.
The Scheme not only encourages the flow of savings and improves the depth of domestic capital markets, but also aims to promote an 'equity culture' in India. This is also expected to widen the retail investor base in the Indian securities markets.
The maximum Investment permissible under the Scheme is Rs. 50,000 and the investor would get a 50% deduction of the amount invested from the taxable income for that year.
- It provides additional tax benefits over and above the present tax savings schemes under the Income Tax Act.
- Gains, arising of investments in RGESS, can be realized after a year. This is in contrast to all other tax saving instruments.
- Investments are allowed to be made in installments in the year in which the tax claims are filed.
- Dividend payments are tax free.
- This scheme has a long run benefit of educating the retail investment segment and thereby moving towards financial inclusivity in the country.
- Success of this scheme can lead to transfer of assets from traditional savings instruments such as bank deposits and FDs to the capital markets, leading to diversification in retail investor portfolio and also leading to more productive "capital formation" assets.
Eligibility
The deduction under the Scheme shall be available to a new retail investor who:-
- is a resident of India
- has a gross total income for the financial year less than or equal to Rs. 10 Lakh
- complies with all the other conditions of the Scheme
Eligible Securities
- Equity shares falling in the list of securities declared as "BSE-100" or " CNX-100".
- Equity shares of public sector enterprises which are categorised as Maharatna, Navratna or Miniratna by the Central Government
- Units of Exchange Traded Funds (ETFs) or Mutual Fund (MF) schemes which have securities eligible under Rajiv Gandhi Equity Savings Scheme (RGESS) as underlying, provided they are listed and traded on a stock exchange and settled through a depository mechanism.
- Follow on Public Offer of eligible securities.
- New Fund Offers (NFOs) of eligible ETF's and mutual funds.
- Initial Public Offer of a public sector undertaking wherein the government shareholding is at least fifty-one per cent. which is scheduled for getting listed in the relevant previous year and whose annual turnover is not less than four thousand crore rupees during each of the preceding three years
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Q1. What is RGESS?
Rajiv Gandhi Equity Savings Scheme or RGESS is a new equity tax advantage savings scheme introduced by the Ministry of Finance for first time investors in India.
The scheme enables the investor to earn the returns of equity market and be eligible for tax benefits on the investments made under this Scheme.
Q2. Who is eligible to participate?
The tax deduction under the Scheme shall be available to a new retail investor who:-
- is a resident of India
- has not traded in equity market or derivatives market
- has Gross Total Income for the Financial Year less than or equal to Rs. 10 Lakh
- complies with all the other conditions of the Scheme
Q3. What are eligible securities?
Investments can only be made in:
- Companies belonging to BSE-100 or CNX-100 and their Follow On Public Offers
- PSUs designated as Maharatna, Navratna or Miniratna and their Follow On Public Offers
- Mutual Fund or Exchange Traded Fund Schemes investing in RGESS eligible securities and their New Fund Offers
- Initial Public Offers of PSU with 51% or more government holding
Q4. What are the benefits of investing in RGESS?
The following are the benefits of RGESS:
- Investors can get the returns of Equity of top 100 BSE companies.
- Gains, arising of investments in RGESS, can be realized after a year. This is in contrast to all other tax saving instruments.
- To be eligible for tax deductions, the investments can be made in installments over the financial year for which the tax claims are filed and tax exemption sought.
- Dividend payments are tax free.
Q5. What is dematerialization (Demat)?
"Dematerialization" is a process by which physical certificates are converted into electronic form
Q6. Where do I open an account?
A DEMAT account can be opened through any of the DPs of Central Depository Services (India) Limited (CDSL) or National Securities Depositories Limited (NSDL).
Q7. How do you invest through RGESS?
Investments into the RGESS are made through the DEMAT account. Eligible securities bought through the DEMAT account will automatically be subject to a lock-in during the first year. The investor will not be permitted to sell, pledge or hypothecate any eligible security during the fixed lock-in period. Trading of these securities is allowed after the completion of the fixed lock in period, subject to certain conditions. For further details please refer to the section on "Procedure for Investment".
Q8. What is the maximum eligible investment?
The investor is free to invest as much as he wants through his RGESS designated Demat account.
However, for tax exemption purpose, only the investment made in the first year of his investment, subject to a maximum amount of Rs 50,000 is eligible.
Q9. What are the associated Tax Benefits?
- A maximum of Rs. 50,000/- investment eligible for tax benefits; eligible for first year of investment only
- Tax Deduction: 50% of invested amount (max Rs. 25,000/-)
- For investors in 10% tax bracket – saving = Rs. 2,500 (for investment of Rs. 50,000/-)
- For investors in 20% tax bracket – saving = Rs. 5,000 (for investment of Rs. 50,000/-)
Q10. What is the minimum eligible investment?
There is no minimum eligible investment.
Q11. What will be my return on the investment?
The return on the investments will be subject to market conditions. Historically, equity returns have been higher vis-à-vis Fixed Deposits on a long term basis.
Q12. What are the risks involved?
Any investment made in capital market is subject to market risk. Unsystemic risk, however, may be reduced drastically by making broad-based investments.
Q13. Can I lose the tax benefits?
The investor may lose the tax benefits in the following cases:-
- If the investor withdraws the investment such that it falls below the amount he sought tax exemption for, in the Flexible lock-in period
- If the investor fails to fulfil any of the other provisions of the Scheme.
Q14. Can I invest multiple times under the scheme?
The investor can invest as many times as he wants in his first year of investment. Investment made in subsequent years will not be eligible for tax exemption.
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