You must be aware that the Government of India has introduced a new scheme of investment called “Rajeev Gandhi Equity Savings Scheme (RGESS) to give tax benefits to new investors on his investment up to Rs.50,000 in the securities markets (in the eligible securities as defined in the scheme). This scheme is aimed at motivating small investors whose gross total annual income is less than or equal to Rs.10 Lakhs, to invest in securities markets in India. The salient features of this scheme are as under:
Salient features of RGESS are as under:
a. The deduction under the Scheme shall be available to a new retail investor who complies with the conditions of the Scheme.
b. The gross total income for the financial year in which the investment is made under the Scheme should be less than or equal to ten lakh rupees.
Following can be called as “New Retail Investor”
a. any individual who has not opened a demat account and has not made any transactions in the derivative segment as on the date of notification of the Scheme i.e. 23rd November, 2012.
b. any individual who has opened a demat account before the notification of the Scheme but has not made any transactions in the equity segment or the derivative segment till the date of notification of the Scheme.
c. and any 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
a. Equity shares, on the day of purchase, falling in the list of equity declared as “BSE-100” or “ CNX-100” by the Bombay Stock Exchange and the National Stock Exchange, as the case may be;
b. Equity shares of public sector enterprises which are categorised as Maharatna, Navratna or Miniratna by the Central Government;
c. Units of Exchange Traded Funds (ETFs) or Mutual Fund (MF) schemes with Rajiv Gandhi Equity Savings Scheme (RGESS) eligible securities as underlying, as mentioned in sub-clause (a) or sub-clause (b) above, provided they are listed and traded on a stock exchange and settled through a depository mechanism;
d. Follow on Public Offer of sub-clauses (a) and (b) above;
e. New Fund Offers (NFOs) of sub-clause (c) above;
f. Initial Public Offer of a public sector undertaking wherein the government shareholding is at least 51%, 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;
Procedure for investment under Scheme.-
a. the new retail investor may make investment in eligible securities in one or more than one transactions during the year in which the deduction has to be claimed;
b. the new retail investor may make any amount of investment in the demat account but the amount eligible for deduction, under the Scheme shall not exceed fifty thousand rupees;
c. the eligible securities brought into the demat account, as declared or designated by the new retail investor, will automatically be subject to lock-in during its first year, as per the provisions of point D above, unless the new retail investor specifies otherwise and for such specification, the new retail investor shall submit a declaration in Form B indicating that such securities are not to be included within the above limit of investment;
d. the new retail investor shall be eligible for a deduction under sub- section (1) of section 80CCG of the Act in respect of the actual amount invested in eligible securities , in the first financial year in respect of which a declaration in Form B has not been made, subject to the maximum investment limit of fifty thousand rupees;
e. the new retail investor may also keep securities other than the eligible securities covered under the Scheme in the demat account through which benefits under the Scheme are availed;
f. The deduction claimed shall be withdrawn if the lock-in period requirements of the investment are not complied with or any other condition of the Scheme is violated.
E. Period of holding requirements:
1. The period of holding is Three Years to be counted in the manner detailed hereunder.
2. The securities are required to be held for a period called the Fixed Lock-In Period which shall commence from the date of purchase of such securities in the relevant financial year and end one year from the date of purchase of the last set of eligible securities (in the same financial year) on which deduction is claimed under the Scheme.
3. The investor shall NOT be permitted to sell, pledge or hypothecate any eligible security during the fixed lock-in period.
4. The period of two years beginning immediately after the end of the fixed lock-in period shall be called the Flexible Lock-In Period.
5. The new retail investor shall be permitted to trade the eligible securities after the completion of the fixed lock-in period subject to the following conditions:
a. The new retail investor shall ensure that the demat account under the scheme is compliant for a cumulative period of a minimum of 270 days during each of the two years of the flexible lock-in period as laid down hereunder:
A. the demat account shall be considered compliant for the number of days where value of the investment portfolio of eligible securities within the flexible lock-in period, is equal to or higher than the amount claimed as investment for the purposes of deduction under section 80CCG of the Act;
B. In case the value of investment portfolio in the demat account falls due to fall in the market rate of eligible securities in the flexible lock-in period, then notwithstanding sub clause(A),
i. The demat account shall be considered compliant from the first day of the flexible lock-in period to the day any such eligible securities are sold during this period;
ii. Where the assessee sells the eligible securities mentioned in sub-clause (B) from his demat account, he shall have to purchase eligible securities and the said demat account shall be compliant from the day on which the value of the investment portfolio in the account becomes -
(I) at least equivalent to the investment claimed as eligible for deduction under section 80CCG of the Act or;
(II) the value of the investment portfolio under the Scheme before such sale, whichever is less.
6. The demat account created under the scheme shall, on the expiry of the period of holding of the investment, be converted automatically into an ordinary demat account.
7. For the purpose of valuation of investment during the flexible lock-in period, the closing price as on the previous day of the date of trading, shall be considered.
8. While making the initial investments upto fifty thousand rupees, the total cost of acquisition of eligible securities shall not include brokerage charges, Securities Transaction Tax, stamp duty, service tax and all taxes, which are appearing in the contract note.
9. Where the investment of the new retail investor undergoes a change as a result of involuntary corporate actions like demerger of companies, amalgamation, etc. resulting in debit or credit of securities covered under the Scheme, the deduction claimed by such investor shall not be affected.
10. In case of voluntary corporate actions like buy-back, etc. resulting only in debit of securities, where new retail investor has the option to exercise his choice, the same shall be considered as a sale transaction for the purpose of the Scheme.
F. F Procedure at time of opening Demat account
a) The new retail investor shall open a new demat account or designate his existing demat account for the purpose of availing the benefit under the Scheme;
b) The new retail investor shall submit a declaration in Form A to the depository participant who will forward the same to the depository for verifying the status of the new retail investor;
c) The new retail investor shall furnish his Permanent Account Number (PAN) while opening the demat account or designating the existing account as a Rajiv Gandhi Equity Savings Scheme eligible account, as the case may be.
Declaration in Form A - This is the Declaration to be submitted by the investors to the depository participants for availing the benefits under the Rajiv Gandhi Equity Savings Scheme.
If client wants to avail this RGESS, client will have to submit Form A( at the time of account opening or existing account holder will have to submit before doing a transaction ). Please go thru the circular for eligibility of existing account holders to be converted to RGESS.
Declaration in Form B - Declaration to be submitted by the New Retail Investor to the depository participant on purchase of eligible securities.
Once the account is activated for RGESS and a transaction is done in the clients account, client will have to submit Form B to depository participant within 30 days after doing the transaction.