RAJIV GANDHI
EQUITY SAVINGS SCHEME (RGESS) - FINANCE MINISTER APPROVES THE OPERATIONAL
FEATURES
PRESS RELEASE, DATED 21-9-2012
The
Union Finance Minister Shri P. Chidambaram approved a new tax saving scheme
called "Rajiv Gandhi Equity Saving Scheme" (RGESS),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.
Salient
features of the Scheme are as under:
a. Scheme is open to new retail investors, identified on
the basis of their PAN numbers. This includes those who have opened the Demat
Account but have not made any transaction in equity and /or in derivatives till
the date of notification of this Scheme and all those account holders other
than the first account holder who wish to open a fresh account.
b. Those investors whose annual taxable income is ≤ Rs. 10
lakhs are eligible under the Scheme.
c. 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.
d. Under the Scheme, those stocks listed under the BSE 100
or CNX 100, or those of public sector undertakings which are Navratnas,
Maharatnas and Miniratnas would be eligible. Follow-on Public Offers (FPOs) of
the above companies would also be eligible under the Scheme. IPOs of PSUs,
which are getting listed in the relevant financial year and whose annual turnover
is not less than Rs. 4000 Crore for each of the immediate past three years,
would also be eligible.
e. In addition, considering the requests from various
stakeholders, Exchange Traded Funds (ETFs) and Mutual Funds (MFs) that have
RGESS eligible securities as their underlying and are listed and traded in the
stock exchanges and settled through a depository mechanism have also been
brought under RGESS.
f. To benefit the small investors, the investments are
allowed to be made in instalments in the year in which tax claims are made.
g. The total lock-in period for investments under the
Scheme would be three years including an initial blanket lock-in period of one
year, commencing from the date of last purchase of securities under RGESS.
h. After the first year, investors would be allowed to
trade in the securities in furtherance of the goal of promoting an equity
culture and as a provision to protect them from adverse market movements or
stock specific risks as well as to give them avenues to realize profits.
i. Investors would, however, be required to maintain their
level of investment during these two years at the amount for which they have
claimed income tax benefit or at the value of the portfolio before initiating a
sale transaction, whichever is less, for at least 270 days in a year. The
calculation of 270 days includes those days pursuant to the day on which the
market value of the residual shares /units has automatically touched the
stipulated value after the date of debit.
j. The general principle under which trading is allowed is
that whatever is the value of stocks/units sold by the investor from the RGESS
portfolio, RGESS compliant securities of at least the same value are credited
back into the account subsequently. However, the investor is allowed to take
benefits of the appreciation of his RGESS portfolio, provided its value, as on
the previous day of trading, remains above the investment for which they have
claimed income tax benefit.
k. For the purpose of valuation of shares, the closing
price as on the previous day of the date of trading will be considered so that
new investors are certain about their debits and credits into the account.
l. In case the investor fails to meet the conditions stipulated,
the tax benefit will be withdrawn.
Like
all financial products which have reached out substantially to the retail
investors (post office savings, life insurance policies etc) through tax
benefits, this tax break for direct investment in equity is expected to
substantially encourage the retail participation in securities market as well
as to enhance their participation in the growth of Indian industry. Entry of
more retail investors are expected to further deepen the securities markets as
they bring in long-term stable funds, which can counteract the volatility
created by the liquidity providers of the market. The Scheme, thus, also
furthers the goal of financial stability and promotes financial inclusion.
Since Exchange Traded Funds and Mutual Funds have also been brought under the
Scheme, the Scheme should provide encouragement and re-assurance to the first
time investors.
The
broad provisions of the Scheme and the income tax benefits under it have
already been incorporated as a new section 80CCG of the Income Tax Act, 1961,
as amended by the Finance Act, 2012.
Department
of Revenue will notify the Scheme and SEBI will issue the relevant circulars to
operationalize the Scheme in the next two weeks.
