·
Introduction
Finance
Act 2012 has come up with a new section 80CCG, to be made applicable from F.Y.
2012-13 onwards. 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 market.
·
Salient
features of the Scheme are as under:
1.
Eligible Investors: 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.
2.
Max. Amount: Deduction is restricted to 50% of eligible
investment subject to upper limit of Rs. 25000/- for deduction. That means limit for
investment is fixed at Rs. 50,000/-
3.
Eligible Securities: 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.
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 the scheme.
4.
Lock In Period: 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 the scheme. The initial first year is
known as Fixed Lock-in Period, in which no trading of securities is allowed. 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.
5.
Valuation: 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.
6.
The deduction under Section 80CCG will be
allowed in addition to the 1 lakh limit allowed under section 80CCE covering
the sections 80C, 80CCC and 80CCD. Moreover, it will be allowed to all the
Individual Assessees irrespective of his/her source of income. In short, a
salaried person can also avail the benefit of this scheme.
7.
The deduction under this section is
available if following conditions are satisfied:
a.
The assessee is a resident individual (may be ordinarily
resident or not ordinarily resident)
b.
His gross total income does not exceed Rs. 10 lakhs;
c.
He has acquired listed shares in accordance with a notified scheme;
d.
The assessee is a new retail investor as specified in the above
notified scheme;
e.
The investor is locked-in for a period of 3 years from the date
of acquisition in accordance with the above scheme;
f.
The assessee satisfies any other condition as may be prescribed.
8.
Withdrawal of deduction – If the assessee, after claiming the
aforesaid deduction, fails to satisfy the above conditions, the deduction
originally allowed shall be deemed to be the income of the assessee of the year
in which default is committed.
9.
Illustration:
Mr. X, a businessman who has a gross total income of Rs. 17
lakhs, invested in the eligible securities, an amount equal to Rs. 50,000. The
total deduction allowed to him under section 80CCG shall be NIL, since his
gross total income exceeds Rs. 10 lakhs.
Mr. Y, a salaried person, having a gross total income of Rs. 9
lakhs, invested in notified shares an amount of Rs. 60,000. The total deduction
available to him shall be 50% of Rs. 50,000 (maximum limit), i.e. Rs. 25,000
only.
·
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:
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Operational
differences
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ELSS
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RGESS
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Investments are in mutual funds which invests mostly in equity
(80-100% in equity)
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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
|
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100% deduction (upto Rs. 1,00,000) is allowed under ELSS
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Only 50% deduction (upto max. of Rs. 25,000) is allowed under RGESS.
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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
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Separate investment limit exclusively for RGESS over and above the
Section 80 C Limit
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Lock-in period of 3 years
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Lock-in of 3-years. However, trading allowed after one-year subject to
conditions.
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Since investments are in mutual funds, it is perceived to be less
risky
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Since investments are in equity / risk / ownership capital, risk is
perceived to be higher
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