Rajiv Gandhi Equity Savings Scheme (RGESS) is an equity based investment scheme for the retail investors.The purpose of the scheme is to offer dual benefit of tax saving along with an investment option to the tax payers.The tax saving under Rajiv Gandhi Equity Savings Scheme is over and above the normal permissible limit of ₹ 1,50,000 (under section 80C) and is covered under section 80CCG.
For you to be eligible for benefits under Rajiv Gandhi Equity Savings Scheme,you must have your annual income ₹ 12,00,000 or below that.Another important criteria is that the applicant is a new retail investor.The later is who have never traded,either in cash or derivatives,in the capital markets.Even if you hold a Demat Account but never traded through that account,you are eligible.
Under Rajiv Gandhi Equity Savings Scheme,you can put maximum of ₹ 50,000 per annum only.For income tax purpose,the half of the amount you invest in this scheme shall get deducted from your taxable income.So you can avail tax benefit on 50% of the amount invested only.RGESS also allows you to invest in instalments.
RGESS offers investment opportunity in equities only.You can buy Stocks,Mutual Funds,New Fund Offers (NFO),Exchange Traded Funds (ETFs) or Initial Public Offerings (IPO) which have been designated securities for this scheme and trade on the stock exchanges.Stocks are the top 100 stocks which trade on major stock exchanges of India.They are from the companies designated as Maharatna,Navratna or Mini Ratna by the Government.
Rajiv Gandhi Equity Savings Scheme has a total lock-in period of 3 years – first year is fixed lock-in period while the next two years are with flexible lock-in.This means you can take your profit after the first year of fixed lock-in if you need subject to the condition that you keep maintaining the amount for which you claimed tax benefits.That means if you are going with 50,000 and you make a profit of 5000 on your invested amount after the first year,you can take out 5000 but have to reinvest 50,000 again and maintain for next 2 years (at least 270 days each year).In these two years,you can make changes to your portfolio by trading.
Understanding the year system is also important in this scheme.One year period shall be considered complete on March 31st of the year.If you invest in the scheme on April 1 then you complete one year on March 31,after 12 months but if you start on January 1st then you complete your one year after 14 months.
To apply for Rajiv Gandhi Equity Savings Scheme,you would have to open your Demat Account.You can open the later with any bank or broker.This account shall be converted to RGESS account.If you have already have Demat Account where you have no trade done,you can also make that account designated to RGESS.Then you can transact through this Demat Account in designated securities we talked above.You can transact for any amount but the benefits can be availed for maximum of ₹ 50,000 only.
You should go for RGESS only after you have exhausted all other tax saving options.The scheme can be useful for saving tax if you fall in higher income group but the tax saving is somewhat significant only if you invest at the higher limit permissible.Because you can deduct only half of the invested amount from taxable income,benefit is not going to be much if you put less cash in this scheme.
Not complying with the conditions of RGESS shall lead to cessation of benefits of the scheme.So it is important that you keep invested in this scheme for three years.You have the privilege of shuffling your portfolio by trading in different securities.
The rationale behind RGESS is to give opportunity to retail investors to invest in capital markets along with tax savings and lure away from traditional fixed deposits etc.This in result would lead to more market participation by the people and surge in economic growth of nation.No doubt,it may also yield better returns as we all know that stock markets have the capability to deliver better returns than fixed deposits.