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Rajiv Gandhi Equity Saving Scheme: Benefits & Drawbacks Of RGESS Tax Saving Scheme For Retail Investors

Rajiv Gandhi Equity Scheme Scheme (RGESS), is new equity scheme announced in budget 2012 for new retail investors whose annual income is less than Rs 10 lakh and who want to invest up to Rs 50,000 in listed stocks, on the recognized stock exchanges in India. This scheme targets new retail investors, investors who either have no demat account or who have demat account but have not done any investment in stock exchange. This scheme targets new investors to make them invest in equity by offering tax rebate. This proposed scheme has got approval on September 21, 2012 by the finance ministry. This approval has also include Exchange Traded Fund (ETF)  and Mutual fund under this scheme.

ALSO READ : Direct Tax Code (DTC) : NPS May Replace ELSS Mutual Funds As Tax Saving Investment

Key Features Of Rajiv Gandhi Equity Saving Scheme

Investors Category :- Only new investors can invest under RGESS scheme, which means investors who has not done any equity transaction before the launch of this equity scheme. If you don’t have a demat account from your PAN number or you have a demat account but you have not made any equity purchase from your demat account then you are eligible to invest under this scheme and take the tax benefit.

Income Tax Deduction under section 80CCG :- RGESS scheme allows investor to invest maximum Rs 50,000 per year on which he/she can avail a tax rebate of 50% on the amount invested. For example, if you invest Rs 50,000 in the RGESS scheme in the year 2012 and falls in tax slab of 20%, then you will get a tax rebate on Rs 25,000 i.e 50% of the amount invested. And you will get tax rebate of 20% on Rs 25000 i.e Rs 5000.

Investors can either invest the in lump-sum or in intervals, which means if you want to invest Rs 40,000 in the financial year 2012-13 then you can either invest the full amount at once or can invest Rs 10,000 four times.

Lock-In period :- The lock in period of investing under this scheme is 3 years. Which means investor can not withdraw hi/her funds before 3 years from the date of investment. He/ She can only take out the profit part of his/ her investment but the original investment amount on which tax benefit has been claimed has to be maintained for 3 complete years.

Where To Invest For RGESS Scheme?

Invest can invest directly in stocks which belong to CNX 100 or BSE 100, IPOs of PSUs whose annual turnover is not less than Rs. 4000 Crore from last three years, Large Listed PSU’s (Navratna, Miniratna, Maharatna) and follow on offer of listed PSU’s or banks, ETF‘s & Mutual funds which are listed and traded in stock exchange and invest in top 100 stocks of NSE or BSE.

Rajiv Gandhi Equity Saving Scheme

Drawbacks Of Rajiv Gandhi Equity Saving Scheme

  • There is limit of Rs 50,000 on the amount of investment an investor can made in this scheme.
  • Only a segment of retail investors can invest in RGESS scheme i.e investors whose annual income is Rs 10 lakh or more are not allowed to invest in this scheme.
  • The money invested in this scheme will be locked for 3 years. Which means if investor sell his shares within the lock-in period, the tax benefit will be withdrawn. (The value of deduction availed by the investor will be added back to his income in the year in which he sell his shares).
  • The tax benefit will be offered only once in a life time and will not be repeated in future.
  • The maximum tax benefit an investor can get out from investing under this scheme can be Rs 5000.
  • Retail investors with less or no knowledge of capital market may not be able to take the benefit of this scheme. As this scheme allows only direct investment in equities, it is very much required to have some knowledge of market before investing.
  • Investor can change his portfolio only after one complete year of investment.
  • Only individual investors can avail the benefit of tax deduction under section 80CCG whereas HUF or other will not get any tax deduction.

Rajiv Gandhi Equity Saving Scheme (RGESS)

Equity Linked Saving Scheme (ELSS)

The benefit of RGESS is limited to those investors whose annual income is less than Rs 10 lakhs. The benefits of this scheme is available to all the retail investors.
This scheme offers an income tax deduction of 50% on the amount of investment. This scheme offers income tax deduction upto Rs 1 lakh under section 80C.
Investors can invest directly in equities. Investors invest through Mutual Funds.
It requires direct participation of investors in stock market. It requires indirect participation of investors in stock market.
Premature withdrawal will take away the tax benefit availed by the investor. Premature withdrawal is not allowed in ELSS.
This scheme may offer additional income tax deduction i.e above existing limit of Rs 1 lakh. Investment under ELSS offers income tax deduction upto Rs lack under section 80C.
RGESS may restrict investors to invest only in Top 100 companies listed on BSE and NSE. There is no such restriction in ELSS.


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About the Author: Praveen Unnikrishnan

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