How to invest in Rajiv Gandhi Equity Savings Scheme?

Introduction

The Rajiv Gandhi Equity Savings Scheme(RGESS) is an exception for first-time capital market investors. It aims to bring greater financial inclusion and stability and promote the development of domestic capital markets. New retail investors who fulfill certain criteria are eligible for a tax benefit under this scheme. Also, with the help of this tool, you can easily calculate your tax.

What is Rajiv Gandhi’s Equity Savings Scheme?

Things we’ll be covering in this section are- 

• What is the Rajiv Gandhi Equity Savings Scheme?
• When did the scheme come into effect? 
• Who can avail benefits under this scheme?
• Percentage of tax deduction under this scheme

The Rajiv Gandhi Equity Savings Scheme is a tax-savings initiative, first announced in the Union Budget of 2012-13 and then extended in the Union Budget of 2013-14. The scheme is only for first-time individual investors in the securities market who have a gross total income for the year that is less than a particular level.

The recipients’ income ceiling was raised to Rs. 12 lakh in 2013-14, up from Rs. 10 lakh in 2012-13. For three consecutive assessment years, the investor would be entitled to a 50% deduction from his or her taxable income for the amount invested during the year, subject to a maximum investment of Rs. 50,000 each financial year, under Section 80CCG of the Income Tax Act.

The core objective of the Rajiv Gandhi’s Equity Savings Scheme

The scheme’s core objective is to increase the number of retail investors in India’s securities markets, resulting in greater financial inclusion and stability. It promotes the development of domestic financial markets by promoting the flow of savings, hence fostering a culture of equity investments.

Rajiv Gandhi’s Equity Savings Scheme eligibility criteria

This scheme provides a tax deduction to new retail investors who meet the following criteria:

• Residents of India who are retail investors.
• The investor has no prior trading experience in the derivatives or equities markets.
• For the financial year, one must have a gross total income of less than or equal to INR 12 lakh.
• Only BSE-100 or CNX-100 firms and their “follow-on public offers” are eligible for investment.
• Only IPOs of PSUs with a government stake of 51 percent or more are eligible for investment.
• Only Maharatna, Navratna, and Miniratna PSUs and their “Follow-on Public Offers” are eligible for investment.
• Only mutual funds or exchange traded fund schemes that invest in Rajiv Gandhi Equity Savings Scheme approved securities and their New Fund Offers (NFO)

What is the Lock-in Period?

The scheme has a three-year lock-in period. One year is the fixed lock-in period, and two years is the flexible lock-in period. The lock-in period runs from the date of acquisition of securities in the financial year in which they were purchased until 31 March of the next financial year. The flexible lock-in period begins immediately after the fixed lock-in period ends.

Investing in Rajiv Gandhi Equity Savings Scheme

• Through their DEMAT account, investors can invest in Rajiv Gandhi’s Equity Savings Scheme. During the first year, eligible shares purchased through a DEMAT account are automatically locked in.
• During the lock-in period, the investor is not permitted to sell, hypothecate, or pledge any security.
• PAN Card, Aadhaar Card, passport size photograph, and canceled personalized cheque or more than 3 months of bank statement are the documents required for investing in Rajiv Gandhi’s Equity Savings Scheme. 

Advantages of investing in the Rajiv Gandhi’s Equity Savings Scheme

Some of the key advantages offered by Rajiv Gandhi’s Equity Savings Scheme are as follows-

• It adds to the current tax savings plans under the Income Tax Act of 1961 by providing extra tax benefits.
• Returns on Rajiv Gandhi’s Equity Savings Scheme investments can be obtained after a year. 
• In the year in which the tax claims are lodged, investments can be made in installments. Benefits are available for three years.

In what circumstances can a person’s tax benefits be revoked?

• If you withdraw your investment and it falls below the threshold of the amount for which you requested tax exemption for the locked-in period, you may lose your tax benefits.
• You may also lose this benefit if you do not comply with or meet any of the scheme’s requirements.

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