Commonly known as the Rajiv Gandhi Equity Savings Scheme, the RGESS Scheme is a tax saving scheme for equity investors in India which aims at encouraging savings amongst small time investors in the domestic capital markets.
This scheme gives tax benefits to new investors who invest an amount up till INR 50,000 and whose annual income is below INR 10 lakhs. He should also have a Demat account, in which he has traded in the Equity or Derivative segment prior to November 23rd, 2012. This Demat account has to be in joint membership.
The investor gets a 50% deduction of the amount which has been invested for the taxable income for that particular year.
Investments are made in instalments during the year. They may be in mutual funds or stocks in either lump sums or instalments (during the year in which the deduction is to be made).Although it is possible to invest any amount of money in the Demat account, the tax benefit is only available for the investment made up to INR 50,000.
These investments are usually subject to lock-in periods for up till three years. The investment is fixed for the first year, while for the other two it is flexible. The securities cannot be sold during this year.
The benefits are available only for one year and after an investor has claimed a deduction once, he will no longer be able to get any further deduction in the following years. However, from the second year onwards the units of securities can be sold. This is only possible if you have maintained a minimum amount for the claimed income tax benefit.
Besides this, there are a number additional tax benefits over and above the present tax savings schemes under the Income Tax Act. All dividend payments are tax free and it also has a long run benefit of educating the retail investment segment. In turn, this increases the financial inclusivity in the country. It is an attempt to improve the retail participation in equity markets as well as to promote an equity culture in the country.
Any gain or profit made is generally observed after a year. The success can also be led to the transfer of different assets from the traditional savings instruments (such as FDs, bank deposits) to the capital markets. This helps in diversifying the retail investors portfolio, which in turn also leads to higher capital formation assets.
Recently, this year two new changes have occurred. Previously it was available to only those tax payers whose taxable income less is than or equal to INR 10, 00,000.Now, however this number has increased to INR 12, 00,000. Another important change is that fact that you can also claim the benefit during all three years, instead of only during the first year. This basically means that you can carry the investment tax benefit till three years.
It is important to remember that this fund is only applicable for resident investors and not to NRIs. It is important to remember that if all the shares are sold before the statutory lock in period of three years, the deduction that is available under Section 80 CCG will be withdrawn. This amount (of deduction that is claimed) will be added in the year in which the amount is withdrawn before the given date of the lock in period.
A RGESS tax calculator is an online calculator which helps you to calculate how much money you are eligible for tax deduction (to save tax on). You have to enter key information such as your name, age, gross income, amount invested in 80 D medical insurance premium), etc. You can calculate the total amount of tax benefit within a few minutes.