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What are the Eligible Securities under the Rajiv Gandhi Equity Savings Scheme?

The Rajiv Gandhi Equity Savings Scheme (RGESS) was a scheme introduced in the Union Budget of 2012-13. Due to low uptake, it was phased out in April 2017. RGESS aimed to encourage new investors to enter equity markets. It was designed solely for first-time investors within the securities market with gross income under a specified limit.

The following securities were eligible for tax deduction under the Rajiv Gandhi Equity Savings Scheme:

  • Equity shares falling in the list of securities titled “BSE-100” or “ CNX-100”. 
  • Public Sector Enterprise equity shares falling under the categories of Navratna, Maharatna, or Miniratna by the Indian Central Government.
  • Units of both Mutual Fund (MF) schemes or Exchange Traded Funds (ETFs) having underlying securities applicable under the Rajiv Gandhi Equity Savings Scheme. The units must be recorded and exchanged on stock markets, and shared must be cleared through depository systems.
  • Follow-on Public Offers (FPOs) of applicable securities.
  • New Fund Offers (NFOs) of applicable ETFs and mutual funds.
  • Unlisted Equity Shares: Initial Public Offers from Public Sector Undertakings. These must be registered to be listed in the suitable financial year, and where the government holds a minimum of 51%. Additionally, the annual turnover of such sectors should not be less than ₹4,000 crores for each of the past 3 years.
How To Use RGESS

First-time investors could invest up to ₹50,000 in securities with an RGESS scheme. With this limit, they could claim a deduction of 50% on their investment amount. Specifically, first-time investors, with an annual income under ₹12 lakhs, were allowed an additional tax deduction under Section 80CCG with RGESS. However, there were certain limitations. The deduction is applied in the case of new investors investing in the aforementioned companies or mutual funds schemes, or as specified by RGESS.

Major Benefits of RGESS

  • The permissible tax deduction under Section 80CCG was over and above the ₹1.5 lakhs limit as per Section 80C of the ITA. This made RGESS a good option for young middle-class investors.
  • Moreover, the benefits could have been availed for 3 consecutive years. Investors that got into the scheme prior to April 2017 can continue to get the benefit till the 3-year period is over.
  • A company may be liable to a dividend distribution tax. Under RGESS, the Dividend for investments in these companies is income tax-free.
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