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In what kinds of instruments can I invest to get tax benefit under RGESS?

The Rajiv Gandhi Equity Savings Scheme (RGESS) was announced in the Union Budget presented for FY 2012-13 in order to offer tax benefits to new retail investors.

The RGESS was introduced to enhance domestic capital markets with the flow of savings, and in an attempt to build an ‘equity culture’ in India. The government sought to broaden the base of existing retail investors in the country’s securities markets. New retail investors whose gross annual income did not exceed ₹12 lakh were chosen to be the chief beneficiaries of this scheme. Under the Income Tax Act 1960, Section 80CCG enabled investors to invest upto ₹50,000 in a year and get tax benefits for three years.

According to the Rajiv Gandhi Equity Savings Scheme, a new investor is a resident of the country who does not have a Demat account or one has a Demat account but has not previously made any transactions in the equity or the derivatives segment.

Here are the instruments that are eligible to be a part of the RGESS:

  • The 100 top stocks listed on the BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). It is, however, not mandatory to trade only via these exchanges. If these securities are later listed and then traded on a new exchange, the RGESS still allows them to be eligible.
  • Equity shares for PSUs (Public Sector Undertakings) which have been categorised by the Indian government as Miniratna, Navaratna and Maharatna companies.
  • Units of Exchange Traded Funds (ETFs) and Mutual Funds (MFs) can also be eligible as instruments under the RGESS if they include securities mentioned above. These are part of the scheme as long as they are listed and then traded on an exchange and are settled through depository mechanisms.
  • The Initial Public Offers (IPOs) made by PSUs, wherein the government holds a 51% share or more. These enterprises must also show annual turnovers of ₹4,000 crores or more in any of the previous three years immediately preceding the IPO.

The Rajiv Gandhi Equity Savings Scheme was designed to encourage new retail investors to expand the market while attempting to increase financial inclusion. Due to low interest from new retail investors, the RGESS was phased out. From FY 2017-2018 onwards, no new investors will be able to claim tax deductions under Section 80CCG.

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