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What is tax saving under section 80CCG?

With the Union Budget 2012-13, the Central Government introduced the Rajiv Gandhi Equity Savings Scheme (RGESS) to encourage new retail investors to enter and simultaneously grow the country’s capital markets. RGESS, legally known as the Income Tax Act’s Section 80CCG, was also aimed at increasing the flow of savings by encouraging people to invest in the equities market. Investors can claim a deduction of 50% on the invested amount. However, this is capped at a maximum investment amount of ₹50,000.

Certain eligibility conditions have to be met by persons seeking tax deductions under Section 80CCG. These are:

  • The tax deductions under Section 80CCG are available only to new retail investors. These could be people who do not own a Demat account, or own it but have never used it for trading purposes. Since the scheme was intended to increase the number of investors in the market, the deductions are also tailored to benefit only those investors who are investing for the first time.
  • Only investors earning a maximum gross annual income of ₹12 lakh are eligible to claim deductions under Section 80CCG.
  • RGESS specifies the kind of instruments that must be invested in for individuals to claim deductions on these. The instruments include:
    • Top 100 stocks listed on the BSE or NSE or any other exchange notified at a future date
    • Shares of PSUs (Public Sector Undertakings), which have been categorised as Miniratna, Navaratna or Maharatna by the Centre, as well as initial public offerings (IPOs) of PSUs which have the government holding at least a 51% share.
  • Three years’ lock-in period is mandatory for the investment.

Tax benefits offered to investors are liable to be withdrawn if they are unable to meet any of these eligibility conditions. However, the RGESS saw very little uptake from citizens which led to its being phased out since April 2017. Any new investors starting Financial Year 2017-18 would not be able to claim deductions under Section 80CCG, but investors who had raised claims in 2016-17 and before will be able to claim deductions even in FY 2017-18.

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