Finance Act 2012, has introduced a new Section 80CCG. This Scheme is named as Rajiv Gandhi Equity Savings Scheme and is fully aimed at investment in Equity and Mutual Funds of Public sector Companies. The article explains the scope, eligibility and the avenues where equity investment can be done and what benefits an individual will get from this scheme.Most of the sections which provide for savings have not been amended for long and even if they have been, then too a very little benefit is available to individuals. Keeping this in mind a new section has been introduced by Finance Act 2012 viz., 80CCG which becomes applicable from Financial Year 2012-13.
1. Scope of Scheme
The scheme is aimed specifically towards individuals to move from conventional mode of savings and invest in equity. It aims to promote ability to take risk which is synonym to equity market. This scheme not only promotes savings but also improves the domestic market capital. Normally the equity market is dominated by big institutions that have huge sum of capital to invest and also the capacity to take risk. Now this trend is going to change with the expectancy of widening of retail investor base in the Indian Securities market.The scheme has the following salient features.
2. Eligibility Criteria
1. Individuals Only
As already explained, this scheme is aimed at individuals or retail investors. Investors will be identified by their PAN number. Only requirement is that the investor shall be a first time investor in equity.
2. Demat Account
Investor will have to open a fresh ‘Demat Account’ for investing in this scheme. There is another option that the potential investor who have opened a ‘Demat Account’ but have not yet done any transaction or have made any equity purchase are also eligible to participate in this scheme.
3. Annual Income
Individual or assesse who wish to invest in this scheme must not have annual income > Rs.12 lakhs. Anyone having annual income over Rs.12 lakhs is ineligible.
Budget was presented on 28th February, 2013 for Financial Year 2013-14 and it has made RGESS scheme a little more attractive. In this budget the annual income clause had been amended and raised to Rs. 12 lakhs from Rs.10 lakhs as originally proposed.
Permissible Amount of Investment
Maximum permissible investment possible under this scheme is Rs.50000, which is indirectly capped by the amount of deduction available, which is 50% of the amount invested. An individual who wishes to invest over Rs.50000 can do so but the maximum deduction is Rs.25000 which is 50% of the amount invested. This comes to Rs.50000, hence if an assessee invests Rs.80000, then too, he will get a maximum of Rs.25000 as deduction and not Rs.40000 i.e. 50% of the amount invested as per the wordings of the scheme.
Another change is made in Budget 2013-14 to this scheme that the deduction will now be available for 3 years and not just 1 year as was originally proposed.
Investible/Eligible Securities
This scheme puts few limitations with regard to investment in equity securities, which can be seen with below given list.
Assessee can invest in stocks:
a) Listed under the BSE 100 or CNX 100
b) Public Sector Undertakings(PSU) which are Navratnas, Maharatnas, Miniratnas
c) Follow-on Public Offers (FPOs) of above companies in (a) & (b) above.
d) IPOs of PSUs, which are getting listed in the relevant Financial year and the annual turnover for last 3 years immediately preceding is not less than Rs.4000 crores.
e) Exchange Traded Funds(ETF) and Mutual Funds(MF) that have the above eligible securities as their underlying and are listed and traded in the stock exchanges and are settled through a depository mechanism.
Holding/Lock In Period
The total holding period under this scheme has been mentioned at 3 years, starting from the date of last purchase. This 3 year period will also include an initial blanket lock-in period of 1 year.
This initial first year is also known as fixed lock in period as no trading of securities is allowed during this time.
After expiry of first year the investor will be free to trade in securities in order to hedge themselves from losses and balance their portfolio. They will be free to trade at will so as to balance adverse market situation and capitalize on favorable market conditions.
Securities Valuation
In order to bring ease of valuation and certainty about the debit or credit balance of investor the securities or shares will be valued at the closing price as on the previous day of the day of trading
Additional Feature
Normal deduction limit under Section 80C, 80CCC and 80CCD, is Rs.1 lakh, but this Section is in addition to these Sections. Meaning the investor can get an additional deduction of Rs.25000 over and above Rs.100000 if he invests in equity as specified under this Section 80CCG.
This deduction is not based on source of income, meaning that any individual can invest under this Section. To clarify all individuals including those with salary income can invest under this scheme.
Example
1. Mr. Z, a businessman who has a gross total income of Rs.15 lakhs (Rs.10 lakhs from business and Rs.5 lakhs from rent), invested Rs.75000 in eligible securities under Section 80CCG.
The total deduction allowed to him will be NIL as his gross total income exceeded Rs.12 lakhs.
2. Mr. A, a businessman who has a gross total income of Rs.11 lakhs (Rs.9 lakhs from business and Rs.2 lakhs from rent), invested Rs.75000 in eligible securities under Section 80CCG.
The total deduction allowed to Mr. A under Section 80CCG will be Rs.25000, as he is eligible under the scheme. Although Mr. A invested Rs.75000 in eligible securities and the deduction available is 50% of amount invested, but as explained earlier the maximum deduction permissible is Rs.25000.
3. Mr. X, a salaried employee whose gross total salary is Rs.7 lakhs and he also has other income of Rs.1 lakhs. His gross total income is Rs.8 lakhs. Is he eligible under the scheme?
Yes, Mr. X is eligible under this scheme as his gross total income does not exceed Rs.10 lakhs.
Summary
To summarize this section this section, it can be said that the Government has taken a bold step to bring about changes in traditional investment patterns of individuals who have limited option of investing in Fixed Deposits, Gold, PPF, MFs and other securities. By allowing deduction for investing in notified equities and MFs the Government has given individuals option to start adapting to the current competitive market and start taking risk to gain in long term.
