Section 80CCG - Rajiv Gandhi Equity Savings Scheme

Finance Act, 2012 has inserted section 80CCG in the Income Tax Act, 1961 (‘the Act’) with effect from Assessment Year 2013-14 (Current Financial Year 2012-13) to encourage new investors in the equity market.  The details of the scheme have been notified by Central Board of Direct Taxes (CBDT) vide Notification No.51 of 2012 dated 23^rd November, 2012.

1.0  The details for deduction under this scheme are as follows:

1.1  Provision of Section 80CCG of the Act:

(a) a resident individual assessee,

(b) who has, in a previous year, acquired listed equity shares in accordance with Rajiv Gandhi Equity Savings Scheme (RGESS);

(c) shall be allowed a deduction, in the computation of his total income of the assessment year relevant to such previous year,

(d) of fifty per cent of the amount invested in such equity shares to the extent such deduction does not exceed twenty-five thousand rupees.

Note:

i. The above deduction is allowed to resident Individual Assessee only, not to any other entities.

ii. The maximum limit of deduction is Rs.25,000/- only, which is allowed to the extent of 50% on Maximum eligible investment of Rs.50,000/-.

iii. Please refer the following examples:

Example1:

Example2:

1.2  Eligible Assessee (Taxpayer):

The Assessee will be eligible for deduction u/s. 80CCG subject to following conditions:

(a) the gross total income of the assessee for the relevant assessment year shall not exceed ten lakh rupees;

Note: this scheme of deduction does not apply to the Individual assessee, whose gross total income (i.e. income before availing deduction under chapter VI-A of the Act) exceeds Rs.10 lakhs.

(b) the assessee is a new retail investor;

(c) the investment is made in specified listed equity shares under Rajiv Gandhi Equity Scheme;

(d) the investment is locked-in for a period of three years from the date of acquisition in accordance with the above scheme

2.0  Definition of the certain terms used in the above provision:

2.1 “New Retail Investor” means the following resident individuals:-

(a) any individual who has not opened a demat account and has not made any transactions in the derivative segment as on the date of notification of the Scheme;

(b) any individual who has opened a demat account before the notification of the Scheme but has not made any transactions in the equity segment or the derivative segment till the date of notification of the Scheme,

2.2 “Eligible Securities” means any of the following:-

(a) equity shares, on the day of purchase, falling in the list of equity declared as “BSE-100” or “ CNX-100” by the Bombay Stock Exchange and the National Stock Exchange, as the case may be;

(b) equity shares of public sector enterprises which are categorised as Maharatna, Navratna or Miniratna by the Central Government;

(c) Units of Exchange Traded Funds (ETFs) or Mutual Fund (MF) schemes with Rajiv Gandhi Equity Savings Scheme (RGESS) eligible securities as underlying, as mentioned in sub-clause (i) or sub-clause (ii) above, provided they are listed and traded on a stock exchange and settled through a depository mechanism;

(d) Follow on Public Offer of sub-clauses (a) and (b) above;

(e) New Fund Offers (NFOs) of sub-clause (c) above;

(f) Initial Public Offer of a public sector undertaking wherein the government shareholding is at least fifty-one per cent. which is scheduled for getting listed in the relevant previous year and whose annual turnover is not less than four thousand crore rupees during each of the preceding three years;

2.3  “Financial Year” means a year commencing on the 1^st day of April and ending on the 31^st March.

3.0 Other important Procedures, guidelines and requirements for claiming deduction u/s. 80CCG:

3.1Procedure at time of opening demat account:

The new retail investor shall follow the following procedure at the time of opening or designating a demat account:

(a) the new retail investor shall open a new demat account or designate his existing demat account for the purpose of availing the benefit under the Scheme;

(b) the new retail investor shall submit a declaration in Form A (refer enclosures to this Note) to the depository participant who will forward the same to the depository for verifying the status of the new retail investor;

(c) the new retail investor shall furnish his Permanent Account Number (PAN) while opening the demat account or designating the existing account as a Rajiv Gandhi Equity Savings Scheme eligible account, as the case may be.

3.2Procedure for investment under Scheme.-

A new retail investor shall make investments under the Scheme in the following manner:

(a) the new retail investor may make investment in eligible securities in one or more than one transactions during the year in which the deduction has to be claimed;

(b) the new retail investor may make any amount of investment in the demat account but the amount eligible for deduction, under the Scheme shall not exceed fifty thousand rupees;

Note: The maximum amount eligible for deduction @50% under this section will be Rs.50,000/- only. Accordingly, maximum deduction will be Rs.25,000/-.

(c) the eligible securities brought into the demat account, as declared or designated by the new retail investor, will automatically be subject to lock-in during its first year, as per the provisions of paragraph 7, unless the new retail investor specifies otherwise and for such specification, the new retail investor shall submit a declaration in Form B (refer enclosures to this Note) indicating that such securities are not to be included within the above limit of investment;

(d) the new retail investor shall be eligible for a deduction under sub-section (1) of section 80CCG of the Act in respect of the actual amount invested in eligible securities, in the first financial year in respect of which a declaration in Form B has not been made, subject to the maximum investment limit of fifty thousand rupees;

(e) the new retail investor who has claimed a deduction under sub- section (1) of section 80CCG of the Act, in any assessment year, shall not be allowed any deduction under the Scheme for any subsequent assessment year;

(f) the new retail investor shall be permitted a grace period of three trading days from the end of the financial year so that the eligible securities purchased on the last trading day of the financial year also get credited in the demat account and such securities shall be deemed to have been purchased in the financial year itself;

(g) the new retail investor may also keep securities other than the eligible securities covered under the Scheme in the demat account through which benefits under the Scheme are availed;

(h) the new retail investor can make investments in securities other than the eligible securities covered under the Scheme and such investments shall not be subject to the conditions of the Scheme nor shall they be counted for availing the benefit under the Scheme;

3.3 Period of holding requirements -

(1) The period of holding of eligible securities shall be three years to be counted in the manner detailed hereunder.

(2) All eligible securities are required to be held for a period called the fixed lock-in period which shall commence from the date of purchase of such securities in the relevant financial year and end one year from the date of purchase of the last set of eligible securities (in the same financial year) on which deduction is claimed under the Scheme.

(3) The new retail investor shall not be permitted to sell, pledge or hypothecate any eligible security during the fixed lock-in period.

(4) The period of two years beginning immediately after the end of the fixed lock-in period shall be called the flexible lock-in period.

(5) The new retail investor shall be permitted to trade the eligible securities after the completion of the fixed lock-in period subject to the following conditions:-

(a) the new retail investor shall ensure that the demat account under the Scheme is compliant for a cumulative period of a minimum of two hundred and seventy days during each of the two years of the flexible lock-in period as laid down hereunder:-

(A) the demat account shall be considered compliant for the number of days where value of the investment portfolio of eligible securities , within the flexible lock-in period, is equal to or higher than the amount claimed as investment for the purposes of deduction under section 80CCG of the Act;

(B) in case the value of investment portfolio in the demat account falls due to fall in the market rate of eligible securities in the flexible lock-in period, then notwithstanding sub clause(A), -

(i) the demat account shall be considered compliant from the first day of the flexible lock-in period to the day any such eligible securities are sold during this period;

(ii) where the assessee sells the eligible securities mentioned in sub-clause (B) from his demat account, he shall have to purchase eligible securities and the said demat account shall be compliant from the day on which the value of the investment portfolio in the account becomes -

(I) at least equivalent to the investment claimed as eligible for deduction under section 80CCG of the Act or;

(II) the value of the investment portfolio under the Scheme before such sale, whichever is less.

4.0 Withdrawal of deduction u/s. 80CCG in future years which was provided in earlier years:

If the assessee, in any previous year, fails to comply with any condition as specified above, the deduction originally allowed shall be deemed to be the income of the assessee of such previous year and shall be liable to tax for the assessment year relevant to such previous year.

In short, the deduction u/s. 80CCG is allowed only if all the conditions mentioned herein above are satisfied.  Further, in case the deduction has been allowed during any previous year and subsequently, the assessee breaches the conditions of this scheme, the deduction already allowed shall be withdrawn and will become liable to tax in the year in which such conditions has been breached.

The Notification No.51 of CBDT relevant to the deduction u/s. 80CCG can be found on the following link:

http://law.incometaxindia.gov.in/DIT/File_opener.aspx?page=NOTF&schT=&csId=92e1d9d5-b682-4a88-be7a-636b8cb98a13&NtN=&yr=ALL&sec=&sch=&title=Taxmann%20-%20Direct%20Tax%20Laws

(The form A and Form B, as referred above under Para 3.1(b) and 3.2(c) is also enclosed herewith.)

Form A

[See paragraph 5(b)]

Declaration to be submitted by the investors to the depository participants for availing the benefits under the Rajiv Gandhi Equity Savings Scheme.

Name of the Investor:

(first holder)

Address of the investor:

Permanent Account Number (PAN):

1. It is hereby certified that* ---

(a) I do not have a demat account and I have not traded in any derivatives.

(b) I have demat account no _________________ in ____________________ depository participant but I have not traded in any equity shares or derivatives in this account.

(c) I have a joint demat account no _________________ in ____________________ depository participant but I am not the first account holder.

2. I hereby declare that I have read and understood all the terms and conditions of the Rajiv Gandhi Equity Savings Scheme.

3. It is hereby verified that I am an eligible new retail investor for availing the benefits under the Rajiv Gandhi Equity Savings Scheme.

4. I undertake to abide by all the requirements and fulfill all obligations under the Scheme, and will comply with all the terms and conditions of the Scheme.

5. I understand that, in case I fail to comply with any condition specified in the Scheme, the benefits availed there under will be withdrawn and the tax shall be payable by me accordingly.

Signature of the Investor

Place:

Date:

* Tick which ever is appropriate.

Form B

[See paragraph 6(c) and (d)]

Declaration to be submitted by the new retail investor to the depository participant on purchase of eligible securities.

To

Depository participant

Address

It is hereby informed that I have demat account no _________________ in ____________________ depository participant and the following securities

(a)

(b)

(c)

(d)

(e) purchased in the aforesaid demat account on ______________are not to be included as investment for the purpose of the Rajiv Gandhi Equity Savings Scheme.

Signature

Name of the Investor:

(first holder)

Address of the investor:

Permanent Account Number (PAN):