14 Jun, 2013

Rajiv Gandhi Equity Savings Scheme

Uncategorized

Promising but Complex RGESS (Rajiv Gandhi Equity Saving Scheme) What is RGESS? RGESS is a specially designed scheme to promote investment in equities. Under this scheme, investors are allowed to invest in stocks – which includestocks covered by the BSE 100 or CNX 100 indices and those of public sector undertakings which are categorized by the government as ‘Maharatnas’, ‘Navaratnas’, and ‘Miniratnas’. Besides these, the follow on offers and initial public offers of PSUs whose annual turnover is not less than Rs4,000 crores are also eligible for investment under this scheme. This investment has a lock-in period of three »

31 Jan, 2013

Rajiv Gandhi Equity Savings Scheme

Uncategorized

 

Promising but Complex RGESS (Rajiv Gandhi Equity Saving Scheme)

What is RGESS?

RGESS is a specially designed scheme to promote investment in equities. Under this scheme, investors are allowed to invest in stocks – which includestocks covered by the BSE 100 or CNX 100 indices and those of public sector undertakings which are categorized by the government as ‘Maharatnas’, ‘Navaratnas’, and ‘Miniratnas’. Besides these, the follow on offers and initial public offers of PSUs whose annual turnover is not less than Rs4,000 crores are also eligible for investment under this scheme.

This investment has a lock-in period of three years but investors are allowed to tradetheir securities after the first year. However, from Year 2, Investors would be required to maintain a level of investment matching the amount for which they have claimed income tax benefit, for at least 270 days in a year.

Who are eligible to Invest in the RGESS scheme?

One of the strange features of the RGESS scheme is that it is open only to first time retail investors. It also includes investors who already own demat accounts but have not made any transactions till the date of notification of this scheme. These investors will be identified on the basis of their PAN number. Another important criteria to determine the eligibility of the investor is that the Investor’s annual income should not be more than Rs. 10 Lakh.

What are the Features of RGESS scheme?

The maximum allowable investment under this scheme is Rs. 50000/- and the Investor will get a 50% deduction of the amount invested towards the taxable income of that year (Under section 80CCG of the Income Tax Act, 1961). So from the investor’s point of view he will be able to save a maximum of Rs. 25000/- from his taxable income.

The government has also included investments routed through exchange traded funds (ETFs) and mutual funds (MFs), following several requests from various stakeholders. Further benefit small investors, these investments are allowed to be made in installments in the year in which tax claims are being made.

What are short comings of RGESS Scheme?

  1. A major shortcoming of this scheme is that it is restricted to first time retail investors only. A first time stock market investor may not have the level of sophistication that is needed to understand the scheme.
  2. In the case of mutual funds, as of now, there isn’t a specific fund set up exclusively for investing in the stocks permitted under the RGESS scheme and listed on the stock exchanges. There is no clarity whether existing mutual fund investors will be eligible to invest in these MF schemes. Also, there is no clarity whether both open-ended and close-ended MF schemes will be allowed or not.
  3. It also seems like that it will be very complicated for the government to monitor this scheme.

 

 Author: Aashish Ramchand is a Chartered Accountant by qualification and the Co- founder of makemyreturns.com, an online tax advisory and filing site. He is very passionate about Indian taxes and loves to write articles about the Indian tax system. He has worked with KPMG and JRC advisory both in international and domestic taxation respectively. His cumulative experience in taxation is 5 years. He has also completed level 1 of CFA (USA) exam.If you need to connect with Aashish you can reach him at aashish@makemyreturns.com. You can also follow him on twitter – @aashishjr.

 

 

 

 

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