Section 80CCG of the Income Tax Act 1961 is a special provision for individuals who want to invest in equity shares or listed units of equity-oriented funds for the first time. This section was introduced in the Finance Act, 2012, and is popularly known as the Rajiv Gandhi Equity Savings Scheme (RGESS).
The primary objective of this scheme is to encourage first-time retail investors to participate in the equity market and help them save tax. The government introduced this scheme to promote long-term investment in equity markets by incentivizing small investors to invest in equity shares or mutual fund units.
Who can invest in RGESS?
This scheme is applicable to individuals who have not invested in equity shares or listed units of equity-oriented mutual funds before the date of notification of the scheme (November 23, 2012). The investor should also have a gross total income of less than or equal to Rs. 12 lakhs in the financial year in which the investment is made.
Investment Limit:
The maximum investment limit under the scheme is Rs. 50,000. This amount is over and above the limit of Rs. 1,50,000 under section 80C of the Income Tax Act, 1961.
Tax Benefit:
Under section 80CCG, investors can claim a deduction of 50% of the amount invested in the scheme, subject to a maximum limit of Rs. 25,000. This deduction is available only for the first investment made by the investor under the scheme.
Lock-in Period:
Investments made under the RGESS have a lock-in period of three years. During this period, investors cannot sell, pledge, or hypothecate the securities purchased under the scheme. However, investors can receive dividends and participate in bonus or rights issues during the lock-in period.
Investment Eligibility:
Investments can be made in equity shares or listed units of equity-oriented mutual funds which are included in the Rajiv Gandhi Equity Savings Scheme.
How to Claim Deduction:
To claim the deduction under section 80CCG, investors have to submit a declaration to their depository participant or mutual fund, as the case may be, that they have not made any investment in equity shares or listed units of equity-oriented mutual funds before November 23, 2012.
The Bottom Line/Conclusion:
Section 80CCG provides tax benefits to first-time retail investors in equity shares and equity-oriented mutual funds. The scheme aims to encourage small investors to invest in the stock market and save tax while doing so. However, investors should keep in mind the lock-in period and the investment eligibility criteria before investing under the scheme. It is always advisable to consult a tax expert before making any investment decisions.
Other Related Blogs: Section 144B Income Tax Act
Frequently Asked Questions (FAQs)
Q:1 What is Section 80CCG of the Income Tax Act 1961?
A: Section 80CCG is a special provision introduced in the Finance Act, 2012, which provides tax benefits to first-time retail investors who invest in equity shares or listed units of equity-oriented mutual funds.
Q:2 Who can invest under the Rajiv Gandhi Equity Savings Scheme?
A: Individuals who have not invested in equity shares or listed units of equity-oriented mutual funds before the date of notification of the scheme (November 23, 2012) and have a gross total income of less than or equal to Rs. 12 lakhs in the financial year in which the investment is made are eligible to invest under the scheme.
Q:3 What is the maximum investment limit under Section 80CCG?
A: The maximum investment limit under the scheme is Rs. 50,000.
Q:4 What is the tax benefit available under Section 80CCG?
A: Investors can claim a deduction of 50% of the amount invested in the scheme, subject to a maximum limit of Rs. 25,000.
Q:5 Is the tax benefit available every year?
A: No, the tax benefit is available only for the first investment made by the investor under the scheme.
Q:6 What is the lock-in period for investments made under the scheme?
A: The lock-in period for investments made under the scheme is three years.
Q:7 Can investors receive dividends or participate in bonus or rights issues during the lock-in period?
A: Yes, investors can receive dividends and participate in bonus or rights issues during the lock-in period.
Q:8 Can investors sell or pledge the securities purchased under the scheme during the lock-in period?
A: No, investors cannot sell, pledge, or hypothecate the securities purchased under the scheme during the lock-in period.
Q:9 How can investors claim the deduction under Section 80CCG?
A: To claim the deduction under Section 80CCG, investors have to submit a declaration to their depository participant or mutual fund stating that they have not made any investment in equity shares or listed units of equity-oriented mutual funds before November 23, 2012.
