All You Need To Know About 80CCG & 80GB

Rajiv Gandhi Equity Savings Scheme 80CCG (RGESS), 2012

With an objective to encourage flow of savings of the small investors in domestic capital market, the Government of India (GOI) announced a scheme named Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS) to offer tax benefits to ‘New Retail Investors’.

Avail the additional tax benefits under RGESS

Under RGESS, ‘New retail Investor’ can invest upto Rs.50,000 in eligible securities and avail additional tax benefit (i.e., deduction) upto Rs.25,000 under Section 80CCG. This is over and above the limit of Rs.1,00,000 currently available under Section 80C of the Income Tax Act, 1961.

Who is eligible?

·         You must be a resident individual.

·         You must be a new retail investor i.e. you do not have a demat account or you have a demat account but have not done any transaction till the date of Notification viz; November 23, 2012.

·         Your gross total income must be less than or equal to Rs.10 lacs.

Where to invest?

You can invest in eligible securities. Eligible securities considered for RGESS investment are:

·         Equity shares of selected companies which include:

·         Companies falling in the list of ‘CNX-100’ of NSE or ‘BSE-100’.

·         Public sector enterprises categorized as Maharatna, Navratna or Miniratna by the Central Government.

·         Units of Mutual Fund (MF) schemes which are RGESS compliant.

·         Units of Exchange Traded Funds (ETFs) which are RGESS compliant.

·         IPOs /NFOs of above mentioned companies/funds.

Click here to view List of RGESS eligible stocks / ETFs / MF schemes

Is there any lock-in?

·         Lock-in period under RGESS is of three years which includes ‘Fixed Lock-in’ period of one year and ‘Flexible lock-in’ period of two years.

·         During ‘Fixed Lock-in’ period, eligible securities cannot be sold / pledged. During ‘Flexible lock-in’ period, eligible securities can be sold / pledged subject to certain conditions.

·         The designated RGESS demat account will be converted into a regular or ordinary demat account at the end of the flexible lock-in period.

Next Step

·         Open a new demat account with any DP of NSDL.

·         If you already have a demat account and you are eligible, designate your demat account under RGESS.

·         To designate your demat account under RGESS, submit a declaration in Form A to your DP.

·         Start investing.

How to invest?

·         Secondary Market:

·         Approach any SEBI registered Stock Broker of your choice.

·         Mutual Funds:

·         Approach any Mutual Fund distributor or a SEBI registered Stock Broker. Ensure to provide your demat account details i.e., Demat Account Number and DP ID.

·         IPO / NFO of RGESS compliant companies/funds:

Investor must ensure to mention demat account details i.e., Demat Account Number and DP ID in the IPO / NFO application form.

Capital gain exemption on transfer of residential property if invested in a manufacturing small or medium enterprise [New Section 54GB]

The Government had announced National Manufacturing Policy (NMP) in 2011, one of the goals of which is to incentivise investment in the Small and Medium Enterprises (SME) in the manufacturing sector. Therefore, with effect from assessment year 2013-14, a new section 54GB has been inserted so as to provide rollover relief from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.

This relief would be subject to the conditions that —

• the amount of net consideration is used by the individual or HUF before the due date of furnishing of return of income under sub-section (1) of section 139, for subscription in equity shares in the SME company in which he holds more than 50% share capital or more than 50% voting rights.
• the amount of subscription as share capital is to be utilized by the SME company for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares.

If the amount of net consideration subscribed as equity shares in the SME company is not utilized by the SME company for the purchase of plant and machinery before the due date of filing of return by the individual or HUF, the unutilised amount shall be deposited under a deposit scheme to be prescribed in this behalf.

Suitable safeguards so as to restrict the transfer of the shares of the company, and of the plant and machinery for a period of 5 years are proposed to be provided to prevent diversion of these funds. Further, capital gains would be subject to taxation in case any of the conditions are violated.

The transfer should take place during April 11, 2012 and 31st March, 2017.