Section 80CCG Rajiv Gandhi Equity Savings Scheme (RGESS)

The Finance Act 2012 introduced a new section 80CCG on ‘Deduction in respect of investment made under an equity savings

scheme’ as notified by the Central Government to give tax benefits to ‘New Retail Investors’ who invest up to Rs.50,000/- and

whose gross total annual income is less than or equal to Rs.10 lakhs. The Ministry of Finance approved a new tax savings 

scheme named Rajiv Gandhi Equity Savings Scheme (RGESS) vide Notification no. 51/2012 F. No. 142/35/2012-TPL dated 

November 23, 2012. SEBI issued Circular no. CIR/MRD/DP/32/2012 dated December 06, 2012 directed inter-alia Mutual 

Funds to take note of RGESS notification and take necessary steps to implement the RGESS.

In the Finance Act, 2013, certain conditions of RGESS were liberalized. Ministry of Finance thereafter vide Notification no. 

94/2013 F. No. 142/35/2012 -TPL dated December 18, 2013 notified RGESS, 2013 i.e. the amended RGESS. The objective of 

RGESS is to encourage the flow of savings in the financial instruments and improve the depth of the domestic capital market 

by New Retail Investors

1. RGESS is open to New Retail Investors, identified on the basis of their PAN. These shall mean investors: (i) who have not 

opened a demat account and have not made any transactions in the derivative segment before the date of opening of a demat 

account or the first day of the Initial Year, whichever is later, or (ii) who have opened a demat account but have not made any 

transactions in the equity segment or the derivative segment before the date they designated their existing demat account for 

the purpose of availing the benefit under RGESS (hereinafter referred to as an ‘RGESS Demat Account’) or the first day of the 

Initial Year, whichever is later.

Explanation:

a) “Initial Year” means –

• the financial year in which the investor designates his demat account as an RGESS Demat Account and makes investment in 

the Eligible Securities for availing deduction under the Scheme; or

• the financial year in which the investor makes investment in Eligible Securities for availing deduction under RGESS for the 

first time, if the investor does not make any investment in Eligible Securities in the financial year in which the account is so 

designated;

In case of existing joint accounts, all joint account holders other than the first account holder (e.g. second / third account

holders) or nominees of the existing account holders will be eligible to open a fresh RGESS Demat Account, and be considered

as ‘New Retail Investors’ to avail the benefits under RGESS, if otherwise eligible.

2. The Depository shall certify the ‘New Retail Investor’ (hereinafter referred to as ‘investor’) status of the investor at the 

time of designating his Demat account as RGESS Demat Account.

3. Investment in Eligible Securities may be made for any amount and in one or more transactions in a given financial year.

However, the maximum permissible Investment for claiming deduction under RGESS is Rs.50,000/- and the investor would 

get a 50% deduction of the amount invested from the taxable income for that year.

4. The investor may invest in one or more financial years in a block of three consecutive financial years beginning with the 

Initial Year. If the investor does not invest in any financial year following the Initial Year, he may invest in the subsequent 

financial year, within the three consecutive financial years beginning with the Initial Year. The investor shall be eligible for 

the tax benefit under RGESS in respect of the investment made in each financial year.

For e.g.: If an investor invests first time in Eligible Securities under RGESS in FY 2014-15 and avails deduction, he may also

invest in either or both of FY 2015-16 and FY 2016-17 and avail deduction for the relevant year(s).

5. The gross total income of the investor for the relevant year shall not exceed Rs.12 lakhs (financial 

year 2014-15 onwards, 

prior to that the total income shall not exceed Rs.10 lakhs);

6. Investors who invested under RGESS 2012 are also eligible to invest in Financial Years 2013-14 and 2014- 15 and avail 

benefits under RGESS 2013. Investments made under RGESS 2012 will be governed by the provisions of RGESS 2012 only to 

the extent the provisions of RGESS 2012 are not in contravention of RGESS 2013.

7. Amongst the universe of Eligible Securities that an investor can invest in, the Units of Exchange Traded Funds (ETFs) or 

Mutual Fund scheme or equity oriented funds which have Eligible Securities as their underlying and are listed and traded on 

the stock exchanges and settled through a depository mechanism are also covered.

8. The Eligible Securities credited in the RGESS Demat Account will automatically be subject to lock-in during its first year 

unless the New Retail Investor submits a declaration (within one month from the date of transaction) in the prescribed 

format to the Depository Participant indicating that such securities are not to be included within the above limit of 

investment for claiming tax deduction.

9. The total lock-in period for investments under the RGESS would be three years including the fixed lock-in period and the 

flexible lock in period. The fixed lock-in period will commence from the date of purchase of Eligible Securities under RGESS in 

the relevant financial year till March 31of the year immediately following the relevant financial year. The flexible lock-in 

period shall be the period of two years beginning immediately after the end of the fixed lock-in period. For e.g. If Eligible 

Securities are purchased on 02.04.2014

10. After completion of the fixed lock-in period, investors would be allowed to trade in the securities. Investors would, 

however, be required to maintain their level of investment during the next two years (i.e. the flexible lock-in period) at the 

amount for which they have claimed income tax benefit or at the value of the portfolio before initiating a sale transaction, 

whichever is less, for at least 270 days in each of these 2 years. Such investment value shall exclude the value of investment 

which is under the fixed lock-in period.

11. The balance of the investment portfolio of Eligible Securities in the RGESS Demat Account, at any point of time during the

flexible lock-in period, shall not be less than the amount corresponding to the value of the securities in the fixed lock-in.

12. The general principle under which trading is allowed is that whatever is the value of stocks / Units sold by the investor

from the RGESS portfolio, RGESS compliant securities of at least the same value are credited back into the account 

subsequently.

However, the investor is allowed to take benefits of the appreciation of his RGESS portfolio, provided its value, as on the

previous day of trading, remains above the investment for which they have claimed income tax benefit.

13. The Depository Participant shall furnish an annual statement of the Eligible Securities invested in or traded through the

Demat account to the investor (Demat account holder).

14. In case the investor fails to meet the conditions stipulated under RGESS and the provisions laid under Section 80CCG of 

the Income-tax Act, 1961, the taxability would be as provided under RGESS.

For complete details, investors are requested to read section 80CCG of the Income-Tax Act, 1961, the notification on Rajiv 

Gandhi Equity Savings Scheme issued by ministry of finance and Frequently Asked Questions (FAQs) on RGESS.