Sec. 80CCG was inserted in the Income Tax Act, 1961 (‘Act’ for short) vide Finance Act, 2012 with effect from 01.04.2013. This section deals with deduction in respect of investment made under an equity savings scheme. The said section reads as follows:
80CCG. (1) Where an assessee, being a resident individual, has, in a previous year, acquired listed equity shares in accordance with a scheme, as may be notified by the Central Government in this behalf, he shall, subject to the provisions of sub-section (3), be allowed a deduction, in the computation of his total income of the assessment year relevant to such previous year, of fifty per cent of the amount invested in such equity shares to the extent such deduction does not exceed twenty-five thousand rupees.
(2) Where an assessee has claimed and allowed a deduction under this section for any assessment year in respect of any amount, he shall not be allowed any deduction under this section for any subsequent assessment year.
(3) The deduction under sub-section (1) shall be subject to the following conditions, namely:—
(i) The gross total income of the assessee for the relevant assessment year shall not exceed ten lakh rupees;
(ii) The assessee is a new retail investor as may be specified under the scheme referred to in sub-section (1);
(iii) The investment is made in such listed equity shares as may be specified under the scheme referred to in sub-section (1);
(iv) The investment is locked-in for a period of three years from the date of acquisition in accordance with the scheme referred to in sub-section (1); and
(v) Such other condition as may be prescribed.
(4) If the assessee, in any previous year, fails to comply with any condition specified in sub-section (3), 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 exercise of the powers conferred by Section 80CCG (1) the Central Government made ‘Rajiv Gandhi Equity Savings Scheme, 2012’ vide Notification No. S.O. 2777(E), dated 23.11.2012 from which this scheme came into effect. The objective of the scheme is to encourage the savings of the small investors in domestic equity market. This scheme shall apply for claiming deduction to the computation of total income of the assessment year relevant to a previous year on account of investment in eligible securities under Section 80CCG(1) of the Act.
Who is eligible?
This scheme is available to a new retail investor who complies with the conditions of the scheme and whose gross total income for the financial year in which the investment is made under the scheme is less than or equal to Rs.10 lakhs.
According to this scheme ‘new retail investor’ mean the following resident individuals-
- Any individual who has not opened a demat account and has not made any investments in the derivative segment as on the date of notification of the scheme;
- Any individual who has opened a demat account before the notification of the scheme but has not made any transaction in the equity segment or the derivative segment till the date of notification of the scheme;
- Any individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purpose of this scheme.
Procedure for opening demat account:
- 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;
- He shall submit a declaration in Form A to the depository participant, who in turn, will forward the same to the depository for verifying the status of the new retail investor;
- The new retail investor shall furnish his permanent account number while opening the demat account or designating the existing account as a Rajiv Gandhi Equity Savings Scheme eligible account, as the case may be.
Procedure for investment under this scheme:
- 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;
- He may make any amount of investment in the demat account but the eligible amount for deduction is Rs.50,000/-;
- The eligible securities brought into the demat account will automatically be subject to lock-in during the first year, unless he specifies otherwise and for such specification, he shall submit a declaration in Form II indicating that such securities are not to be included within the above limit of investment;
- He shall be eligible for a deduction under Section 80CCG(1) 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 Rs.50,000/-;
- He shall not be allowed any deduction under the scheme for any subsequent assessment year;
- He shall be allowed a grace period of 3 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;
- He may also keep securities other than the eligible securities under this scheme in the demat account through which benefits under the scheme are availed; The said investments are not subject to the conditions in the scheme and will not be counted for availing the benefit under the scheme;
- The investment under the scheme shall consist of all eligible securities covered under the scheme that are initially bought by the investor under the scheme or that are bought subsequently by the investors as per the provisions of this scheme;
- The deduction claimed shall be withdrawn if the lock in period requirements of the investment are not complied with or any other conditions of the scheme is violated.
Period of holding:
The period of holding of eligible securities shall be 3 years to be counted in the matter as detailed below:
- All eligible securities are required to be held for a period called the lock-in-period which shall commence from the date of purchase of such securities to the relevant financial year and end one year from the date of purchase of the last set of eligible securities on which the deduction is claimed under the scheme;
- He shall not be permitted to sell, pledge or hypothecate any eligible security during the lock-in-period;
- The period of two years beginning immediately after the end of the fixed lock-in-period shall be called the flexible lock-in-period;
- He shall be permitted to trade the eligible securities after the completion of the fixed lock-in-period subject to the following conditions:
- He shall ensure that the demat account under the scheme is compliant for a cumulative period of a minimum of 270 days during each of the two years of the flexible lock-in-period as laid hereunder:
- 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;
- In case the value of investment portfolio on the demat account falls due to fall in the market rate of eligible securities in the flexible lock-in-period, then notwithstanding the facts in the above para-
- 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;
- Where the assessee sells the eligible securities 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 at least equivalent to the investment claimed as eligible for deduction under Section 80CCG or the value of the investment portfolio under the Scheme before such sale whichever is less.
- The demat account created under the scheme shall be converted automatically into an ordinary demat account on the expiry of the period of holding of the investment;
- For the purpose of the valuation of investment during the flexible lock-in-period the closing price as on the previous day of the date of trading shall be considered;
- While making the initial investment up to Rs.50,000/- the total cost of acquisition of eligible securities shall not include brokerage charges, securities transaction tax, stamp duty, service tax and all taxes which are appearing in the contract note;
- Where the investment undergoes a change as a result of involuntary corporate actions like demerger of companies, amalgamation etc., result in debit or credit of securities covered under the scheme, the deduction claimed by such investor shall not be affected;
- In case of voluntary corporate actions like buy back etc., resulting only in debit of securities, where new retail investor has the option to exercise his choice, the same shall be considered as a sale transaction for the purpose of the scheme;
- If he fails to fulfill any of the provisions of this scheme, the deduction allowed to him for any previous year 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;
- He shall be liable to submit the relevant records to the income tax authorities for verification as and when required.
Obligations of depository participant:
v The depository participant shall certify the new retail investor status of the assessee at the time of designating his demat account as demat account for the purpose of this scheme;
v He shall furnish an annual statement of the eligible securities invested in or traded through the demat account to the demat account holders;
v He shall provide a consolidated statement of details in the electronic format, as specified in Form C on all the beneficiaries under the scheme to the Director General of Income Tax (Systems) or any other person authorized by him, within a period of 30 days from the end of the relevant financial year. taxmanagementindia.com
SEBI’S CLARIFICATIONS:
SEBI in respect to the implementation of the said scheme issued the following clarifications, vide its Circular No. CIR/MRD/DP/32/2012, dated 06.12.2012:
v For RGESS eligible close-ended Mutual Funds schemes, advice given by AMCs to the depository for extinguishment of units of close ended schemes upon maturity of the scheme shall be considered as settled through depository mechanism and therefore RGESS;
v AMCs shall disclose that the concerned RGESS eligible Exchange Traded Funds and Mutual Fund schemes is in compliance with the provisions of RGESS guidelines notified by Ministry of Finance vide notification no. 51/2012 F. No. 142/35/2012-TPL dated November 23, 2012, in Scheme Information Document (SID), in case of new fund offer, or by way of addendum, in case of existing RGESS eligible Exchange Trade Funds and Mutual Fund scheme.
v The notification states that the eligible securities brought into the demat account will automatically be subject to lock-in during the first year, unless the new investor specifies otherwise and for such specifications, the new retail investors shall submit a declaration in Form B indicating that such securities are not to be included within the above limit of investment. It is clarified that such declaration shall be submitted by an investor to its Depository Participant within a period of one month from the date of transaction;
v For transactions undertaken by investors through their RGESS designated demat account, Depositories may seek necessary transactional details from stock exchanges viz. Actual Trade value, Trading date, Settlement number, etc, for the purpose of enforcing lock-in and for generating reports mandated vide MoF notification on RGESS. On receipt of such request from depositories, stock exchanges shall provide the details to depositories on an immediate basis. It shall also be ensured that a uniform file structure is used by stock exchanges and depositories for such intimation of transaction details.
v With regard to the securities held in the RGESS designated account, treatment of the corporate actions shall be as given below:
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Sl.No.
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Corporate Actions
|
Classification (voluntary or involuntary)
|
|
1
|
Amalgamation
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Involuntary
|
|
2
|
Scheme of arrangement
|
Involuntary
|
|
3
|
Reduction of capital
|
Involuntary
|
|
4
|
Bonus issue
|
Involuntary
|
|
5
|
Buy back of shares
|
Voluntary (involuntary in case of court intervention)
|
|
6
|
Stock split
|
Involuntary
|
|
7
|
Consolidation of shares
|
Involuntary
|
|
8
|
Conversion of partly paid up
|
Involuntary
|
|
9
|
Dividend (Final/Interim/special)
|
Involuntary
|
|
10
|
Name transfer
|
Involuntary
|
|
11
|
Rights issue
|
Voluntary
|
|
12
|
Compulsory conversion
|
Involuntary
|
|
13
|
Optional conversion
|
Involuntary
|
|
14
|
Redemption
|
Involuntary (voluntary, if there is option to continue with revised terms)
|
|
15
|
Dividend on mutual fund
|
Involuntary
|
|
16
|
Redemption on mutual fund
|
Involuntary (voluntary, if there is option to shift between different scheme(s) or on account of exit option due to fundamental attributes of the scheme)
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This scheme was introduced by the Finance Minister in his budget for the year 2012-13. Many analysts and experts have pointed out that exposing retail investors to direct equity investment is a risky proposition. Many fund managers have also criticized the idea saying the scheme won’t be in the interest of retail investors.
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