Friday, March 8, 2013


There is a New Baby on the Tax Saving Front.

It is called Rajiv Gandhi Equity Savings Scheme (RGESS).

RGESS was introduced in the last year budget for those who earn Rs.10 lakhs or less and are First Time investors into Equity.


1.       RGESS gives this First Time Investor a deduction of 50% of his investment into the scheme subject to a ceiling of Rs.50000/- (Maximum deduction hence cannot exceed Rs.25000/-). 

2.       To avail Tax Deduction, annual income should NOT exceed Rs.10 Lakhs.

3.       Should be First Time Investors to Equity. (Surprisingly, the rules says, the investor can own shares but should NOT have them in Demat on or before 23 November 2012).

4.       Can invest only in Stocks listed under BSE100/CNX100, PSUs and ETFs/Mutual Funds which have RGESS eligible securities.

5.       Lock in is for 3 years.

6.       Tax Benefit can be claimed only once (1st time only)


For investors who are eligible for RGESS, the question is should they invest.

To begin with, the Tax Benefit is not so huge. On a investment of Rs.50000/- you get a deduction of Rs.25000/- enabling you to claim a Tax Benefit of Rs.5150/- if you come under the Top Bracket.

Equties are a MUST for an investor since it is the only proven asset class which has the capacity to beat inflation on a consistent basis. RGESS is the opening that is given to you by the Govt and you should make use of the same.

For a brand new investor, Equities are best invested under the guidance of a expert and hence go through the Mutual Fund route.

RGESS is locked in for 3 years but an investor can switch from one RGESS fund to another RGESS fund after 1 year. But, since Equities work in the Long Term, you are advised to treat RGESS like ELSS and forget your investment for 3 years. No need to churn your funds. Allow the fund to give you the Compounding effect.
Investors could invest either in lump sum or by installments.

CAVEAT : Since most salaried class would have already had their Tax Deduction done with their employers, these investors would have to ask for Tax Refut under Sec 80CCG when they file their returns with the IT. Better check with your employers.

Also, please note, you CAN invest in RGESS scheme even if you do not meet the Eligibility Criteria. But, still the money will be locked in for 3 years. Yes, RGESS is actually open to all investors. But, these investors will NOT get any Tax Benefit.  And it is important to note that whether you claim tax benefit or not, your amount is locked for 3 years.

Effective 1 April 2013, investors with a gross total income of up to Rs.12 lakh can invest in RGESS and also now an RGESS investor can invest for 3 successive years.
So, with the new provisions, an investor can now save upto Rs.7500 and also spread out over 3 years.
Under the tweaked RGESS structure, investors can invest R50,000 for three years, effectively availing of a tax deduction of R75,000 from their taxable income at the end of three years. -

So, should you invest?

I believe in the saying “SOMETHING IS BETTER THAN NOTHING” and if you are eligible for RGESS, go for it!

Best of luck.

Srikanth Shankar Matrubai

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