RGESS Tax Saving Scheme – Too Complicated !

POSTED BY Jagoinvestor ON October 11, 2012 COMMENTS (76)

RGESS or Rajiv Gandhi Equity Saving Scheme is the new tax saving scheme, for saving taxes. This is mainly  for first time equity investors in securities market. The whole idea for introducing the RGESS scheme is to promote an ‘equity culture’ in India as well as widen the  retail investor base in the Indian securities markets. Look at the below video where a discussion is going on RGESS.

Lets us look at some major points which defines RGESS

1. Maximum Investment Limit and Tax Saving

RGESS scheme is available only to those investors whose taxable limit is less than 10 lacs per year; and the maximum limit of investment is Rs 50,000 per year. The tax advantage will be available on only 50% of the amount invested –  which means that tax saving can be done only on upto Rs 25,000. Which means, if you invest Rs 50,000 and belong to 20% tax slab , you will be able to save 20% money on 25,000 (50% of 50,000) – a Rs 5,000/- tax saving.

2. Applies to new Investors Only

The RGESS Scheme is available only for “new investors”; defined as those whose PAN numbers don’t have equity transactions, which means either a person has not opened a demat account ever, or has opened a demat account, but have never invested in equity before the scheme came into effect. The investment can be done throughout the year, and not restricted to a one time investment, so investing Rs 50,000 in one shot or investing Rs 10,000 in 5 shots , both are eligible. But the big confusion is for those investors who already have equity investments through mutual funds, but do not have demat account ?

3. Lock In period of 3 years

This rule is a little messy. There will be 3 year lock in period for this investment. However if an investor wants to, he can collect “profit” part after a year of investment.  So for the entire first year, you cant sell your shares! And after the first year of investment, he can take out the profits if he so chooses. He can sell all his shares if he wants, but he will have to bring back the same amount through some other stock.  After first year, 2 more years of lock in will apply, and in this period, you have to maintain your balance at the end of first year, which should be minimum of the amount on which you claimed income tax or the balance at the end of the 1st year .

So if a person invests Rs 50,00 , and in next one year

Case 1 : His worth is Rs 55,000 , then he can take out 5,000 and after that he has to keep his balance minimum 50,000 (the amount on which tax exemption is claimed), if a person wants, he can sell off his shares totally, but then again has to come back with 50,000 investment in some other or same stock. He can take out the profits part (above 50,000) if he wants in these next 2 yrs

Case 2 : His worth is Rs 25,000 , then in this case, he has to maintain this 25,000 balance in next 2 years. If you are still unclear, Deepak Shenoy has done a better job in explaining this lock in part, in his article on RGESS.

4. Where can you invest for RGESS Scheme?

You can invest in stocks which belong to

  • CNX 100
  • BSE 100
  • IPOs of PSUs whose annual turnover is not less than Rs. 4000 Crore for each of the immediate past three years
  • Large Listed PSU’s
  • And any ETF , Mutual fund which are listed and traded in stock exchange and whose portfolio includes stocks which are eligible under RGESS

Should you invest in RGESS ?

Personally, I feel that RGESS has too many terms and conditions to follow, and is not that easy to understand for a common man. Especially a new investor who is anyways afraid of markets and his money being lost. The restriction of “can’t not sell at all in first year” is kind of scary, especially for those who are too risk averse.

Another bad point about RGESS is that it’s a once in a life time investment scheme. Once you become eligible for this scheme, for next year you will not be a “new investor” and hence wont be eligible, so its only for the fresh batch of new investors each year. The only positive point is that for those who were anyways going to take plunge in stock markets will get extra benefit of some tax saving and might instill some compulsory discipline of investing (lock in period).

Let us know what do you think about this RGESS Scheme (Rajiv Gandhi Equity Saving Scheme) , and if it interests you. Will it be a hit tax saving scheme or a flop one? What do you think?

76 replies on this article “RGESS Tax Saving Scheme – Too Complicated !”

  1. priyajitgh says:

    Hi Manish
    First of all,thanks a ton for such a informative article.I have an query.I have opened my Demat A/c on last october-2013 & so far invested in the following MFs via SIP
    1. ICICI Pru Focussed Bluechip-Direct
    2.UTI Oppourtunities-Direct
    3. SBI Pharma-Direct
    4.IDFC Dynamic Bond fund_Direct
    5.ICICI Pru Discovery Fund
    6.ICICI Balanced Adv Fund
    So far I have invested 30k in the above mentioned MFs & extra Rs 8600/ in SBI Gold ETS via SEP manner.My annual income is below 10lac & also I am a first time investor.
    Am I eligible to avail 50% tax exemption over my total invested amount 38.6k under 80 CCG & are my MFs belong to RGESS ??
    Will be grateful to receive ur reply.

    1. I dont think it will be eligible for RGESS because the stocks where the funds invest do not come under RGESS

  2. Vikram says:

    Just trying to understand the terms and conditions can give you a headache.

    Somebody with too much time on his hands or too much confusion, or both, seems to have designed the RGESS.

    This scheme sounds like utter bullshit

  3. ashwini says:

    i have already elss. am i eligible for rgess?

      1. ashwini says:

        thanks sir

      2. Sushant says:

        Hi Manish,

        I do not understand why the answer to ashwini’s question is “no”. He might have ELSS that is not in demat format and hence demat account can meet all the criteria for RGESS.

        Could you please clarify?


        1. I thought she is asking for claiming RGESS in the same ELSS

  4. Jha says:

    I think, now Govt has given much clarifications on this scheme and now, this scheme is attractive as it is possible to save upto Rs5150 for a person of 20% tax slab. This saving is upfront savings. I hope to invest in this scheme in next week. Any insights on this? Pl. share the same. Thanks, Jha.

    1. I have already put my thoughts on this ! 🙂

  5. Dear Manish,
    As per the new budget announced on 28 feb for 2013-2014. The RGESS purchased in next year can get tax exemption for 3 successive years. What about this year i.e 2012-2013?
    I am bit confused whether to go for RGESS in this financial year or wait for next year i.e. 2013-2014 to get 3 years exemption.
    Kindly guide me as the time is getting closer to end of the financial year.

    1. I think its 2 exemptions (2 consequetive years) … However why do you want to go for RGESS . I really dont suggest it , better go for ELSS only !

      1. I already have completed 80C section for tax purpose and want to go for RGESS just because it will give me extra tax exemption of 25 k.
        What do u suggest to go for now or to wait until next year?

        1. You can go with it now if you can

  6. prakash kumar says:

    Dear Sir,
    I want to invest in RGESS. But, from where I can obtain it ? please give us the information where I can invest in RGESS. Is SBI authorized for RGESS ?

    Thanks & Regards,

    Prakash Kumar

    1. SANJEEV KUMAR says:

      Since last two months I am to invest in RGESS.Knocked about six banks and other intellectuals but no one conform me as how and where to invest money for RGESS.
      Waiting for a reply.

      1. Invest in stocks which are part of CNX 100 .

  7. SUDHANSHU says:

    Hello Manish,

    I have SIP in HDFC top 200 can i invest in RGESS, i have KYC No. but i havent do any share trading.. can u please let me know how can i open a Demate Account .

    also tell me can i invest Rs 10000 only in RGESS for 2012-13?

    1. Yes, you can invest in this , read the post to understand how it will help you

  8. SETUL LALAN says:

    Hi Manish,

    is there any special procedure to get stocks under RGESS, i have a new demat account in icici direct and supose i buy equity now can i claim under RGESS and as a proof what is to be given to employer. is gold etf eligible under RGESS

    1. Yes, you can get the expemption on that if you meet terms and conditions . gold etf will not be part of it , read the article properly !

  9. Neeraj Kumar says:

    Hey Manish,

    These days I am going through “Jago Investor” book written by you. I must say, it’s really a sincere effort from your behalf to apprise us of different aspects of our own financial life. I can say that being a newbie in this zone am really getting something out from this book.

    After reading chapter of equity vs debt funds, am pretty much convinced that equity is a good option for long term and as am a bachelor so i should spend 80-100% of my investments on it.
    Now the problem is, I am investing in PPF , FDs and life insurances for tax saving.
    I feel if i will invest in equity then i wont be able to save tax so it will be really helpful if you could provide valuable suggestion of yours on this.

    1. Thanks for appreciation Neeraj

      You can always invest in ELSS funds and save tax on that amount . Also dont look at things just from tax point , see the final picture too !

  10. Mahesh Patil says:

    Hi Manish,

    I have SIP in MF HDFCtop 200, Relaince Gold etf & few others not done it via demat accunt. I have demat account but no transistion. Can I claim already invested amount in RGES this year.

    1. Yes you should be able to .

      1. Sahil says:

        Hey manish,

        I have a SIP in Birla SL Frontline Equity Fund(G) which started an year back. Can I claim it in RGESS ?


        1. No . Not now .. you are an old investor now !

  11. Sahil says:

    Nice Article !
    But I consider this as a FLOP scheme.
    Too many complications and restrictions. Need to simplify this scheme a lot.


    1. Yes agree with you Sahil

  12. PRATIK says:

    When this scheme was introduced in Budget…they also plan for Disinvestment and mkt condition was not good * last year govt vould not complete disinvestment target). they thought at lest there will be some support for disinvestment program
    ( initailly NO investment in MF was coonsidered which recently they had allowed)


    1. Thanks for sharing your views on this Pratik

  13. Sunil says:

    Does the RGESS allow deduction over and above the 100000 limit under 80 C like the infra bonds or it is within the one lakh limit? Kindly clarify.

    1. Yes , Its over and above 80C !

  14. Romit Chhabra says:

    Hi all,

    I have two doubts about the scheme.
    1. Is it for current (2012-13) financial year or the next (2013-14) financial year?
    2. I invested first time in the stock market on 28 May, 2012. Am i eligible for this scheme?

    1. 1. For all the years from today

      2. Yes

  15. RGESS if implemented in the current form could lead to a lot of dormant demat account in future.The tax incentives may induce a lot of equity shy people to open demat accounts and make a one time investment-just to save tax and not transact any more after this since they would anyway not be eligible to save tax again next year using this mode and the whole purpose of “promotion of equity culture” could get defeated in the process.

    1. Thats a very good point !

      1. Pawan says:

        Perfect! I too opened Demat account two years back, to purchase infrastructure bonds and used it to purchase IB only. This year invested amount in IB is not applicable to exemption, and therefore I am not going to use the account at all.

        1. Ok , then better close it , why pay the yearly charges !

  16. Romit Chhabra says:

    I have 2 doubts about the scheme
    1. Is this scheme for current financial year (2012-13) or for next financial year (2013-14)?
    2. I bought stocks for the first time on 28 May, 2012. Am i eligible for this scheme?

  17. Ram says:

    Dear Sir
    I heard the total annual income of the person should be less than Rs. 10 lakh to be eligible under this scheme.
    Pl. clear whether it is Gross income or Net income excluding HRA, PF etc.

  18. Jerry Jose says:

    The scheme is really confused and for new investors it is not easy to take profit from the stock market. If one go for tax exemption there is 75% chance to loose more money in stock market than he save through tax exemption.

    1. Thanks for your views !

  19. Ramprakash says:


    Can you please list the eligible Equity MFs under RGESS ?

    1. I think that will be a very exhaustive exercise . Not possible at the moment .

  20. Ramprakash says:

    Hi Manish

    Can you come out with a list of Equity MFs (Excluding ETFs) which you think would be eligible for RGESS?
    At this point I can think of DSP BlackRock Top 100. Am I right?

    1. NO sure on that . does it have all the stocks which are as per guidelines ?

  21. Sandeep Sudhakaran says:

    Ohh, the complexity of this scheme is comparable to the tax laws itself. Had been good if it was 100% exempted, open to any investors, and to keep it balanced, the minimum lock-in being 5 years. But the irony is that such a scheme would only be a dream for mango people.

    1. Yea .. But this scheme is just designed to get new people into stock market !

  22. Vineet says:

    Seems stupid scheme which I do not think will succeed in its objective of attracting new equity inverstors. There are too many implementation difficulties which I do not know if have been thought about.
    1. Identifying first time investor – confusion about mutual fund investor not having demat account.
    2. Lock in for 3 years seems very difficult to implement. Which authority will track it. If you are allowed to sell shares after first years, who ensures that person puts in original capital back and what is punishment if he/she does not put capital back?
    From common man point of view it is not worth doing all these complications for savings of Rs 5000 because without proper selection of shares there is high risk of losing part of original capital which negates Rs 5000 savings reward.

    1. Thanks for your views on this Vineet

      Only time can tell if this becomes a hit or a flop , a lot of pundits have said it will be a HIT 🙂

  23. Manish says:

    Just another scheme to get an inflush of capital in the markets from newbie novice investors,

    I wont be surprised if another scam is unearthed in coming years related to RGESS

    1. Thank Manish

      I dont think the scam will be direct, it will be indirect , pursueding small time investors to invest in stocks which they dont understand !

  24. Prasoon says:

    It would be a real hit only after following modifications:
    1) Maximum investment amount should be based on general tax saving section (Currently 1 Lac) instead of 50,000.
    2) Tax advantage should be available for 100% of investment instead of 50%
    3) Remove income level restriction – Dear Government, please come out from reservation mindset.
    4) Should be applied to all investors instead of first time investors – Please! This is the stupidest clause.

    In total, government is expecting a less than 10L p.a. earner and first time investor to put 50,000/- in equity to get 5000/- tax benefit? Any takers?

    1. MAYUR says:

      Govt think that we all are BPL(Below Powerty Line) Investors hence there is income level Restriction, and even if we are not BPL, government is working with definite plan to take all us there.

      Also it is available to 1st time investors only, obviously because wise investors will not repeat their mistake !

    2. I dont think any of those will happen , because first its already there and next the motive is very different of govt than us 🙂

      1. Prasoon says:

        I know and agree with you fully! 🙂

  25. Anshuk Jain says:

    Too many ifs and buts to only save a max of 5000 in a year..

  26. ayush bhargava says:

    Hi Manish,

    I think this scheme is very useful for all those who have just started their career and are looking for tax saving instruments.
    For those who are already investing into equities will feel neglected.

    One point is not clear to me i.e. The person who is already investing into MF is he also eligible or not??


    1. He is not eligible if he has bought it from stocks market under his demat account

  27. Ram Mohan says:

    Most stupid scheme ever introduced by the government. This is what happens when somebody who is not an investor creates rules about investing…

    1. Thanks for your views Ram

  28. MAYUR MUNSHI says:

    I too had the same confusion of first time investors. Actually I had already invested in equity mutual funds but i don’t have any demat account till now. So I am in confusion whether i am eligible for RGESS or not .

    1. How can that happen ? How did you invest in equity without demat account ? Which stock you bought and from where ?

    2. MAYUR MUNSHI says:

      I had invested in uti, hdfc, franklin in equity mutual funds.

      1. Amol says:

        Dear Manish,

        I Too have MFs but not through Demat account. I read your article about different ways of purchasing MFs and you you suggested that if frequency is less , we should walk to AMC and buy it.

        I got confused from ur question to mayur that how he bought MF without Demat account?

        1. nandish says:

          Amol you do not need demat account to invest in mutual funds. You can make mutual funds investments through normal savings account

          1. Amol says:

            Thanks Nandish!

        2. You dont need demat account for buying Mutual funds

  29. Fruit Travel says:

    Not a good option for newbies who don’t understand what equity and stock market is all about. Better consult a financial adviser before investing

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