Jagoinvestor

October 11, 2012

RGESS Tax Saving Scheme – Too Complicated !

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?

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priyajitgh
priyajitgh
10 years ago

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.

Vikram
Vikram
10 years ago

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

ashwini
ashwini
11 years ago

i have already elss. am i eligible for rgess?

ashwini
ashwini
Reply to  Jagoinvestor
11 years ago

thanks sir

Sushant
Sushant
Reply to  Jagoinvestor
10 years ago

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?

Regards

Jha
Jha
11 years ago

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.

Brijesh Kumar Singh
Brijesh Kumar Singh
11 years ago

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.

Brijesh Kumar Singh
Brijesh Kumar Singh
Reply to  Jagoinvestor
11 years ago

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?

prakash kumar
prakash kumar
11 years ago

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

SANJEEV KUMAR
SANJEEV KUMAR
Reply to  prakash kumar
11 years ago

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.

SUDHANSHU
SUDHANSHU
11 years ago

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?

SETUL LALAN
SETUL LALAN
11 years ago

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

Neeraj Kumar
Neeraj Kumar
11 years ago

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.

Mahesh Patil
Mahesh Patil
11 years ago

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.

Sahil
Sahil
Reply to  Jagoinvestor
11 years ago

Hey manish,

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

Thanks
Sahil

Sahil
Sahil
11 years ago

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

Sahil

PRATIK
PRATIK
11 years ago

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)

Regards

Sunil
Sunil
11 years ago

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.

Romit Chhabra
Romit Chhabra
11 years ago

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?

Please Dont Use your Company Name Here
Please Dont Use your Company Name Here
11 years ago

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.

Pawan
Pawan
Reply to  Jagoinvestor
11 years ago

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.

Romit Chhabra
Romit Chhabra
11 years ago

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?

Ram
Ram
11 years ago

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.
Regards
Ram

Jerry Jose
Jerry Jose
11 years ago

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.

Ramprakash
Ramprakash
11 years ago

Maninsh

Can you please list the eligible Equity MFs under RGESS ?

Ramprakash
Ramprakash
11 years ago

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?