The Union Budget 2017 has proposed to withdraw the benefit given to Rajiv Gandhi Equity Savings Scheme (RGESS). The scheme was introduced in the 2012 Budget providing tax deductions under section 80CCG of the Income-tax Act, 1961. This deduction is over and above the deduction of Rs1.5 lakh under the familiar section 80C, and is exclusively for investments in the RGESS.
As per the scheme, investors who are in the highest tax bracket of 30%, can save up to Rs7,500 in taxes by investing a maximum of Rs. 50,000 under this scheme. Deduction is allowed on 50% of the investment amount, i.e., above Rs25,000 in the above case.
Initially, RGESS was available to those who were first-time equity investors and had incomes of up to Rs10 lakh a year, and invested a maximum of Rs50,000 in the specified RGESS eligible stocks, mutual funds and exchange traded funds. After the first year, in the Union Budget of 2013, the minimum income threshold was increased to Rs12 lakh per annum.
The Budget also proposes some changes in the structure of the scheme with an aim to get more benefit to the investors who makesinvestments for 3-year lock-in period
Although the scheme comes with a 3-year lock-in, there is also a complicated route you can use to exit before that.
Apart from this, the process of getting identified as a first-time equity investor requires filling multiple forms, in which you also have to state the exact benefit you seek. The reason behind discontinuing the deduction may be against investments in RGESS could be the declining interest of investors in the scheme.The deduction in RGESS will be discontinued from 1 April 2018.
Read the full text of the Budget Speech and The Finance Bill, 2017 below.
