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Section 80 CCG Deductions

Section 80CCG of the Income Tax is popularly known as Rajiv Gandhi Equity Saving Scheme (RGESS).

The Income Tax Act 1961 introduced a new section 80CCG vide the Finance Act, 2012 and was further amended vide the Finance Act, 2013.

This section was introduced to give benefits to the ‘New Retail Investors’ whose annual gross income is equivalent to or lesser than Rs 12 Lakh. These investors are the ones who invest in ‘Eligible Securities’ up to Rs. 50,000 in one financial year, for three years of continuous assessment. Such a benefit is known as a ‘Deduction regarding investment done under an equity savings scheme’ or an ‘Exemption’ from tax.

What is Section 80CCG

The Union Budget 2012- 13 stated that section 80CCG of the Income-tax Act was introduced to encourage an ‘Equity Culture’ among the Indians. The primary purpose this section is to promote the flow of savings while improving the extent of domestic capital markets. The section aims to deepen the base of retail investors in the Securities market of India along to achieve financial stability and inclusion of finance. It also wants people to inculcate a habit of saving.

Features of Section 80CCG

Section 80CCG of the Income Tax Act or the RGESS has many essential features. They are listed below:

  • The scheme is for retail investors who are new in the equity market. These investors will require PAN cards for their identification. These new investors may include such people who may have their DEMAT Accounts but not have done any transaction either in the equity or/and in the derivatives until any scheme notification date. The scheme also takes in all the holders of accounts who need a fresh account to be opened. They may not necessarily be the first account holder.
  • Investors with a yearly income equal to less than Rs 10 Lakh are found to be suitable under the scheme.
  • Under this section, the investment limit allowed is not more than Rs 50,000. The investor is estimated to get a deduction of 50% of the invested money. This deduction is estimated to be made from the earnings which are taxable from that year. Thus, they get an exemption from tax.
  • Section 80CCG of the Income Tax Act clarifies as to what is eligible as an investment:
    • The BSE 100 listed or CNX 100 listed shares
    • Public sector ventures which fall in the categories of Maharatnas, Navratnas, and Miniratnas
    • The Follow-on Public Offers (FPOs) of the companies which are listed above are eligible
    • IPOs of many of the PSUs which are enlisted in the taxable financial year with an annual turnover of Rs 4000 Crore and not less than that, per year for the last three years
  • This Section also takes into consideration applications from many of the stakeholders; Exchange Traded Funds or ETFs and Mutual Funds (MFs) that carry the necessary eligible securities under the scheme as underlying. Also, they must be enlisted and dealt with in the stock exchanges. Moreover, they have to be settled as a depository mechanism, which again has to be brought under the scheme.
  • For the investors to be benefitted, their investments can be accepted as small installments for the year eligible for the tax claim. The investors thus achieve tax exemption. 
  • Under this section, the lock-in period in totality, for the investments is estimated as three years. These three years would further include a lock-in period consisting of a year as an initial cover of the blanket, which would commence from the last date of purchase of the securities under this scheme.
  • To promote a culture of investments in equity, along with protection provided for the investors from the adverse market trends. To save the investors from certain risks that are specifically related to stock and to offer them more avenues to earn profits, this scheme enables the investors to trade in securities. Exemption from the tax being the main attraction. 
  • The investors would have to keep up with their investment level over two years. They will be maintaining the amount which is acceptable for claiming the benefit of the income tax or the portfolio value before they had begun a sales transaction, lesser of the two. The period is an estimated 270 days a year. These 270 days will include those days which are in accordance with the day when the market value of the unsold shares has touched the demanded or specified value after the date of debit.
  • Section 80CCG of the Income Tax Act has allowed trading under a generic principal. According to which, if the investor sells any stocks from his RGESS portfolio, then the RGESS eligible securities having the same value and not less than that are credited back into his account following his sale. 
  • The investor, however, can be a part of the benefits of his appreciated RGESS portfolio, only if the portfolio value the day before its trading is more than the actual investment towards which the benefit of income tax has to be claimed.
  • 11. For the new investors to be certain about the debits and credits into their account, the shares will be valued at the closing price on the day before the trading date.
  • 12. The tax benefits will be withdrawn in case the investor not following the conditions laid down.

Section 80CCG of the Income Tax Act has clearly stated that those individuals who have their Demat account but have not yet done any transaction either in the Equity and/or in the derivatives are entitled to a deduction of 50% on their investment. In other words, they are entitled to exemption from tax.

Maximum Investment Rate of Deduction Amount of Deduction/ Tax Exemption
Rs.50,000 50% Rs. 25,000

Eligibility Criteria for Claiming Tax Rebate under Section 80CCG

Following are the primary eligibility criteria to claim a rebate or exemption from tax deduction under section 80CCG:

  • The annual gross income of the assessee should be equal to or less than Rs 12 Lakh for the relevant claim assessment year
  • The assessee should be a new investor complying with the conditions of the scheme
  • The investment of the assessee should be made in the scheme-specified stocks of equity which are equity-oriented
  • An estimated period of three years will be the lock-in period of the scheme beginning from the date of purchase

Example of Rebate or Deduction under section 80CCG

Mr Shah is a new retail investor. He has made the following investment in the equity share and units of an equity-oriented fund under RGESS for the Previous Year 2013-14, 2015-16 and 2017-18:

Particulars P.Y. 2013-14 P.Y. 2015-16 P.Y. 2017-18
Investment in listed equity shares Rs 15,000 Rs 42,000 Rs 30,000
Investment in units of an equity-oriented fund Rs  45,000   Rs 12,000
Sale of all the units of an equity-oriented fund in PY.2013-14   Rs 60,000  
Gross Total Income (Consisting of salary income and bank interest) Rs 11,50,000 Rs 11,75,000 Rs 12,25,000
Deduction under section 80CCG Rs 25,000 Rs 21,000 Nil
Remark (Restricted to 50%of Rs 50,000) (Restricted to 50% of Rs 42,000) (Not eligible as GTI exceeds Rs 12,00,000)
Amount liable to be taxed (on account of the violation of the condition) Rs 22,500  

Note: As the Gross Total Income exceeding Rs 12 Lakh for P.Y. 2017-18, Deduction was not allowed that year under section 80CCG. So, there will be no tax exemption.

No amount was found to be subjected to be taxed in the P.Y. 2013-14, though the units were sold within 3 years.

Under section 80CCG, however, a deduction of Rs 22, 500 (50% of Rs.45, 000) was permitted due to the investment of Rs 15,000 in the units of equity oriented fund in the P.Y. 2014-15.

Since such units were sold in the P.Y.2015-16, the condition under section 80CCG was violated, and thus Rs 22,500 would be subject to tax in the P.Y. 2015-16. 

How the Rebate is calculated?

In today’s current world, saving money is a difficult task. The majority of the expenses revolve around maintaining a specific lifestyle. Along with this, paying taxes is also particularly important. Tax is an integral part of our economy. People want to ride on two horses: Save money as well as the tax. The government, therefore, comes out with a scheme where people can save tax by participating in the scheme. Section 80CCG of the Income Tax Act is one such scheme wherein tax is deducted on investments through RGESS. Tax exemption is thus claimed. Thus, section 80CCG not only improves savings among individuals but also enhances India's domestic market.

How to Claim the Rebate or Exemption under Section 80CCG?

The investments which are made under RGESS till March 31, 2017, are eligible for deduction in this section. The scheme benefits in the tax deduction or one can say exemption from tax, are available for three consecutive years.

One more thing which needs to be understood is that investments made in the scheme till FY 2016-17 will be eligible for deduction in the coming years of 2017-18, 2018-19 and 2019-20. But any investment made in this scheme from 2017-18 is not eligible for deduction or a tax exemption of any sort.

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Written By: Paisawiki - Updated: 10 November 2020