The tax-saver RGES (Rajiv Gandhi Equity Scheme) intends to allow investments in Maharatna, Navaratna & Miniratna shares, besides in top 100 shares on the BSE & the NSE. These are part of the draft guidelines approved by the Department of Economic Affairs.
Sametime, the draft guidelines don't mention investments through MFs (mutual funds). This is despite the demand from the mutual fund industry - AMFI, also supported by the SEBI (Securities and Exchange Board of India).
This draft is now going to SEBI & then the Department of Revenue will notify. Since the scheme involves tax matters, a final notification has to come from the Department of Revenue.
Deduction of 50%..!
The scheme was announced in this year’s (2012-13) Budget and is expected to be notified soon.
According to the amendments approved by Parliament in the Finance Bill, the RGES will allow deduction of 50% of the amount invested in equity shares to the extent that the deduction does not exceed Rs. 25,000. This means one can invest a maximum of Rs. 50,000 to get the benefits. The condition is that the benefits will accrue only to first time investors and will be given once.
New Section 80 CCG ..!
On why not investment through MFs, the source said since the approved amendments in the Finance Bill talked about investments in listed equity shares, no diversion was possible without further amendments. The amendments have inserted a new Section 80CCG in the Income Tax Act.
The approved amendments also talk about a three-year lock-in period for investments under the scheme.Sametime, the draft guidelines propose churning of investments after the first year, but any point of time during the 3 year period. But, the minimum investment should be maintained at Rs 50,000.
Security, Liquidity..!
The source also added that investment in listed top scrips, besides Maharatna, Navaratna and Miniratna, will give not just give security. But also liquidity at the time of churning.
At present, there are 5 Maharatna ( SAIL, Coal India, IOC, ONGC & NTPC), 16 Navratnas (HPCL, BHEL, NMDC, Power Finance, d Shipping Corporation etc,,) and 68 Miniratnas (Engineer India, MRPL, MOIL and MMTC etc...
The then Finance Minister, Mr. Pranab Mukheerjee, while announcing the Budget for 2012-13, had said, “To encourage flow of savings in financial instruments & improve the depth of domestic capital market, it is proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme. The scheme would allow for income tax deduction of 50% to new retail investors, who invest up to Rs. 50,000 directly in equities & whose annual income is below Rs. 10 lakh”.
Only 8 per cent of India’s households have invested in shares (Equities), directly or indirectly through MFs, as opposed to 42 per cent the United States & 14 per cent in China.
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