This exemption is over and above the Rs 1 lakh available under Section 80C for an individual investor. Under the scheme, a person has the choice to invest in shares of BSE 100 or CNX 100 companies, stocks of public sector enterprises and units of exchange-traded funds or mutual funds. A new retail investor with gross total income of up to Rs 12 lakh can avail of benefits under this scheme, with a permissible investment of Rs 50,000. The exemption is available for Rs 25,000, i.e., 50% of the invested amount.
The objective of the scheme is to encourage investment by small investors in the domestic capital market as they mostly prefer to park their savings in debt funds or instruments with low yields.
A new retail investor will be eligible for tax benefits under the scheme only for three consecutive financial years beginning with the initial year. Moreover, if he doesnt invest in any financial year following the initial year, the exemption wont be available. The securities bought for RGESS will have a three-year lock-in. The deduction claimed will be withdrawn if the lock-in requirements are not complied with.
A new retail investor will have to open a new demat account, or designate his existing one, for availing of benefits under the scheme. He will have to submit a declaration in Form A to the depository participant, who will, in turn, forward it to the depository for verifying his status. The investor will have to give his PAN details.
The new investor will be given a grace period of seven trading days from the end of the financial year so that the eligible securities purchased on the last trading day of the financial year also get credited into the demat account. He cannot sell or pledge any RGESS securities during the lock-in period, but can trade them after the lock-in period gets over. If a company goes for buyback of securities and the new retail investor exercises his option, it will considered as a sale transaction.
The scheme guidelines describe a new retail investor as one who has not opened a demat account and hasnt made any transactions in the derivative segment before the date of opening of the demat account. Also, one who has opened a demat account, but has not made any transactions, qualifies as a new retail investor.
While making the initial investment of up to Rs 50,000, the total cost of acquisition of the securities will not include brokerage charges, securities transaction tax, stamp duty and service tax.