In a bid to boost the flow of savings of small investors into the equity market, the revised version of the Rajiv Gandhi Equity Savings Scheme (RGESS) will allow a new investor to make a capital investment of up to R50,000 in each of the three years the tax benefit is provided for. This would imply that a new investor can invest up to R1,50,000 over a three-year period.
Investment in each of these years will have a different lock-in period of three years. The first year will be a fixed, lock-in period during which you cannot sell or pledge your investments. After the fixed lock-in period, the scheme allows selling or buying your investments in the next two years.
A senior government official said,? The changes proposed in the Budget will incentivise the new investor to put money in the stock market for a period of six years as the lock-in period of investment will differ for each year.” The eligibility critiria and a formal circular to this effect are expected to be put up by Sebi shortly.
Working on providing an alternative to gold investments, which is heavily feeding the country’s current account deficit, the new changes will incentivise investors to remain invested for the period of six years against the three years planned earlier. Finance minister P Chidambaram in the Budget for 2013-14 made modifications to the RGESS.
New investors with a gross total income of up to R12 lakh can invest in RGESS and get an income tax deduction of 50% on investing up to R50,000. This would be over and above the R1 lakh deduction under Section 80C. Earlier, the income limit was R10 lakh per annum.