A new Section 80CCG has been inserted into Indian Income Tax Act by the Finance Act 2012 with effect from 1st day of April 2012. This means this action is applicable for previous year 2012 – 13 and assessment year 2013 – 14.
This Section 80CCG of Indian Income Tax Act, 1961 allow a deduction of fifty percent of amount invested in equity shares up to amount of Rs. 50,000.oo (Rs. Fifty thousand only) in a previous year as par a scheme called Rajiv Gandhi Equity Saving Scheme, 2012. Even though this law and scheme is targeted to attract small investors to capital market, political analyst think timing of this scheme aiming for next general election scheduled to be held in year 2014.
Interestingly, this scheme provides once in lifetime deduction (Sub – section 2 of Section 80CCG). It may attract small investors to capital market and keep them there for 3 years as per lock – in period condition. In simple words, this scheme, give incentive to small investors to taste water in capital market; unless he got addiction, he may come out of capital market. Hence, it, perhaps, may not create informed and serious small investors for Indian capital market. Please note, in a saving oriented country like India a big portion of earning population is out of banking and other financial cover.
As per this Section, to get benefit of this deduction, following conditions must be satisfied:
- The benefit of this scheme is available to resident individual only and he must satisfy condition of "new retail investor" as per the scheme.
- A person can claim this benefit only once i.e. first time only.
- Gross total income of claimant shall not exceed ten lakh rupees (Rs. 10,00,000.oo)
- The claimant must be a new retail investor as per definition given in the scheme.
- The investment is made in listed equity shares as specified in the scheme.
- The investment is locked – in for a period of three years.
In case of any failure to comply any condition laid down in this section and the scheme, may result in increased tax liability in a subsequent assessment year.
Now, we discuss the scheme, called Rajiv Gandhi Equity Saving Scheme, 2012 notified by the Government by Notification 51 dated 23rd November 2012 under this Section 80CCG. The scheme adds some conditions and details its procedure.
The claimant under this scheme must satisfy following conditions to be classified as "new retail investor":
- An individual who has not opened a demat account and has not made any transaction in the derivative segment as on 23rd November 2012 being date of notification.
- An individual who has opened a demat account before 23rd November 2012 but has not made any transaction in the equity segment or derivative segment till 23rd November 2012 being date of notification.
- An individual who is not a first account holder of an existing joint demat account as on 23rd November 2012 being date of notification. This means second or subsequent joint account holder of any demat account will qualify for the scheme and may open a new demat account for the purpose of this scheme.
For the opening of demat account as discussed in clause (a) and clause (c) above or designated any existing demat account as discussed clause (b) above, the claimant shall submit a declaration in From A as per format given in the Notification and shall also furnish his Permanent Account Number (PAN) to his depository participant, where he open his demat account.
Any investment to be qualified for eligibility under this scheme should be made only in following:
- Equity share falling in list of BSE – 100 or CNX – 100
- Equity shares of Maharatna,Navratna or Miniratna companies
- Exchange Traded Funds or Mutual Funds with Equity shares of BSE – 100, CNX – 100, Maharatna, Navratna or Miniratna companies
- Follow on Public offer of Equity shares of BSE – 100, CNX – 100, Maharatna, Navratna or Miniratna companies
- New fund offer if exchange traded funds or mutual funds described above
- Initial Public offer of certain government companies.
The eligible investment under this scheme shall satisfy following conditions:
- Investment may be made in one or more transactions during the year.
- Investment may be made of any amount but deduction may be claimed for only fifty thousand rupees (Rs. 50,000.oo).
- All investment brought into this demat account shall be subject to a lock – in period. However, the claimant may give a declaration to his depository participant indicating investment of which he is not intending to claim benefit under this scheme. Simply, when investor under this scheme invest more than fifty thousand rupees (Rs. 50,000.oo), he must declare all other investment out of eligibility for the scheme and hence outside any lock – in period. This declaration shall be given in form B as per format given in the notification.
- The deduction is available only for actual amount investment in eligible security outside any declaration given on form B.
- The investor shall not be allowed any deduction who has claimed any deduction once.
- The securities credited into account within 3 days from end of financial year are eligible.
- The investor may keep other securities in the demat account.
- Non eligible securities shall not be subject to condition of this scheme like lock – in period.
- The deduction claimed shall be withdrawn if condition of lock in period is not complied.
The eligible securities under this scheme are subject to certain condition related to lock – in period. The first year of lock – in period starts with purchase of first set of eligible securities and end with completion of one year from purchase of last set of eligible securities. The first year of lock – in period is called as fixed lock –in period. During this fixed lock – in period, no sell, pledge or hypothecation of these is permitted. After completion of this fixed lock –in period, a flexible lock – in period start. During this flexible lock – in period, during this flexible lock – in period, these locked – in securities may be traded subject to maintenance of minimum balance (the claimed amount of security) for minimum two hundred and seventy (270)days. After completion of this 3 year lock – in period, this demat account will be converted to ordinary demat account. Any change in valuation due to any involuntary corporate action shall not affect claim of deduction. The SEBI provided list of involuntary corporate actions; amalgamation, scheme of arrangement, reduction of capital, bonus issue, stock split, consolidation of shares, conversion of partly paid shares, exchange of share certificates, redemption, dividend on mutual fund, redemption of mutual fund.
For administration of this scheme, depository participant shall furnish annual statement to demat account holder and the depository shall furnish a consolidate statement of details in form C to the government.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.