Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS) Title

By Legal & Compliance Dept.

 Announced in Union Budget of 2012-13 and notified on 23 Nov. 2012. SEBI circular dated 6th December 2012. To promote an equity culture in India and encourage savings of small investors in domestic capital market. ONE TIME 50% deduction under section 80CCG of Income Tax Act, 1961 for a maximum investment amount of Rs. 50,000/- (e.g. if amount invested is Rs. 50 K income tax benefit of Rs. 25 K can be claimed). Deduction u/s 80CCG is over & above the Section 80C limit of Rs 100,000/ Investment can be made in installments. However ,benefits can be availed only for the investments made in 1st F.Y in which benefit is claimed. Only new retail Investors whose Gross Total Income is less than or equal to Rs 10 lakhs are eligible for deduction in the 1st A.Y. (i.e. income from all sources). Non fulfillment of conditions will result in withdrawal of Tax benefit.

THE PRODUCT OBJECTIVE &FEATURES

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WHO CAN INVEST?

Only Individual (HUF, Pship etc. not eligible). Gross total Income < = Rs. 10 lakhs Only New Retails Investors are permitted to claim deduction: New Retail Investor means: Individuals who do not have a demat account and who have not traded in derivatives segment as on November 23, 2012. Individuals having demat account have not invested in equity &/derivative segment as on November 23, 2012.. Individuals having demat acoount where he/she is not the first holder. PAN card is mandatory for account opening . Hence investors residing in the state of Sikkim are not eligible.

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LIST OF ELIGIBLE SECURITIES

1. 2. 3. 4. 5. 6. 7. Equity Shares falling in the list of equity declared as BSE-100 or CNX100 by BSE & NSE. Maharatnas, Navratna & Miniratna as categaorised by Central Government. Follow on Public Officer (FPO) of (1) & (2) above New Fund offers (NFOs) of (3) above IPOs of PSU whose turnover is > Rs.4000cr during preceding three years Mutual Funds invested in (1) to (5). Exchange Traded Funds (ETFs) invested in (1) to (5)

Note : list of securities will be available on Exchange website and with depositories. The link for RGESS eligible securities are given below:
http://www.nseindia.com/invest/content/investor_RGESS.htm http://www.bseindia.com/rgess/eligible_securities.htm http://www.cdslindia.com/investors/securitieslist.jsp

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LOCK IN PERIOD
The scheme is subject to lock in period of 3 years divided in fixed and flexible lock in: Fixed Lock in period
Commences from the date of purchase of eligible securities in the relevant F.Y. and ends one year from the date of purchase of last set of eligible securities in the same F.Y for which deduction is claimed. It is to be noted that if the investment is made in installments the lock-in would be more than one year. For Eg if the first investment is made on 01.04.2013 and the last investment (i.e when the account hits Rs 50,000 mark) is made on 28.02.2014 then the lock-in period would end one year after 28.02.2014 i.e on 27.02.2015.

Flexible Lock in period

Investor permitted to trade during flexible lock in period provided the Demat account is compliant with the following during two hundred and seventy days during each of the remaining two years: Portfolio value is equal to or higher than the amount claimed as deduction Trading permissible only in eligible securities

Not permitted to sell, pledge or hypothecate securities

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EXAMPLE

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DOCUMENTATION
Investor to open a Trading & Demat account. Submit declaration in Form A as per the format prescribed in SEBI Circular dated 6th Dec.2012 wherein investor provides undertaking about his eligibility for the scheme and claims to have read and understood the Terms & Conditions of RGESS. In case the investor wishes to exclude certain securities within the above limit of investment, he can do so by specifying such securities in Form B as per the format prescribed in SEBI Circular dated 6th Dec. 2012 in the circular. This form is to be submitted within one month from the date of credit of securities to the DP. In case of change in investment amount in view of involuntary corporate actions like merger, demerger , etc, the deduction claimed shall not be affected. Change in investment amount in view of voluntary corporate actions like buyback where investor has an option to exercise choice, the same shall be considered as sale transaction. Demat account to be converted to ordinary demat account on completion of period of holding.

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PROCESS CHANGES REQUIRED AT ANGEL

Product needs to be internalise & marketed. A new tag is required to be created in the back office system (Trading as well as DP) for RGESS monitoring. KYC, Feedback, Operation and Sales team needs to be educated about the Product in order to enable them to explain the same to clients. Beside declaration from Client we need to do PAN verification at the time of UCC upload and KRA Verification. We need to extend BSDA facility to the investors under RGESS.

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Challenges

Limited choice of stocks Maintenance of the initial value of the investment for at least 270 days in year two and year three. Only one time exemption allowed and that too only 50% of the Investment made. The structure of lock in period is very complex and hence difficult for common investor to understand and invest for a meager deduction of Rs. 25,000/ Since investment made in installments, keeping track of different lock-in dates is very cumbersome.

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For any clarification please write to compliance@angelbroking.com

Thank You

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