80CCG Tax Rebate

Section 80CCG of the Income-tax Act is also called as Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS). Any resident individual with income less than Rs 12 lakhs who uses demat account for the first time to buy notified shares, mutual funds or ETFs can claim 50% deduction on the invested amount. RGESS was introduced to encourage small investors to participate in the equity markets.

Eligibility for 80CCG

1. Should be a new retail investor. This means you should be using a demat account the first time ever for equities. You should be using a new demat account or if you had a demat account you should have never traded in equities using it before.

2. Your income should not exceed Rs 12 lakhs.

3. Investment must be done in

(i) Shares belonging to BSE-100, NSE-100, maharatnas, navratnas or miniratnas. FPOs of these companies or IPOs of PSUs with 51% government shareholding are also eligible.

(ii) Mutual funds and ETFs investing in the above shares are eligible for tax saving through RGESS. NFOs of such funds are also eligible for 80 CCG RGESS deduction.

4. NRIs cannot avail this tax benefit. RGESS tax rebate under section 80CCG is applicable only for residents.

Maximum deduction limit under 80CCG RGESS

Maximum investment is capped at Rs 50,000. You can claim only 50% deduction on the amount invested. This deduction can be availed for three consecutive years, based on investments you make in those years, complying with RGESS requirements.

Other terms under 80CCG

Investments will have a total lock-in period of three years. The first year will be a fixed lock-in period where you cannot alter the securities on which deduction has been claimed under 80CCG and the next two years will be flexible lock-in period where you can sell the securities while ensuring that value of the portfolio on which tax benefit has been claimed is maintained.

How to get 80CCG deduction for RGESS

RGESS one of the Chapter VI-A deductions so you can put it in the cell allocated for 80CCG in the ITR form while filing income tax returns to get tax deduction. Or you can submit details of your investments to the company HR in the relevant financial year who will apply less TDS on your salary.

Fintotal comment

Investors who are new to equities should avoid investing in shares directly. Mutual funds or ETFs are better alternatives but there aren't many good mutual funds marked out for RGESS yet.