New deduction has been proposed in the Budget in respect of investment made in equities i.e., Rajiv Gandhi Equity Savings Scheme (RGESS) by the new retail investors. Though the Finance Minister has made this announcement in the speech but there is no amendment proposed in the Finance Bill, 2012 allowing such deductions while computing income under the Income-tax Act.

AMOUNT OF DEDUCTION

A deduction of 50% shall be allowed to new retail investors who invest up to Rs. 50,000 directly in equities in a new scheme called Rajiv Gandhi Equity Savings Scheme (RGESS).

APPLICABILITY

• Applicable only to those investors whose annual income is below Rs. 10,00,000.
• Lock- in period of 3 years.

BENEFITS

• Encourage the flow of savings in financial instruments.
• Improve the depth of the domestic capital market.

Benefit will be provided to a maximum of Rs. 5,000 (investors whose annual income is maximum of Rs. 10 lakhs falls under 20% tax bracket). Those whose annual income is Rs. 10 lakhs or more will not be able to invest in RGESS.

The benefits in RGESS is less beneficial in comparison to Equity Linked savings Scheme (ELSS) as in ELSS all investors are eligible for claiming deduction and a amount of Rs. 1 lakh is allowed as deduction u/s 80C. Also subject to a maximum of Rs. 1 lakh your entire amount invested gives you tax deduction benefits.

CONCLUSION

The new scheme shall be effective in the FY13 only if the Capital Market regulators and the Securities and Exchange Board of India (SEBI) releases guidelines and allows Rajiv Gandhi Equity Savings Scheme (RGESS) to launch. It will encourage participation of more and more small investors in capital market and will enhance their savings too.