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The objective of the scheme is to encourage the savings of the small investors in domestic capital market.


The deduction shall be available to new retail investor whose gross total income is less than or equal to 10 lakh rupees.

Definition of “New Retail Investor”

i. Any individual who has not opened a demat account and has made not made any transaction in the derivative segment.

ii. Any individual who has opened a demat account but has not made any transaction in the equity or derivative segment.

iii. Any individual who is not the first account holder of existing joint demat account shall be deemed to have not opened a demat account.

Tax Benefits

Deduction under Section 80CCG can be claimed of 50% of the amount received subject to maximum of Rs. 25,000.

Eligible Investments

i. Equity shares in BSE-100 or CNX-100

ii. Equity shares of Maharatna, Navratna, Miniratna companies

iii. Units of eligible Exchange Traded Funds and Mutual Funds

iv. Follow on public offer on (i) and (ii) above

v. Initial Public Offer of eligible public sector undertaking i.e. PSUs in which government shareholding is at least 51% which is scheduled for getting listed and whose annual turnover is not less than 4000 crore rupees during each of preceding 3 years.

Valuation of Initial Investments

While making the initial investments upto Rs. 50,000, the total cost of acquisition of eligible securities shall not include brokerage charges, Securities Transaction Tax, stamp duty, service tax and all taxes, which are appearing in the contract note.


At the Time of Opening Demat Account

New Investor

a. Open a demat account designated as RGESS flag ‘Y’

b. Open a broking account.

c. Provide Permanent Account Number (PAN) while opening account.

d. Submit declaration in Form A to depository participant who will forward same to depository for verifying the status of new retail investor.

Existing Investor

a. Designate existing demat account for RGESS.

b. Open a broking account, if not opened.

c. Provide Permanent Account Number (PAN), if not provided.

d. Submit declaration in Form A to depository participant who will forward same to depository for verifying the status of new retail investor.

For Investment

a. The new investor shall make investment in eligible securities.

b. One or more transactions during the year are permitted i.e. purchase in installment is permitted.

c. The investment can be made of any amount but the maximum amount eligible is 50000.

d. Investment in the securities other than specified can be held in RGESS Account, not for the scheme, but for the investment purpose and it shall not be subject to any condition.

e. Form B is to be submitted indicating the details of securities not held for the scheme.

f. A grace period of 3 trading days is from the end of financial year is permitted so that securities purchased on last trading day of financial year shall be deemed to have been purchased in the financial year itself.

Period of Holding Requirements

a. The Lock-in period shall be 3 years.

b. The fixed lock in period will be for a period of one year.  But such one year has to start from the date of last purchase of the shares.

c. For example, the eligible equity shares of Rs. 10000 are purchased on 1/1/2013 and further make investment of Rs. 20000 on 15/2/2013, then fixed lock-in period of 1 year will start from 15/2/2013. The fixed lock-in period will be 15/2/2013 to 14/2/2014.

d. During fixed lock-in period investor is not permitted to sell, pledge or hypothecate the security.

e. The period of 2 years from the end of fixed lock-in period is called Flexible Lock-in period.

f. During Flexible Lock-in period the assessee is allowed to trade in eligible securities subject to being complaint for minimum 270 days in each flexible lock-in year.

g. The compliance conditions are as follows-

- The demat account is said to be complaint for the number of days where the value of the investment portfolio of the eligible securities is equal to or higher than the amount claimed as RGESS investment (i.e. deduction).

- If the value of investment portfolio in demat account falls due to fall in market value then,

- The demat account is considered complaint from the 1st day of flexible lock-in period to the day any such eligible securities are sold during this period i.e. it is considered as complaint till the date of sale.

- After date of sale, the assessee has to purchase the eligible securities and the account is said to be compliant from the day on which the value of investment portfolio becomes -

Amount claimed as deduction under Section 80CCG OR

The value of investment portfolio before the sale.

Whichever is less.

Note: For the purpose of valuation of investment during the flexible lock-in period, the closing price as on the previous day of the date of trading shall be considered.

Effect of Non – Compliance

Deduction claimed will be withdrawn and deduction claimed shall be deemed to be the income of the assessee of such previous year.

By: Chaitanya K. Ganatra


Published by

(CA, CS, BCom (A&F))
Category Income Tax   Report

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