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Free Demat Account (BSDA) for all and income tax benefit to new investors (RGESS)

One of the main objectives of SEBI is to protect investors and develop the securities market in India. In line with this objective, SEBI on August 27, 2012 issued a circular, the highlights of which are mentioned below:-

If you want to open a new DEMAT account at any Depository Participant (Depository Participant (DP) – these are the entities which are authorized by SEBI to provide depository services – to open demat account and other related services for customers. E.g. of some of such DPs are HDFC Bank, ICICI Bank, Sharekhan, etc.), from October 1, 2012 it would be mandatory for them to give you an option to open a Basic Service DEMAT Account with them.

Why I term this type of account as free?

If the holding value of your DEMAT account is less than Rs. 50,000 then there would be no Annual Maintenance Charges (AMC) to be paid by the investor. If the holding value is from Rs. 50,001 to Rs. 2,00,000, AMC not exceeding Rs. 100 may be charged. If the value of holdings is above Rs. 2,00,000 then it would be considered as regular account where the normal charge structure as decided by the DP would be applicable.

So what is the eligibility for having a BSDA?

There are four main criteria that need to be fulfilled:-

1. Applicable to all individuals (inclusive of NRIs, Qualified Foreign Investors, Foreign Nationals) who have or propose to have only one DEMAT account where they are the sole or first holder.

2. Individuals having any other demat account/s where they are not the first holder shall be eligible for BSDA in respect of the single demat account where they are sole or first holder. 

3. The individual shall have only one BSDA in his/her name across all depositories (There are two Depositories in India currently - they are NSDL (National Securities Depository Limited and CDSL (Central Depository Services (India) Limited)).   

4. Value of securities held in the demat account shall not exceed Rupees Two Lacs at any point of time.

So what if I already have a DEMAT account?

Don’t get discouraged.

 If you already have a DEMAT account and you satisfy the abovementioned criteria, then it would be mandatory for your DP to give you an option (as per billing cycle) to convert your regular DEMAT account into BSDA.

Tip* - I am aware of many investors who had applied for IPOs which later fared poorly due to which the securities are lying idle in their DEMAT account for which the investor is also paying an yearly AMC further adding to his/her loss. It would be a boon for all such investors. Use this option to convert your DEMAT Account.

For complete details, you may refer the following link:-

New scheme introduced for Income tax benefits for investors in securities markets

They term it as “Rajiv Gandhi Equity Saving Scheme”.

It is applicable to only those investors who are new to securities market and whose income is less than or equal to Rs. 10 lacs. So if you already own an active DEMAT Account, then you can’t avail the tax benefits.

What is the tax benefit in this scheme?

The maximum Investment permissible under the Scheme is Rs. 50,000 and the investor would get a 50% deduction of the amount invested from the taxable income for that year (Sec. 80 CCG (amended) of the Income Tax Act, 1961). That means on investment of Rs. 50,000, deduction of Rs. 25,000 would be allowed for that FY i.e. a maximum benefit of Rs. 5,000 approx.

Under the Scheme, those stocks listed under the BSE 100 or CNX 100, or those of public sector undertakings which are Navratnas, Maharatnas and Miniratnas would be eligible. Follow-on Public Offers (FPOs) of the above companies would also be eligible under the Scheme. IPOs of PSUs, which are getting listed in the relevant financial year and whose annual turnover is not less than Rs. 4000 crores for each of the immediate past three years, would also be eligible.

In addition, Exchange Traded Funds (ETFs) and Mutual Funds (MFs) that have RGESS eligible securities as their underlying and are listed and traded in the stock exchanges and settled through a depository mechanism would also be eligible under RGESS.

The total lock-in period for investments under the Scheme would be three years including an initial blanket lock-in period of one year, commencing from the date of last purchase of securities under RGESS.

After the first year, investors would be allowed to trade in the securities in furtherance of the goal of promoting an equity culture and as a provision to protect them from adverse market movements or stock specific risks as well as to give them avenues to realize profits.

For more information, kindly refer the following link:-


1. If you are a new investor with income of less than or equal to Rs. 10 lacs with no demat account then you can avail benefits of both the schemes i.e. having a free DEMAT account (i.e. BSDA) and availing tax benefits.

2. If you already have an active DEMAT account with value of holding less than Rs. 2,00,000, you have the option to convert it into BSDA. But you won’t be allowed to avail the benefit of RGESS.

You may refer to the charge structures of various DPs for Demat account related services on the following links of the Depositories (as these DPs, on yearly basis, have to furnish the charges which they are levying on customers who have availed of DEMAT services from them to the Depositories)

To make your choice of DP easier, here’s the link:- (NSDL - charge structure – DP name wise)

In the end,

Point to be noted here is that Maximum cap for RGESS is Rs. 50,000 and if the value of holding is less that Rs. 50,000 then there may be no AMC on your DEMAT account.

In addition during the same time on August 22, 2012, Reserve Bank of India (RBI) issued a circular on the same lines for a “Basic Savings Bank Deposit Account” (Refer this link for more details)

If I see these different circulars together, I would rather like to say here that Government has somewhat impressed me by their systematic step by step process which would help achieve the following:

a) attract new investors in the securities market

b) Benefit the existing investors (BSDA)

c) a step favorable for the government in their objective of divestment in PSUs

d)  to create a rally in the stock market

e) to increase savings growth (RBI circular)

But how effective these all would prove, is yet to be seen. Let’s see what impact (positive or negative) it would have on investors and the Government who would be in the hot spot in the 2014 elections.



Chirag Shah

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Chirag Shah
Category Others   Report

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