Deduction under Section 80CCG
Deduction under section 80CCG or Rajiv Gandhi Equity Savings Scheme was introduced effective assessment year 2013-14. The main purpose behind this deduction is to encourage people to invest in equity shares and increase retail investors participation in the equity markets.
Here are the conditions to be met to claim this deduction –
- The deduction is available to a resident individual
- Gross total income of the assessee does not exceed Rs 10,00,000. This cap is increased to Rs 12,00,000 effective assessment year 2014-15 or financial year 2013-14.
- This deduction is available to a new retail investor who has purchased listed shares (includes listed units effective AY 2014-15). Retail investors who have opened a demat account but have not made any transaction in stocks till the notification of this scheme are also eligible. (The scheme was notified on 18.1.2013).
- The total lock in period for investments under this scheme is 3 years. Out of the first 3 years, 1st year is a blanket lock in (meaning that you are not allowed to sell any shares in the 1st year) – starting from the date of last purchase of securities. From the second year – trading is allowed when the value of stocks/units sold by the investor is equal to or less than the value of securities purchased and credited back to the account in the same year.
- Under this scheme, the following investments are eligible
- The stocks listed under the BSE 100 or CNX 100
- Stocks of PSUs which are Navratnas, Maharatnas and mini ratnas are also eligible, including their follow on public offers.
- IPOs of PSUs (annual turnover not less than Rs 4,000 crore for each of the immediate past 3 years) which are listed in the financial year the deduction is being claimed – are also eligible.
- Exchange Trade Funds (ETFs) and mutual funds that have the above mentioned securities as their underlying investments and are listed and traded in the stock exchanges and settled through a depository are also eligible.
Amount of Deduction
When the above conditions are satisfied, the deduction is lower of the following-
- 50% of amount invested in equity shares
- Rs 25,000
Period of Deduction
Earlier the deduction was only for one assessment year 2013-14. However, this section has been amended and deduction is now available for 3 consecutive years – starting with the year in which the equity shares or units are acquired for the first time.
When the assessee fails to comply with the conditions
If after claiming the deduction the assessee fails to comply with the conditions listed above, the deduction originally allowed shall be added to the Income of the assessee in the year in which default takes place.