RGESS: High on hopes, low on delivery

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This is that time of the year when most tax payers start evaluating various tax saving options. While public provident fund, employees' provident fund, home loan and insurance have traditionally been some of the popular tax saving options, there is a new scheme available for saving tax now óRajiv Gandhi Equity Savings Scheme (RGESS).

Over the years, the dependence of Indian equity markets on foreign capital has increased. Foreign investors are known for their quick entry and exits which create volatility in the market and make investing into equity that much riskier. This also means that the investor has to track most of the external factors along with keeping an eye on the domestic issues, which is a complex task. RGESS is an attempt by the government to channelise part of the domestic savings into the equity markets which would help reduce the volatility in the market. Experts, however, believe that while the intention of the government is in the right direction, it is unlikely to yield any significant result due to its rigid provisions.

WHAT IS RGESS?

The then finance minister, Pranab Mukherjee, had said in his Budget (2012-13) speech that "to encourage flow of savings in financial instruments and improve the depth of domestic capital market, it is proposed to introduce a new scheme called RGESS..." While the scheme was announced in the Budget this year, details of the scheme were announced just last month. Some of its salient features are:

A person with a taxable income of less than Rs 10 lakh can avail benefits under this scheme, with a permissible investment of Rs 50,000 and the exemption is available for Rs 25,000, ie 50 per cent of the invested amount under Section 80 CCG of the Income Tax Act.

It is available only for the new retail investors who have not invested in stocks/ derivatives.

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