RGESS for Additional Tax Saving

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Investors looking to save taxes in addition to usual avenues can consider Rajiv Gandhi Equity Savings Scheme (RGESS). First-time equity investors with a gross annual income of . 12 lakh or less can invest up to . 50,000 under Section 80CCG in the scheme every year, and can claim tax benefits for three years. Investors have the option of buying stocks from BSE 100, NSE CNX 100, Maharatnas or Navratnas or ETFs.

Investors can also invest through NFOs which are RGESS-compliant. The benefit is available to first-time investors for investments through their demat accounts opened on or after November 23, 2012, or demat accounts which have not yet been used for equity investments. Investors looking to build a portfolio over the next three years can consider investing in RGESS, as it gives you an additional tax benefit. First-time investors would be better off using the MF or ETF route against direct equities as it reduces risk compared to investing in individual stocks.

How Much Can You Save?
If you invest . 50,000, you shall get a tax deduction of 50% or . 25,000. If your income is taxed at 10%, you save tax of . 2,575. If you are in the 20% tax bracket, you will save . 5,150 and if you are in the 30% tax bracket, you could save as much as . 7,725. But you also have to keep in mind the costs of investing. For buing individual stocks or ETFs through the scheme, account for the broking cost and annual depository charges.

The Route to Choose
Experts ask individuals to use the mutual fund NFO route, or ETF route, to invest in RGESS against direct equities. For example, while OMCs like ONGC, BPCL are blue-chips, they are affected by government policies and consequently their stock prices have fared badly. ONGC is down from . 336 to . 288 over the last one year against the Sensex which is up 3%.

How to Go about It?
First, you should open a demat account with a depository participant. The depository — NSDL or CDSL — will certify your new investor status at the time of designating your account as a demat RGESS account. The client details are then passed on by the depository to NSDL /CDSL who thereafter certifies the account to be eligible as RGESScompliant.

 

 

 

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