Introduced in the Finance Act of 2012, Section 80CCG offers deductions over and above Section 80C. Also known as the RGESS (Rajiv Gandhi Equity Savings Scheme), Section 80CCG is a relatively new section of the ITA that came into effect from the 1st of April 2013.

Objectives of Section 80CCG

Section 80CCG was introduced to inculcate the habit of investing in equities among young adults. It also aims to increase the flow of capital in the domestic market.
Just like other tax-saving schemes under Section 80C, the RGESS offers additional tax-benefits to first-time investors. Here, a first-time investor refers to an individual who doesn't have a Demat account or who has a Demat account but hasn't carried out any equities or derivatives trading.

Deductions under Section 80CCG

Under this section, an individual can claim deductions up to Rs. 50,000 on their initial investment. The maximum deductions allowed are 50% of the total investment amount, which should not exceed Rs. 50,000.
Let's explain the deductions with an example. Let's say, Mr A is a first-time investor. He has invested Rs. 60,000 in the equities market. Since this is his first investment in equities, he is eligible for tax deductions up to 50% of his investment. In this case, it is Rs. 30,000. His taxable income stands at Rs. 6,00,000 for the assessment year. By claiming deductions under Section 80CCG, he can reduce his overall taxable income to Rs. 5,70,000.

What are the investments that are eligible for deduction under Section 80CCG?

First-time investors who invest in any of the following securities are eligible for tax-deductions under 80CCG:
  • Units of ETFs and mutual fund schemes
  • Shares of miniratna/navratna/maharatna
  • Securities of CNX100/BSE-100

Eligibility Criteria for Deductions under Section 80CCG

  • Deductions under this section apply only to first-time equity investors
  • Equity investments made must have a lock-in period of a minimum of three years
  • The income of the individual claiming deductions under this section must not exceed Rs. 12 lakh in the assessment year
  • This section applies only to individual taxpayers
  • The deductions allowed are up to 50% of the total amount invested, and not exceeding Rs. 50,000 in a year

Phasing out of the Section 80CCG

While the 80CCG income tax section offers tax-saving benefits for first-time investors, it's being phased out due to lack of adoption. A new investor starting from the FY 2017 – 18 will not be eligible for deductions under this section.

However, if you have claimed deductions for the FY 2016-17 under Section 80CCG, you can continue to claim deductions for the year FY 2017-18 as well.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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