Rajeev Gandhi Equity Saving Scheme

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With equity-linked saving scheme (ELSS) or tax-saving mutual fund (MF) schemes on their way out effective April 2013 if the proposed direct taxes codea (DTC) kicks in by then, Budget 2012 has provided some sort of an alternative. However, unlike ELSS that is a mutual fund, the new option will in all probabilities solicit direct investments in equities. About the scheme and its features

Right now there are about 3.5 crore equity investors in India, but over 10 crore people earn more than Rs 2 lakh a year. According to government, many of them will want to avail of this new exemption after they exhaust their Section 80C limit. Termed as Rajiv Gandhi Equity Saving Scheme (RGESS), investors whose annual income is less than Rs 10 lakh can invest in it. You will be able to invest in this scheme up to Rs 50,000 and get a deduction of 50 per cent of the investment

So if you invest Rs 50,000 (maximum amount you can invest), you can claim a tax deduction of Rs 25,000 (50 per cent of Rs 50,000). The scheme is not for existing investors (Those who have a demat account are considered as existing investors as per RGESS but more about this later). This will translate to a maximum benefit of Rs 5,000 (investors whose annual income is a maximum of Rs 10 lakh falls under the 20 per cent income-tax bracket). Those whose annual income is Rs 10 lakh or more will not be able to invest in RGESS. Just like ELSS, your money will be locked in for three years.

The Rajiv Gandhi Equity Saving Scheme, announced in this year's budget, is eyeing 1.5 crore new investors for the equity market. But, investment under the scheme may be restricted to top 100 or 200 shares on the Bombay and National Stock Exchanges. Among all the taxpayers, there are nearly 1.5 crore people, with income up to 10 lakh, who do not have a demat account. There would be enough attraction for these people to invest in the equity market.

Few facts about RGESS:
Who can invest?
New equity investors with annual...
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