Popularly known as the Rajeev Gandhi Equity Saving Scheme, Section 80CCG of Income Tax Act in India, is formulated to offer incentives to equity market investors. The objective of this section is to improve savings among individual investors and in turn, boost the country’s domestic capital market. 

Notably, this deduction scheme is directed towards online investment schemes. It helps individuals save on taxes and allows them to make the most of the accompanying incentives. 

To understand how the scheme benefitted investors, one needs to become familiar with its offerings. They should also find out the requirements that accompany Section 80CCG of ITA. 

What is Section 80CCG?

Section 80CCG of Income Tax Act deals with the incentives that aim to provide tax deductions to eligible individuals. Such deductions are made available to taxpayers who put money into India’s equity market with the purpose of capital appreciation. 

Section 80CCG was added to ITA to encourage individuals to put more money into investment instruments like equities or equity-oriented funds. To achieve it, several tax deductions were offered to the first investors. 

As per experts, the scheme known as the Rajiv Gandhi Equity Saving Scheme is formulated to imbibe the habit and discipline of savings in individuals’ minds.  As a direct result, it will prove useful in strengthening the base of investors who put money into Indian securities and will help create an ambience of investment stability and financial inclusion. 

However, one must note that under Section 80CCG of Income Tax Act individuals are allowed only one deduction on their first equity investment. 

What are the Deductions Under Section 80CCG?

Section 80CCG of ITA states that the tax deductions that come under its purview are made available to first-time equity market investors who have a valid Demat Account. 

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The provision further states that individuals who have not invested in any derivative or equity transactions will be entitled to claim 50% deductions on investments. However, the upper ceiling to avail of such deductions is an investment of up to Rs. 50000.

Example of Section 80CCG Deduction

Suppose Yash is a first-time investor who decides to put a sum of money, say, Rs. 50000 into equity. Being his first investment, Yash is eligible for a 50% tax deduction on his investment. 

Notably, Yash’s taxable investment amounted to Rs. 550000. However, with the available deduction of Rs. 25000 his taxable income stands at Rs. 525000.

Eligibility Under Section 80CCG

The government requires individuals to meet these few criteria to become eligible for deductions under Section 80CCG.

    • Individuals who have invested for the first time can claim deductions under Section 80CCG of Income Tax Act.
    • They should have a total income that does not exceed Rs. 12 lakh each year. 
    • Only specific categories of investments can qualify for Section 80CC deductions. 
    • The investments should be made in listed equity-oriented funds/schemes or listed shares. Notably, mutual funds and ETFs also tend to qualify for the accompanying deductions. 
    • The maximum upper limit on investing under this scheme is Rs. 50000 and is followed by a 50% deduction. 
    • Qualifying investments should come with a 3-year looking period. 
    • Investors must have a valid Demat account

However, besides checking the eligibility criteria, individuals should also learn about the investments that are eligible under this scheme. 

Eligible Investments Under Section 80CCG

Individuals who invest in these following instruments are deemed eligible for tax deductions under Section 80CCG of Income Tax Act

  • Units of ETFs
  • Equity-based mutual fund schemes
  • Shares of Navratna, Maharatna or Miniratna
  • Securities of BSE-100/CNX100

In addition to becoming familiar with the eligibility criteria and eligible investment options, it is also vital to glance through the noteworthy features of this tax provision.  

Salient Features of Section 80CCG

These are among the most prominent features of this scheme –

  • The deductions under Section 80CCG are made available to individuals. 
  • It is directed towards individuals who have invested in listed shares or funds with a 3-year lock-in period. 
  • The new retail investors tend to benefit under this tax provision.
  • The scheme under 80CCG began to phase out 1st April 2017 onwards. As a result of the phasing out, new retail investors did not qualify for claiming deductions under this section in 2017-18.
  • Eligible individuals who claimed deductions in the fiscal year 2016-2017 and before are allowed to claim deductions in the fiscal year of 2017-2018.

Though the purpose of Section 80CCG was to help investors who had put money into the domestic capital market to boost savings, the government decided to phase it out. 

Lack of adoption is among the primary reasons this scheme was entirely phased out on 1st April 2017. Also, individuals who had invested in the Rajeev Gandhi Equity Saving Scheme were exposed to the risk of losing their capital in the equity market, and there was no such guarantee regarding generating assured returns on their investment. 

Nevertheless, there are several other ways through which first-time investors can save their earnings against taxation and facilitate greater savings. Investors should find out about them in detail and claim the same accordingly.