Rajiv Gandhi Equity Saving Scheme(RGESS)

RGESS was proposed by the former finance minister Mr. Pranav Mukharji -now president of the nation in budget. This scheme shall provide income tax benefits to investors having annual income below Rs. 10 lakh . RGESS is restricted to first time investors only.

What is this scheme?

First time investor with annual income not exceeding Rs. 10 lakh can invest up to Rs. 50,000 in equities, mutual funds and ETFs (Exchange Traded Funds) to avail a deduction of 50 %  of the investment from the taxable income for that year.

If Mr. Verma who is a first time investor in equity with annual income of Rs. 6,00,000, invests a sum of Rs. 50,000 under this scheme  then he shall get a deduction of Rs. 25,000.

So, taxable income for Mr. Verma shall be Rs. 5,75,000. This scheme is besides the 80-C investment scheme.

Under RGESS, investment should be done in top-100 shares of BSE’s ‘BSE 100’ or NSE’s ‘CNX 100’ or public sector companies of Mahratna, Navratna or Miniratna stature .

Besides this, investment in IPOs and FPOs of public sector undertakings having a turnover over Rs. 4,000 crore shall also qualify as investment under RGESS scheme.

For this,Mutual funds and ETF’s should be RGESS compliant that means they should also invest in aforementioned shares only . Investment in RGESS-non-compliant mutual funds shall not qualify for the deduction under this scheme.

FAQ:

   (1)    I have an old demat account. Shall I qualify for this scheme?

Ans: Provided you have not invested in shares before. Only first time investors shall qualify for this scheme.

   

   (2)    How government will find out my old transactions?

Ans: Your PAN shall speak for that.

   

   (3)    Which IT section will incorporate this scheme?

Ans: new section- 80CCG

    

   (4)    Is there any lock in period?

Ans: Yes. A lock-in period of 3 years. However, an investor can sell his holding after completion of the first year.Conditions under this clause are ambiguous and it’s better to wait for further clarification from the government over it.

     

     (5)    I never transacted in shares but I have invested in mutual funds before.

Again, FM shall have to clarify this ambiguity. I hope that FM shall consider  investors with prior investment in mutual funds as eligible for this scheme.

Rajeev Gandhi Equity Savings Scheme to be launched by Aug 15

Rajeev Gandhi Equity Savings Scheme (RGESS), the scheme which is supposed to bring capital market-shy investors into investing, may be implemented buy Aug 15.

Investment into this scheme will fetch 50 % income tax deduction to first time retail investors with annual income bellow Rs. 10 lakh. The government is musing over reducing the lock-in period of this scheme to 1 year from present 3 years.

It would be interesting to see whether investment through mutual fund route too shall get the acceptance especially when forthcoming DTC shall do away ELSS option from the section 80 C benefits.

This scheme was ambiguous since its inception. As per the scheme only first time investors can avail this scheme, this means anybody who has earlier bought even a single share would not qualify for the scheme.

Many employees get shares from their employers under the ESOP (Employee Stock Option Plan) and these shares are sold in the need of the money (after the lock-in period).

Will these employees shall be ineligible for this scheme?

The aim of this scheme is to bring the household savings into the market but then why this scheme is restricted to first time investors only?

Government better first remove this anomaly and then implement the scheme.

how to calculate capital gains on shares?

As 31^st July was nearing Mr. Sharma got little anxious. Mr. Sharma was a government employee who was very active in the capital markets.His worry was how to calculate the income from capital markets  to show the same in income tax return.

Many investors are grappled with the same problem.

Let’s see how we can tackle this daunting-looking task in strictly non-professional language-

STT (Securities Transaction Tax) was implemented since 1^st October 2004 and any transactions done on a recognized exchange on or after this date ensures that STT is paid.

Mutual Fund taxation in India

As far as mutual funds in India are concerned, there are 2 types of taxes-

      

      (1)    Dividend Tax

Dividend Tax on different type of Mutual Fund schemes

Schemes	Individual/HUF/NRI
Equity oriented schemes	Nil
Debt oriented schemes	Nil

Things to know before buying policies this fiscal

As we usher in the new financial year, it’s the time to relook at the viability of buying insurance policy in the purview of the tax planning.

Are you efficiently saving capital gain tax on sold property?

In recent years property prices have soared like anything. In one of my previous posts I had discussed how one can invest in 54 EC capital gain bonds to save capital gain tax.

The law clearly states that one has to invest in 54 EC bonds within six month of the property sale.

Let us first understand what is the exact date for the property sell?

It is not the date on which you entered the agreement with the buyer or the date you got full payment for the property deal.

The sell date is the date on which either the title of the property changes (seller to buyer) or the handing-over of the possession of the property takes place, whichever falls first.

The law states that at the most one can invest Rs. 50 lakhs in 54 EC bonds per financial year.

Mr. Joshi had recently sold his property  in Pune for Rs. 2 crore and the cost of acquisition of the flat which he acquired in 2002 was just Rs. 60 lakh.

His indexed cost figured out as 1.1 crore and thus a long term capital gain of Rs. 90 lakh was reckoned.

Mr. Joshi was worried as he knew that he can at the most invest Rs. 50 lakh in 54 EC bonds and he shall still need to pay the tax on remaining Rs. 40 lakhs (capital gain).

How Mr. Joshi could have saved the tax?

Mr. Joshi could have timed the sale of the property.

He should have sold the property in November 2011 or December 2011 so that he can invest Rs. 50,00,000 in 54 EC bonds in the financial year 2011-12 and remaining Rs. 40,00,000 capital gain in April 12 (FY 2012-13).

Is it valid?

Yes, it is hundred percent valid. Law restricts payment in excess of Rs. 50 lakh in a financial year but from April 1^st, new financial year begins so one can invest further up to Rs. 50 lakh in 54 EC bonds.

What should be kept in mind?

      (1)    Investment should be done within 6 months of the property sell.

      (2)    Sell date is the date on which transfer of the title takes place or possession is handed over (whichever is earlier).

What are various heads of income?

According to Indian IT act, there are 5 heads of income-

1.       Income from Salaries: Income earned by an individual as salary, wages, pension, fees, commission, annual bonus, perquisites, gratuity, income from provident fund, allowances, awards etc from any firm or organization

2.       Income from House Properties: Income received by renting house (or land) property

3.       Income from Business and Profession: Income earned by an individual from business or profession set-up by him.

4.       Capital Gains : Income earned by selling gold(or other precious metals),real estate or shares or any other capital asset

5.       Income from Other Sources: Income which does not fall in any of the above options like income from dividend, races, lottery , crossword & puzzles ,interest on financial instruments, income from insurance, rental income by letting hire of building, plant, vehicle, machinery etc fall under this head.

How Bonus Shares Can Save Your Tax

Mr. Verma earned huge Short Term Capital Gain (STCG) of Rs 90,000 in shares but when he came to know that he is liable to pay Rs. 13,500 (& other due taxes) as tax, he was disappointed.

STCG (short term capital gain), on shares is applicable when  shares bought are sold before the completion of 365 days (1 year) through a recognized stock exchange and STT is paid on it.

Presently, STCG is applicable at the rate of 15% on the Short Term Capital Gain (earlier it was 10%).

How Mr.  Verma could have avoided this taxation?

 

What are FY, AY, CY and PY?

FY (Financial Year), also known as the fiscal year, is the period for which annual financial computations are done for individuals, businesses and organizations.

Financial year may be varying between business to business or country to country.

In India, financial year begins on 1^st April and ends on 31^st March. Apart from India, Canada, Japan and Hong Kong too have same fiscal year.

CY is the calendar year; it starts on 1^st   January and ends on 31^st December. Many countries and companies have fiscal year same as the Calendar Year.

Countries like China, Germany and Russia have same fiscal and Calendar Year.

Some countries have altogether different Financial Year, for example in USA; FY begins on 1^st October and ends on 30^th September.

Representation of fiscal year could be confusing for countries and businesses having fiscal year other than the Calendar Year.

For India and other countries with same fiscal year, FY 11 means the Financial Year 2010-2011 that means fiscal year starting from 1^st April 2010 and ending on 31^st March 2011.

AY (Assessment Year) is the following year to the Financial Year. AY is used mainly in IT (income tax) matters.

In the assessment year, we file the income tax return for the past Financial Year.

Let us understand the subject with an example

In India, 31^st July is the last date for filing the IT returns for individuals, so AY 12 (AY 2011-2012) is the Assessment Year, and we shall file the return for FY 11 (FY 2010-2011) before the aforesaid due date.

PY (previous years) is a year previous to the AY, it is just another name of the FY.

In the above example FY 11, is the Previous Year, same as the financial year.

Achieved Capital gain, NHAI bonds are the solution

If recently you happened to sell any capital assets (gold or real estate) and not in a mood to pay taxes, just chill, NHAI bonds are the solution to your problem. You can invest your capital gain (with 50 lakh upper limit) in NHAI (National Highways Authority of India) 54 EC capital Gains bonds.

These bonds are non- negotiable and non transferable and can’t be offered as security for any loan or advance.

Important point is that no TDS (Tax Deduction at Source) shall be detected on its interest but interest is added to income and taxable (if applicable).

Investors should keep in the mind that investment should be done in bonds within 6 months from the date of transfer of capital asset.

Bonds secure AAA rating from CRISIL and FITCH.

Face value of each bond is 10,000 and bonds shall be issued at face value. Issuance of Bond is open from first April 2011 till 31 March 2012 if not subscribed before it.

Long term capital gain tax rate is 10% without indexation and 20 % with indexation.

Bonds give 6% interest rate per annum and the interest is paid annually and no compounding is done.

In most cases it is wise to invest in 54 EC capital gains bonds than paying hefty tax.