Section 80CCG

Section 80CCG provides incentives to those who invest in the equity market and is popularly called the Rajiv Gandhi Equity Saving Scheme. This improves savings among individuals while also improving India’s domestic capital market.

Saving money is a huge task in the current world, given all the expenses revolving around maintaining a normal lifestyle. Taxes are an integral component of our financial setting, with all eligible taxpayers expected to pay their dues towards the betterment of our nation. The government has implement schemes which help individuals save tax, offering incentives to individuals each time they take part in these schemes. One such tax deduction scheme revolves around online investments, primarily through the Rajiv Gandhi Equity Savings Scheme.

Section 80CCG of Income Tax Act

Section 80CCG of the Income Tax Act offers incentives through means of tax deduction to taxpayers who invest in the equity market of the country. This section was recently added to encourage individuals to invest in equities, enticing first time investors with tax deductions on their first investment. This section is popularly called the “Rajiv Gandhi Equity Saving Scheme” and is designed to inculcate the habit of savings in the minds of residents, apart from improving the domestic capital market in India, hitting two targets with one stone.

Individuals would also help in strengthening the investor base in the field of Indian securities, apart from creating an arena of financial inclusion and stability. Under this section, an individual/investor is allowed one deduction on his/her first equity investment.

Deduction under Section 80CCG

Tax deductions under Section 80CCG of the Income Tax Act are can be availed only by first time investors in the equity market. Individuals with a valid Demat Account who haven’t indulged in equity or derivative transactions are entitled to a 50% deduction on their investment, subject to a maximum investment of Rs 50,000. This, in essence means that investments upto Rs 50,000 can get a 50% tax deduction.

For example, Mr. Kumar, a first time investor chooses to invest a sum of Rs 50,000 in an equity scheme. This is his first investment and he is now eligible for a tax deduction of 50% on his investment, i.e. Rs 25,000. His taxable investment stood at Rs 5,50,000 prior to his investment, but the tax deduction available under Section 80CCG now reduces his taxable income to Rs 5,25,000.

Section 80CCG Eligibility

There are certain basic criteria set forth by the government which an individual should meet in order to be eligible for a tax deduction under Section 80CCG. Some of these are mentioned below.

  • Only first time investors can claim deductions under this section.
  • An investor should have a gross total income which does not exceed Rs 12 lakhs per annum.
  • Only certain type of investments qualify for tax deduction. Investments should either be in listed equity shares or units which are listed under equity oriented schemes/funds. In essence, the stocks should be listed under the CNX 100 or BSE 100 or should be from public sector undertakings. ETFs and Mutual Funds also qualify for deduction under this section.
  • The maximum investment under this scheme is limited to Rs 50,000, with a deduction of 50% available to investors.
  • Investments should have a total lock in period of 3 years.

If an investor is unable to meet these criteria, any tax benefit accorded to him/her will be withdrawn.

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