Merits & Demerits of Investing in Equity Savings Scheme

In exercise of the powers conferred by 80CCG  (1) of the Income-tax Act, 1961 (43 of 1961), the Central Government of India has formulated the  Rajiv Gandhi Equity Savings Scheme, 2012 which is to supposed to  come into force on the date of its publication in the Official Gazette.  It was introduced in the budget (2012-13) this year by the Finance Minister.  It aims to improve depth of the domestic capital market.

It encourages the savings of the small investors in domestic capital market. The scheme deals with the equity shares, on the day of purchase, falling in the list of equity declared as “BSE-100? or “CNX-100? by the Bombay Stock Exchange and the National Stock Exchange as well as the equity shares, on the day of purchase, falling in the list of equity declared as “BSE-100? or “CNX-100? by the Bombay Stock Exchange and the National Stock Exchange.

Conditions put under the scheme to avail tax benefits:

The deduction under the Scheme shall be available to a new retail investor who complies with the conditions of the Scheme and whose gross total income is less than or equal to ten lakh rupees. New retail investor shall be eligible for a deduction under section 80CCG (1) of the Act in respect of the actual amount invested in eligible securities.  Investment must be made by the eligible investor only in listed equity shares. Investments will be subject to lock-in period of three years. The deduction claimed shall be withdrawn if the lock-in period requirements of the investment are not complied with or any other conditions. The fixed lock-in period shall commence from the date of purchase of such securities in the relevant financial year.

Merits of the Equity Savings Scheme:

It allows the retail investor to invest up to Rs.50, 000 directly into equity shares. It gives tax benefit on 50% percent of investment made directly into equity shares. All small investors should be eligible to invest. It is a good way to attract investment in the equity market.

Demerits of the Equity Savings Scheme:

If one sells before three years, he has to pay tax on the benefit that was given to him. Another demerit is that the prospect of the scheme is not clear. The market is also unpredictable.