What is Rajiv Gandhi Equity Saving Scheme (RGESS)?

The Rajiv Gandhi Equity Savings Scheme (RGESS) was first brought by the Government of India to invest retail buyers in the capital market in 2012-13 and to inspire fairness culture in India. The scheme was to provide tax benefits below Section 80CCG of the Income Tax Act, which might encourage equity funding between new and small buyers.

RGESS was designed in the sort of manner that it might encourage fairness traders by using giving 50% of the quantity invested beneath positive phrases. Nevertheless, the scheme turned into canceled within the Union Budget of 2017 as due to the launch of rare tech-up and different tax-saving cars.

What is Rajiv Gandhi Equity Savings Scheme (RGESS)?

The Rajiv Gandhi Equity Savings Scheme (RGESS) was launched by the Government of India during the financial year 2012-13 with the goal of encouraging retail investors to engage in the equity market and foster a culture of equity investment in the nation. This scheme was designed to offer tax benefits under Section 80CCG of the Income Tax Act, thereby making equity investments more appealing to new and small investors.

Major Features

1. Tax Deduction : Investors can claim a 50% deduction on the amount invested under Section 80CCG.

2. Maximum Investment : ₹50,000 is the maximum acceptable investment.

3. Eligibility : Only first-time retail investors with an annual income of ₹12 lakh or less were eligible.

4. Lock-in Period : The scheme had a total lock-in of 3 years, with a fixed lock-in period of 1 year and a flexible lock-in for the remaining 2 years.

5. Investment Options : Investments could be made in specified equity shares and mutual funds approved under the scheme.

Eligibility Criteria for RGESS

To avail the benefits of RGESS, investors needed to meet the following eligibility criteria:

Who Were Considered First-Time Investors?

An investor was considered new to the stock market if:

• They did not hold a Demat account before investing in RGESS.

• They had a Demat account but had never made an equity transaction before applying for the scheme.

Investment Process for RGESS

Open a Demat Account

• Investors had to open a Demat account with a registered Depository Participant (DP).

• The account had to be RGESS-designated to be eligible for tax benefits.

Select Eligible Securities

• Investments could be made in stocks listed under BSE-100, CNX-100, or select PSU stocks.

• Investors could also choose RGESS-compliant mutual funds.

Make an Investment

• The investment limit was ₹50,000, which could be invested either in a single transaction or across multiple transactions.

• Only the first-time investment was eligible for the tax deduction.

Follow the Lock-in Rules

• Fixed Lock-in Period (1 Year): Investors cannot sell or trade the securities during the first year.

• Flexible Lock-in Period (Next 2 Years): After the first year, investors can sell their holdings only if they reinvest in RGESS-compliant securities within the same financial year.

So, the correct lock-in period for RGESS is a total of 3 years—1-year fixed and 2-year flexible with reinvestment conditions.

Tax Benefits Under Section 80CCG

The Rajiv Gandhi Equity Savings Scheme (RGESS) provided tax benefits under Section 80CCG of the Income Tax Act.

Example of Tax Savings Under RGESS

Suppose an investor earns ₹10 lakh per annum and invests ₹50,000 in RGESS.

• 50% of ₹50,000 = ₹25,000 can be claimed as a deduction.

• If the investor is in the 20% tax slab, the tax saving = ₹25,000 × 20% = ₹5,000.

• If in the 30% tax slab, the tax saving = ₹7,500.

This deduction was over and above the ₹1.5 lakh limit under Section 80C.

Why Was RGESS Discontinued?

In Union Budget 2017, the government discontinued RGESS due to:

• Low participation from retail investors.

• Complex lock-in rules, making it less attractive.

• Availability of better tax-saving options like ELSS (Equity Linked Savings Scheme) under Section 80C.

• Shift towards simpler investment schemes like mutual funds and NPS (National Pension System).

You can also check our NPS Calculator.

Alternatives to RGESS

After RGESS was withdrawn, investors could consider other tax-saving investments:

Among these, ELSS is the best equity-based alternative with similar benefits but without the complicated lock-in rules of RGESS.

Future of Equity-Based Tax-Saving Investments in India

While RGESS is no longer available, the Indian government and financial institutions continue to promote equity-based investment options that provide both growth potential and tax benefits. Here’s a look at how the landscape of tax-saving equity investments is evolving:

1. Growth of ELSS Funds

ELSS (Equity Linked Savings Scheme) has become the preferred alternative to RGESS due to:

• Shorter lock-in period (3 years) compared to RGESS.

• Higher returns compared to fixed-income investments like PPF or FDs.

• Simplicity in investment and withdrawal rules.

2. Increased Participation in Direct Stock Investments

With zero brokerage platforms, mobile-based trading apps, and improved financial literacy, retail investors are increasingly participating in the stock market without requiring schemes like RGESS.

3. National Pension System (NPS) as a Hybrid Alternative

NPS has gained popularity as a long-term investment instrument offering both tax benefits and market-linked returns, making it an attractive alternative to RGESS.

Final Thoughts: Should Investors Worry About RGESS Being Discontinued?

For investors for the first time, the RGESS was an excellent initiative to reduce their entry into the stock market. However, given the availability of better and simple options such as ELSS, NP and direct stock investment, its dissection has not greatly affected retail participation in equity markets.

Today, investors have more flexible and high-return options without complex lock-in obstacles that have been installed RGES.

Conclusion

The Rajiv Gandhi Equity Savings Scheme (RGESS) was the first time a well -intended initiative to promote equity investment among investors. However, due to complex rules and low adoption, it was withdrawn in 2017. Today, investors looking for tax-saving options can consider ELSS, NP or PPF based on their risk hunger and financial goals.