Times of Taxing – 1 – ELSS or RGESS? - Written by Udaya Chandran

It is the time for most of the salaried persons and of course others who comes in the tax bracket, whose income exceeds Rs.2 Lakhs. All the tax payers want to utilize the exemptions to minimize their tax liability. Usually, they plan only at the last minute, in the months January - March. One of the popular and most important exemption opportunities is under section 80C of the Income Tax Act, which allows up to Rs.1 Lakh for exemption.

Those who have some exposure in equity would have invested in Equity Linked Savings Schemes (ELSS) offered by many Mutual Funds Institutions earlier. Investment up to Rs.1 Lakh is allowed as exemption under section 80C that is invested in these ELSS Funds. The invested amount usually locked in for three years. Though the scheme still exists in Mutual Funds Institutions, it is questionable if one has to invest in ELSS in the coming years to claim exemption under Section 80C because Direct Tax Code (DTC) may be implemented any time sooner or later which has no provisions for ELSS to claim exemption.

Though ELSS may not have a place in DTC, the Finance Department has introduced Rajiv Gandhi Equity Savings Scheme (RGESS) which allows the first time investors in equity to claim exemption under section 80C. Since the exemption is applicable to only first time investors in equity, the existing investors can't claim exemption under this scheme who had earlier invested in equity.

The first time investors who can invest up to Rs.50,000/- in RGESS and claim exemption of 50% of amount invested, maximum of Rs.25,000/-. Investors who are investing directly in equity are to open DEMAT Account and invest in eligible ETFs. They can also invest in REGSS Mutual Funds to claim the exemption. Investment made in RGESS Mutual Funds doesn’t need DEMAT Account. As in the ELSS, the same lock-in period of three years is applicable to this scheme also. The invested money will get locked in for three years and can be exempted after the lock-in period. This exemption is available only once.

Once this exemption is claimed in any financial year, no further claim is allowed. Apart from many fixed income schemes under the section 80C, Investors who want to invest in equity can opt for this scheme. This could be better a option in the absence of ELSS though the exemption limit is only up to Rs.25,000.

About Guest Teacher 

Udaya Chandran has a post graduate degree in commerce. He is working as an Accountant in a Pvt Ltd Company. He has interest in Investments, Accounts, Tax and writing blogs.


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Svtuition: Times of Taxing – 1 – ELSS or RGESS? - Written by Udaya Chandran
Times of Taxing – 1 – ELSS or RGESS? - Written by Udaya Chandran
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