Section 80CCG- List of eligible investments | Deductions Under 80CCG

The Finance Act of 2012 introduced sec 80CCG as part of the Income Tax Act. It encouraged novice investors to invest their money in the Indian stock market, which included instruments such as equities and equity-oriented funds. The Section 80CCG was also popularly known as the Rajiv Gandhi Equity Scheme.

The objective of the scheme was to target several socio-economic factors, such as:

• Building a habit of saving

• Improving the reach of capital markets beyond institutional investors, thereby widening the investor base and

• Introducing a culture of equity trading to create an arena of financial inclusion and stability

It is important to note, however, that the 80CCG deduction only permitted one deduction to the investor on their first investment. This would incentivise new entrants and eventually contribute to the improvement of the country's financial landscape.

The 80CCG deduction is only permitted to individuals and not groups and companies.

• There is a lock-in period of three years for the investments made. The first year was a fixed lock-in period whereas the following two have a flexible lock-in period.

• During the flexible lock-in period, if investors were to sell their securities, they are expected to reinvest in eligible securities to maintain the same level of investment as was claimed in the 80CCG deduction. Conversely, their investment could be maintained at the value of the portfolio before the transaction.

• In the year that the taxpayer is claiming the deduction, their income should not exceed ₹12 lakhs.

• The investor must be a new entrant to the capital market.

• Eligible investors can claim a deduction of 50% of the monies invested, subject to a maximum investment limit of ₹50,000, for computing their taxable income.

• The investment has to be made in eligible securities listed under the Rajiv Gandhi Equity Savings Scheme (RGESS) guidelines.

Note: The scheme was phased out on 1st April 2017 because a very limited number of assesses could avail of this deduction.

The Central Government outlined specific criteria that must be fulfilled by applicants who intend to claim a deduction u/s 80CCG:

• Only first-time investors can claim the benefits u/s 80CCG of the ITA.

• Assessee’s net income should not exceed ₹12 lakhs during the respective financial year.

• Only certain kinds of investments qualify for the 80CCG deduction.

• Investments made must be listed in equity shares under equity-based funds.

• Stocks have to be registered under the BSE 100 or CNX 100. Public undertakings also qualify under this scheme.

• Investors in ETF, as well as mutual funds, can apply for this scheme.

• The assessee must have a valid Demat account.

• Investors can claim 25% of the investment as a deduction u/s 80CCG. The maximum deduction permitted is ₹25,000.

• There must be a three-year lock-in period on the qualifying investments.

• To improve the scale of benefit u/s 80CCG, individuals must make note of the eligible investments.

Here is a list of the qualifiable investments u/s 80CCG of the Income Tax Act 1961:

Maharatna Investments: These are institutions or companies that can invest up to ₹5,000 Crores or 15% of their net worth on a particular project

Navratna Investments: These organisations can invest up to ₹1,000 Crores in a specific project

Miniratna Investments: These institutions invest ₹500 Crores or their total net worth, depending on which is lesser, in a project

• ETF units

• CNX 100 units

• BSF 100 units

• Equity-based mutual fund schemes

If you are exploring alternatives to Rajiv Gandhi Equity Savings Scheme 80CCG, there are several tax-saving investment opportunities to explore. These include:

Mutual Funds: Mutual funds offer several options to cater to varied risk appetites and return goals of investors. For guaranteed returns, consider investing in government securities, corporate bonds or debentures. ELSS, a type of mutual fund with a 3-year lock-in period, qualifies for tax deduction u/s 80C of the ITA.

Unit Linked Insurance Plan (ULIP): ULIPs offer the dual benefits of life cover with investment returns along with the flexibility to switch between equity and debt funds during the investment term. Premiums paid towards ULIPs are deductible u/s 80C, and payouts are tax-exempt u/s 10(10D).

National Pension Scheme (NPS): For NPS contributions, taxpayers can claim up to ₹2 lakhs deduction on their taxable income - ₹1.5 lakhs u/s 80C and an additional ₹50,000 u/s 80CCD(1B). At maturity:

Partial Withdrawals: Up to 25% of your contributions are tax-exempt

Annuity Purchase: Investments in annuities are fully tax-exempt, but income from annuities is taxable

Lump Sum withdrawal: At age 60, up to 40% of the fund value is tax-exempt. The remaining amount used for annuity purchases is tax-deferred, with annuity income taxed later.

Medical Insurance Plan: When you buy medical insurance in India, you can avail of tax deductions of up to ₹25,000/₹50,000 u/s 80D of the ITA.

Section 80CCG was directed towards uplifting the domestic capital of the country and encouraging a habit of saving among individuals by enabling tax deductions. It aimed to incentivise entrants in capital markets and improve growth in socio-economic practices among Indians.

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