What is Section 80CCG of the Income Tax Act?
Section 80CCG, also known as RGESS, was introduced in the 2012–13 Union Budget to nudge first-time retail users into equity markets. It was designed to encourage a wider investment culture among small savers by offering them a partial tax break.
This section allowed new retail investors, those who had never had a Demat account or had one but never used it for trading to claim a tax deduction equal to 50% of their investment in eligible securities, subject to a ₹50,000 cap. The scheme aimed to expand participation in equity markets and cultivate a savings habit among new investors.
Applicability of Section 80CCG
To participate in RGESS, individuals needed to meet specific criteria. First, their annual gross income had to be ₹12 lakh or less. Second, they had to be “new investors,” without a prior Demat account or one that had never engaged in trading.
Investments had to be made only in securities designated under the scheme: BSE-100 or CNX-100 listed equities, Maharatna/Navratna/Miniratna PSUs, certain RGESS-compliant mutual fund or ETF units, and IPOs meeting criteria.
Benefits of Section 80CCG (RGESS)
The main benefit was straightforward: tax deduction of 50% of the investment made under RGESS. Since the maximum investment allowed was ₹50,000 per year, this translated to a maximum deduction of ₹25,000. This deduction was over and above the standard ₹1.5 lakh limit under Section 80C, offering added tax relief.
Conditions and Restrictions for Claiming Deduction
A key constraint under RGESS was the lock-in period. It spanned three years—one year was fixed during which the securities could not be sold; the following two years were “flexible,” during which one could sell, but only if the value sold was reinvested into eligible RGESS securities within the same financial year.
Additionally, investing for deduction required a Demat account designated for RGESS. PAN card details were essential during account setup. These rules ensured both compliance and a long-term equity exposure.
Withdrawal and Lock-In Rules
Under the scheme, no withdrawals were allowed in the first year. After that, in the two-year flexible period, you could exit your investments but only if you promptly reinvested the same or equivalent value in approved RGESS options.
Failure to do so would nullify the deduction. These lock-in rules ensured long-duration investment and discouraged quick exits.
Phase-Out of Section 80CCG
Despite its good intentions, RGESS did not gain widespread popularity. With limited awareness and complicated rules, it failed to attract large numbers of investors. As a result, the government decided to phase out the scheme. The phasing-out began on April 1, 2017, and Section 80CCG benefits were removed for fresh investments from Assessment Year 2018–19. However, investments made earlier could still enjoy deductions through the lock-in period.
Alternatives to Section 80CCG for Investors Today
With RGESS now discontinued, investors seeking equity-linked tax benefits have far better and simpler options:
- ELSS (Equity Linked Savings Scheme): Mutual fund-based schemes offering 100% deduction up to ₹1.5 lakh under Section 80C and a 3-year lock-in, with simpler processes and broader availability.
- NPS (National Pension System): Provides tax benefits under Section 80C and additional ₹50,000 under Section 80CCD(1B), plus long-term retirement savings.
These options are investor-friendly and free from RGESS’s rigid eligibility and lock-in complications.
Common Mistakes and Misunderstandings
A few pitfalls investors encountered under RGESS included confusing it with ELSS (which allowed investment flexibility and full 80C deductions), overlooking the need for a Demat account and PAN, assuming lock-in was optional, or miss applying for more than the three years RGESS allowed. Understanding those traps helps appreciate why simpler tools like ELSS/NPS are preferred today.
In a Nutshell: Section 80CCG (RGESS) offered tax relief to new retail equity investors 50% deduction on up to ₹50,000 investments with a three-year lock-in.
It aimed to create equity awareness among small savers but was phased out by 2017 due to low uptake and complexity. Today, investors have simpler and more flexible tools like ELSS and NPS to build wealth while saving tax.
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