To encourage the flow of savings in the financial instruments a new section 80CCG has been introduced. The section provides deductions with respect to investments made under equity savings with the purpose to provide tax benefits to "new retail investors". Under this section, investors will be eligible for a deduction on the actual amount invested in eligible securities in the first financial year subject to maximum deduction limit of Rs 50,000.
Who is the New Retail Investor?
• Any individual who has not opened a demat account and has not made any transactions in the derivative segment
• Any individual who has opened a demat account but has not made any transactions in the equity segment or the derivative segment
• Any individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purposes of this scheme
• Also, the total annual income should be less than or equal to Rs 10 lakh
Lock-in Period of Investment
• The period of holding eligible securities shall be three years
• All eligible securities are required to be held for a period called the fixed lock-in period which will start from the date of purchase of such securities in the relevant financial year and end one year from the date
• The period of two years beginning immediately after the end of the fixed lock-in period shall be called the 'flexible lock-in period'
• For the purpose of valuation of investment during the flexible lock-in period, the closing price on the previous trading day shall be considered
• The new retail investor’s demat account created under the scheme will be converted into an ordinary demat account on the expiry of the period of holding
Period of Holding Requirements
• Investor will not be permitted to sell, pledge or hypothecate any eligible security during the fixed lock-in period
• After the end of fixed lock-in period, investor will be permitted to trade the eligible securities
• So in the second and third year, investors should ensure that their demat account should have eligible securities for a cumulative period of at least 270 days in a year
• Also, the investment portfolio of eligible securities, within the flexible lock-in period, should be equal to or higher than the amount claimed as investment for the purpose of deduction under section 80CCG
• In case of sale of securities in flexible lock-in period, investors need to purchase eligible securities again to maintain either at least equivalent to the investment claimed as eligible for deduction under section 80CCG of the Act or the value of the investment portfolio under the Scheme before such sale (whichever is low).
• All companies listed with BSE 100 and CNX 100 which also includes the follow on public offer of these companies
• Public sector companies that are categorised as Maharatna, Navratna or Miniratna including the follow on public offer of these companies
• ETFs, mutual funds that are listed on a stock exchange and invest in the "eligible securities". These would also include new fund offers of these eligible funds • IPO of a public sector undertaking where the government has at least 51 per cent shareholding and has an annual turnover of at least Rs 4,000 crore over the past three years
Procedure at the Time of Opening Demat Account
• The new retail investor can open a new demat account or designate an existing demat account to avail the benefit under the scheme
• The individual will have to submit a declaration to the depository participant who will forward it to the depository for verification
• The new retail investor shall be permitted a grace period of three trading days from the end of the financial year so that the eligible securities purchased on the last trading day of the financial year also get credited in the demat account and such securities shall be deemed to have been purchased in the financial year itself
What happens during the time of Corporate Actions
• Where the investment of the new retail investor undergoes a change as a result of involuntary corporate actions such as demergers, amalgamations, etc, the deduction claimed under the scheme will not be affected
• In case of voluntary corporate actions like buy-back of shares where there is a debit in the securities, the new retail investor will have the option to exercise his choice and the transaction will be treated as a sale