Section 80CCG

This section is popularly called the "Rajiv Gandhi Equity Saving Scheme" and is designed to inculcate the habit of savings in the minds of residents, apart from improving the domestic capital market in India, hitting two targets with one stone.

Individuals would also help in strengthening the investor base in the field of Indian securities, apart from creating an arena of financial inclusion and stability. Under this section, an individual/investor is allowed one deduction on his/her first equity investment.

Deduction under Section 80CCG

Tax deductions under Section 80CCG of the Income Tax Act are can be availed only by first time investors in the equity market. Individuals with a valid Demat Account who haven't indulged in equity or derivative transactions are entitled to a 50% deduction on their investment, subject to a maximum investment of Rs 50,000. This, in essence means that investments upto Rs 50,000 can get a 50% tax deduction.

For example, Mr. Kumar, a first time investor chooses to invest a sum of Rs 50,000 in an equity scheme. This is his first investment and he is now eligible for a tax deduction of 50% on his investment, i.e. Rs 25,000. His taxable investment stood at Rs 5,50,000 prior to his investment, but the tax deduction available under Section 80CCG now reduces his taxable income to Rs 5,25,000.

Section 80CCG Eligibility

There are certain basic criteria set forth by the government which an individual should meet in order to be eligible for a tax deduction under Section 80CCG. Some of these are mentioned below.

1. Only first time investors can claim deductions under this section.
2. An investor should have a gross total income which does not exceed Rs 12 lakhs per annum.
3. Only certain type of investments qualify for tax deduction. Investments should either be in listed equity shares or units which are listed under equity oriented schemes/funds. In essence, the stocks should be listed under the CNX 100 or BSE 100 or should be from public sector undertakings. ETFs and Mutual Funds also qualify for deduction under this section.
4. The maximum investment under this scheme is limited to Rs 50,000, with a deduction of 50% available to investors.
5. Investments should have a total lock in period of 3 years.

If an investor is unable to meet these criteria, any tax benefit accorded to him/her will be withdrawn.