Frequently Asked Questions (FAQs) on HDFC RGESS- Series 2

Transcription

1 Frequently Asked Questions (FAQs) on HDFC RGESS- Series 2 1. What is Rajiv Gandhi Equity Savings Scheme (RGESS)? With an objective to encourage flow of savings and to improve the depth of the domestic capital market, the Government of India announced a tax saving scheme in the Union Budget named Rajiv Gandhi Equity Savings Scheme, The Scheme aims at widening the retail investor base in the Indian securities markets and also furthers the goal of financial stability and financial inclusion. Further, vide Finance Act, 2013, certain conditions under RGESS were liberalized. Ministry of Finance thereafter vide Notification no. 94/2013 F. No. 142/35/2012 -TPL dated December 18, 2013 notified RGESS, 2013 i.e. the amended RGESS. 2. What is the tax benefit under RGESS? The Scheme is an Eligible Security in accordance with RGESS. As per Section 80CCG of the Income Tax Act, 1961, a resident individual who acquires listed equity shares or listed units of equity oriented mutual fund in accordance with the RGESS, is entitled to a deduction of 50% of the amount invested from his total income to the extent the deduction does not exceed Rs.25,000/-. The deduction under Section 80CCG of the Income Tax Act, 1961 is in addition to the deduction available under Section 80C of the Income Tax Act, A New Retail Investor shall be eligible for the tax benefit under RGESS for a block of three consecutive financial years beginning with the Initial Year (as defined in RGESS), in respect of the investment made in each financial year. The deduction shall be subject to following conditions: The gross total income of the investor for the relevant year does not exceed Rs.12 lakhs (increased from Rs.10 Lakhs (FY ) to Rs.12 Lakhs (FY )); The investor is a 'New Retail Investor' as specified in RGESS; The investment is made in such listed equity shares or listed units of equity oriented mutual fund as specified in RGESS; The investment is locked-in for a 3 year period as provided in RGESS; and Such other conditions as may be prescribed by the Ministry of Finance If an investor, in a subsequent year fails to comply with any of the above conditions, the taxability would be as provided under RGESS. Page 1 of 9

2 3. What is initial year? Initial Year means: (a) the financial year in which the investor designates his demat account as RGESS account and makes investment in the Eligible Securities for availing deduction under RGESS; or (b) the financial year in which the investor makes investment in Eligible Securities for availing deduction under RGESS for the first time, if the investor does not make any investment in Eligible Securities in the financial year in which the account is so designated. For e.g. Date of designating demat account as RGESS account: January 1, 2013 i.e. in financial year Date of RGESS investment: June 1, 2013 i.e in financial year Therefore initial year will be: Financial year Who is a New Retail Investor? New Retail Investor means the following resident individual- (a) who has not opened a demat account and has not made any transactions in the derivative segment before the date of opening of a demat account or the first day of the Initial Year, whichever is later: Provided that an 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 RGESS; or (b) who has opened a demat account but has not made any transactions in the equity segment or the derivative segment before the date he designates his existing demat account for the purpose of availing the benefit under RGESS or the first day of the Initial Year, whichever is later In case of joint accounts, only the first account holder will be considered as the existing retail investor. All those existing account holders other than the first demat account holder (eg. second / third account holders or other joint holders) or nominees of the existing account holders will be considered as new retail investors for the purpose of opening of a fresh RGESS account, if otherwise eligible. Page 2 of 9

3 In case the demat account is opened as a first holder, but there are no transactions in the equity or derivate segment, still in such case the first account holder can be considered eligible for New Retail Investor. 5. What is the procedure for investment under the scheme? A new retail investor can invest in one or more financial years in a block of three consecutive financial years beginning with the initial year as defined above. The new retail investor shall be eligible for tax benefits under the Scheme only for three consecutive financial years beginning with the initial year, in respect of the investment made in each financial year. If the new retail investor does not invest in any financial year following the initial year, he may invest in the subsequent financial year, within a block of three consecutive financial years beginning with the initial year, in accordance with the Scheme. For e.g. : In the block of 3 years, if an investor invests first time in Eligible Securities under RGESS in the first year i.e. FY and avails deduction. Suppose, he does not make any investment in the second year, i.e. FY then he can claim tax deduction u/s 80 CCG only for investments made in the third year i.e. FY I possess some physical shares; Am I eligible under RGESS? Yes. You will be considered as a new retail investor, if otherwise eligible. However, you need to make fresh investments in RGESS eligible securities to avail of the benefits under RGESS. You will not be eligible to claim benefits under RGESS in case the shares held in physical are converted into dematerialisation prior to designating your demat account as RGESS demat account. 7. I am already having units of mutual fund and / or Exchange Traded Funds; Am I eligible for the RGESS? Yes. Prior investments in mutual funds and Exchange Traded Funds do not make an investor ineligible for RGESS. However, you need to invest afresh in RGESS eligible mutual fund /ETF schemes and hold them in a demat account as per the conditions laid down under RGESS to avail the benefits. 8. What is HDFC RGESS- Series 2? HDFC Rajiv Gandhi Equity Savings Scheme- Series 2 (HDFC RGESS - Series 2) is a Close ended Equity Scheme investing in Eligible Securities as per Rajiv Gandhi Equity Savings Scheme. Investments in this Scheme shall be eligible for tax deduction under Section 80CCG of Incometax Act, 1961 on complying with other relevant provisions. HDFC RGESS - Series 2 has a term/duration of 3 years from the date of allotment of units. The units of the scheme will be compulsorily and without any further act by the Unit holder(s) redeemed on the Maturity / Final Page 3 of 9

4 Redemption Date. HDFC RGESS Series 2 will be listed on the capital market segment of BSE and NSE. 9. Is HDFC RGESS available for investors other than new retail investors for subscription? Yes. HDFC RGESS is available for investment for any investor looking to invest in equity securities. 10. What are Eligible Securities where HDFC RGESS- Series 2 can invest? The eligible Securities for HDFC RGESS - Series 2 are as follows: a. Equity shares, on the day of purchase, falling in the list of equity declared as "BSE-100" or "CNX-100" by the Bombay Stock Exchange or the National Stock Exchange,as the case may be; b. Equity shares of public sector enterprises which are categorised as Maharatna, Navratna or Miniratna by the Central Government; c. Follow on Public Offer of a and b above; d. Initial Public Offer of a public sector undertaking wherein the Government shareholding is at least fifty-one per cent which is scheduled for getting listed in the relevant previous year and whose annual turnover is not less than four thousand crore rupees during each of the preceding three years. 11. Is there any lock-in on the investment made in HDFC RGESS - Series 2? There is no lock-in on the Units held under HDFC RGESS - Series 2 by the Unit holders not intending to avail any tax deduction under RGESS. Since the Fund is Close-ended, investors cannot redeem their units directly with the mutual fund until maturity /final redemption date. Investors have an exit option through the stock exchanges, since the units will be listed and traded on the stock exchanges. However, for those unitholders who wish to claim tax deduction under Section 80CCG of Income-tax Act, 1961, will have to comply with the lock-in provisions (fixed and flexible) as stated in the RGESS Notification issued by Ministry of Finance. 12. Is there any lock-in period on the investment made in HDFC RGESS - Series 2 for claiming tax deduction? Yes. Units held under HDFC RGESS - Series 2 by the Unit holders and as declared/designated for availing tax benefits shall be subject to lock-in-periods viz. fixed lock-in and flexible lock-in as Page 4 of 9

5 specified under the notified RGESS. The total lock-in period for investments under RGESS would be three years including the fixed lock-in period and the flexible lock in period. The fixed lock-in period will commence from the date of purchase of Eligible Securities under RGESS in the relevant financial year till March 31 of the year immediately following the relevant financial year. For e.g. If Eligible Securities are purchased on , the fixed lock-in period will be from to and the flexible lock-in period will be from to The flexible lock-in period shall be the period of two years beginning immediately after the end of the fixed lock-in period. However, the investor is permitted to trade in eligible securities during this period. However, he needs to comply with the requirements mentioned in the RGESS Notification issued by Ministry of Finance. The Depositories will be required to ensure the enforcement of the lock-in on Units under the Scheme. 13. Is it mandatory to have a demat account to invest in HDFC RGESS- Series 2? Demat account is not compulsory for investing in this HDFC RGESS - Series 2. However, investing in demat form is compulsory for an investor who wishes to avail tax benefits under Section 80 CCG of Income-tax Act, Therefore demat details should be specified in the application form. Other investors can hold units in this Scheme either in physical or demat form. Unit holders holding Units in physical and/or converting physical units into demat will not be eligible for claiming tax deduction under HDFC RGESS - Series How to open RGESS demat account with a Depository Participant (DP)? You may approach any registered DP to open a demat account under RGESS. The list of DPs registered with NSDL and CDSL is available on the NSDL website, and CDSL website, You are required to fulfill the Know your client (KYC) norms prescribed by SEBI by submitting proof of identity, proof of address, etc. and provide PAN to the DP with whom you wish to open a demat account along with a declaration in prescribed format (i.e., Form A ) for availing RGESS benefits. Page 5 of 9

6 For more details see the FAQ given by NSDL and CDSL on their respective website. 15. Is there any maximum limit for investment in HDFC RGESS - Series 2? There is no maximum limit for investment in HDFC RGESS - Series 2. However, investors availing of RGESS tax benefits should note that the maximum investment for which RGESS tax benefits are available is Rs 50,000 in each financial year which includes investment made across all RGESS eligible securities. These investments can be made in instalments. 16. Is the tax benefit for investment in HDFC RGESS - Series 2 over and above of Rs 1 lakh deduction currently available under section 80C of the Income- tax Act, 1961? Yes, the tax deduction for RGESS is u/s 80CCG and it is over and above the Rs. 1 lakh limit specified u/s 80C of the Income-tax Act, How much tax deduction will I be eligible for under RGESS? You will be eligible to get tax deduction u/s 80CCG on 50% of the amount invested. Let us say, you invest Rs.50, 000 under RGESS, the amount eligible for tax deduction will be Rs.25, 000 from your taxable income. Let us say, you invest Rs.40, 000 under RGESS, the amount eligible for tax deduction will be Rs.20,000 from your taxable income. This deduction is over and above Rs. 1 lakh limit specified under Section 80C. 18. If I make a onetime investment of Rs 50,000 under RGESS 2013, can I claim the deduction for the same investments in each of the three financial years for Rs 50,000? No, the new retail investor, who has once claimed a deduction under sub- section (1) of section 80CCG of the Act, in any assessment year, shall not be allowed any deduction under the Scheme for the same investment for any other subsequent assessment year. 19. How many times can I invest in RGESS securities to avail tax benefits under section 80CCG of the Income Tax Act, 1961? The investor may invest in one or more financial years in a block of three consecutive financial years beginning with the Initial Year. If the investor does not invest in any financial year following the Initial Year, he may invest in the subsequent financial year, within the three consecutive financial years beginning with the Initial Year. The investor shall be eligible for the tax benefit under RGESS in respect of the investment made in each financial year. Page 6 of 9

7 For e.g.: If an investor invests first time in Eligible Securities under RGESS in FY and avails deduction, he may also invest in either or both of FY and FY and avail deduction for the relevant year(s). 20. Will I get tax deduction every year for investment in RGESS? Yes. Deduction can be claimed for investments made in each of the three financial years. For each year, the maximum permissible Investment for claiming deduction under RGESS is Rs.50, 000/- and the investor would get a 50% deduction of the amount invested from the taxable income. 21. Can I invest more than Rs.50, 000 and claim tax benefit under RGESS? You may invest any amount in a demat account designated under RGESS, but the tax benefit under RGESS can be claimed only on investment up to Rs. 50,000 in each financial year. 22. What are the eligible securities where an investor can invest to get the deduction u/s 80CCG? Further to the eligible securities where HDFC RGESS Series 2 would be investing as mentioned above, an investor can also invest in, the Units of Exchange Traded Funds (ETFs) or Mutual Fund schemes or equity oriented funds which have Eligible Securities as their underlying and are listed and traded on the stock exchanges and settled through a depository mechanism, to get the deduction under Section 80CCG of the Income-tax Act, If a person has invested under the RGESS 2012, is he eligible to invest under the new notification? Yes. Investors who invested under RGESS 2012 are also eligible to invest in Financial Years and and avail benefits under RGESS Investments made under RGESS 2012 will be governed by the provisions of RGESS 2012 only to the extent the provisions of RGESS 2012 are not in contravention of RGESS If the investor who designated his demat account under RGESS 2012 and claimed tax benefit u/s 80 CCG does any equity share trading subsequently will he be eligible to invest under RGESS 2013? Yes. The investor will be eligible to make an investment under RGESS 2013 in the same demat account which has been designated as RGESS demat account in 2013 subject to the terms and conditions mentioned under the relevant notification. Page 7 of 9

8 25. How does the New Retail Investor claim tax benefit under this scheme? The New Retail Investor will have to submit a declaration, as in Form A, to the Depository Participant (DP) at the time of account opening or designating his existing demat account for taking the benefits under RGESS. Eligible securities, which are brought thereafter into such an account, will be automatically subject to lock-in upto a value of Rs. 50,000, unless the investor specifies otherwise through the Form B specified in this regard. 26. What is Form A under RGESS? Form A is declaration to be submitted by the investors to DP for availing the benefits under RGESS. 27. What is Form B under RGESS? Form B is a declaration to be submitted by New Retail Investor to a DP on purchase of eligible securities which are not to be included as RGESS investment. This will ensure that these securities are not locked in by the depository. This form has to be submitted within 1 month from the date of purchase /allotment of eligible securities to the DP. 28. Can I claim tax deduction in respect of the amount invested in eligible securities which are specified in Form B? No. 29. What will be the mode of holding eligible securities for availing tax benefit under RGESS? The mode of holding eligible securities under RGESS will be in a Demat account. You cannot hold securities in physical form to avail the benefits of RGESS. 30. Can I designate or open more than one demat account for RGESS? No. You can have only one demat account under RGESS, across depositories (i.e., NSDL / CDSL). 31. Are the returns under RGESS guaranteed? Returns under the RGESS Scheme are not guaranteed. Page 8 of 9

9 To know more about RGESS read - (i) RGESS Notification Dated November 23, 2012 Dated December 18, 2013 (ii) Section 80CCG of the Income-tax Act, 1961 (iii) FAQs on RGESS available at NSDL website, CDSL website, Disclaimer: The FAQs are prepared by HDFC Asset Management Company Limited (HDFC AMC) on HDFC Rajiv Gandhi Equity Savings Scheme Series 2, a close-ended equity scheme investing in eligible securities as per Rajiv Gandhi Equity Savings Scheme. While utmost care has been exercised while preparing the FAQs, HDFC Mutual Fund / HDFC AMC does not warrant the completeness and absolute accuracy or completeness of this information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient alone shall be fully responsible / liable for any decision taken on the basis of this material. The recipients should before investing make their own investigation, read the Scheme Information Document and the Statement of Additional Information and seek appropriate professional advice. In view of individual nature of tax consequences, each investor is advised to consult his/ her own professional tax advisor for availing tax deductions under Section 80CCG of the Income- tax Act, MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Page 9 of 9