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Regular post-retirement income | Additional tax benefit on investments up to ₹50,000 u/s 80CCD (1B) - EEE Category | Regulated by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India)

Investing can be daunting for those who aren’t well versed in its art. However, investing is one of the best ways to build your corpus and save money for a brighter future. It is also a reliable alternate source of income that could help you manage your day-to-day life better. Moreover, it contributes to the domestic economy and equity market of the country, harbouring growth and development on all fronts. 

Hence, the Government of India introduced an equity savings scheme, Section 80CCG of the Income Tax Act of 1961, also known as the Rajiv Gandhi Equity Savings Scheme, to motivate the larger population to invest in the country’s equity market. Moreover, this scheme proves to be a great stepping stone for first-time investors to try their hand at investing in a safer and more secure manner. 

What is Section 80CCG of the Income Tax Act?

Section 80CCG of the Income Tax Act is a boon for all investors in India. This section offers investors with deductions on tax to invest in the equity market of the country. The provisions were introduced to primarily boost the equity market of India and to provide an extra incentive to potential investors, motivating them to take the leap into investments. Also known as the Rajiv Gandhi Equity Savings Scheme, Section 80CCG focuses on uplifting the domestic capital of the country all the while helping investors save money through deduction in taxation. The deductions offered through this scheme are applicable to an investor’s first equity investment only. 

Section 80CCG of the Income Tax Act was introduced in the Union Budget of 2012-13. 

Eligible Tax-payers

Section 80CCG of the Income Tax Act of 1961, or the Rajiv Gandhi Equity Savings Scheme is reserved for individual tax-payers and investors only. Other entities such as societies, companies, trusts, etc. cannot benefit from the provisions stated under this section. These individuals must live up to certain eligibility criteria in order to access the provisions of Section 80CCB and the eligibility criteria is explained as follows.

  • First-time investors in the domestic equity market of India are the only individuals who can enjoy tax exemptions of Section 80CCG. 

  • The total annual income of a first-time investor must range under ₹12 Lakhs in order to qualify for this scheme. 

  • Individuals are required to make investments under listed equity funds only. However, mutual funds and ETFs should be eligible for the provisions stated under Section 80CCG of the Income Tax Act of 1961. 

  • Investments with a lock-in period of three years are eligible.

  • All first-time investors who wish to qualify for this scheme must have a valid Demat account. 

Eligible Investments u/s Section 80CCG of the IT Act

Eligibility criteria don’t apply to individuals specifically. Certain equity options need to qualify as investable under Section 80CCG of the Income Tax Act of 1961. The investments are stated under the following categories. 

1. Maharatna Investments

Maharatna are non-human entities such as companies, institutions, organisations, etc. which can invest up to ₹5,000 Crores/15% of its net worth in a specific project. A few examples of Maharatna companies are as follows. 

  • Coal India Ltd.

  • Indian Oil Corp. Ltd.

  • Oil and Natural Gas Corp. Ltd. 

  • Bharat Heavy Electricals Ltd. 

  • Gail (India) Ltd.

  • NTPC Ltd.

  • Steel Authority of India Ltd. 

2. Navratna Investments

Navratna companies are those which can invest up to ₹1,000 crores in a particular project. A list of all Indian Navratna companies is given below.

  • NLC India Ltd. 

  • Bharat Petroleum Corp. Ltd. 

  • Engineers India Ltd. 

  • Hindustan Petroleum Corp. Ltd.

  • National Aluminium Corp. Ltd.

  • Oil India Ltd. 

  • Container Corp. of India Ltd.

  • Power Grid Corp. of India Ltd. 

  • Hindustan Aeronautics Ltd. 

  • Rural Electrification Corp. Ltd. 

  • Bharat Electronics Ltd.

  • Mahanagar Telephone Nigam Ltd. 

  • NBCC (India) Ltd.

  • Rashtriya Ispat Nigam Ltd. 

  • NMDC Ltd.

  • Power Finance Corp. Ltd.

  • Shipping Corp. of India Ltd. 

3. Miniratna Investments

Miniratna companies are eligible to be invested in, under Section 80CCG of the Income Tax Act of 1961, since they hold the financial capability to invest ₹500 crores or their total net worth, depending on which is lesser, in a project. The names of Miniratna companies are listed below for your perusal. 

Category 1

  • Antrix Corp. Ltd.

  • BEML Ltd.

  • Bridge and Roof Corp. (India) Ltd.

  • Bharat Dynamics Ltd.

  • Central Warehousing Corp. 

  • Hindustan Copper Ltd. 

  • Cochin Shipyard Ltd.

  • Garden Reach Shipbuilders & Engineers Ltd.

  • India Tourism Development Corp. Ltd.

  • India Railway Catering & Tourism Corp. Ltd.

  • Hindustan Paper Corp. Ltd.

  • Housing & Urban Development Corp. Ltd.

  • Indian Renewable Energy Development Agency Ltd. 

  • Kamarajar Port Ltd.

  • Mahanadi Coalfields Ltd. 

  • Mazagon Dock Shipbuilders Ltd. 

  • MMTC Ltd. 

  • MSTC Ltd. 

  • Northern Coalfields Ltd. 

  • ONGC Videsh ltd.

  • Projects and Development India Ltd. 

  • Railtel Corp. of India Ltd.

  • National Seeds Corp. Ltd.

  • NHPC Ltd.

  • Rites Ltd.

  • SJVN Ltd.

  • State Trading Corp. of India Ltd.

  • THDC India Ltd.

  • Western Coalfields Ltd.

  • Bharat Coking Coal Ltd.

  • Bharat Sanchar Nigam Ltd.

  • Central Coalfields Ltd.

  • Airports Authority of India

  • Balmer Lawrie and Co. Ltd.

  • Chennai Petroleum Corp. Ltd.

  • Dredging Corp. of India Ltd.

  • Goa Shipyard Ltd.

  • Hindustan Newsprint Ltd.

  • Hill Lifecare Ltd.

  • HSCC (India) Ltd.

  • India Trade Promotion Organisation

  • Mangalore Refinery and Petrochemicals Ltd.

  • Mishra Dhatu Nigam

  • MOIL Ltd.

  • National Fertilizers Ltd,

  • Indian Rare Earths Ltd.

  • IRCON International Ltd.

  • KIOCL Ltd.

  • National Small Industries Corp. Ltd. 

  • North Eastern Electric Power Corp. Ltd. 

  • Numaligarh Refinery Ltd. 

  • Pawan Hans Ltd.

  • Rail Vikas Nigam Ltd.

  • Rashtriya Chemicals & Fertilizers Ltd. 

  • Telecommunications Consultants India Ltd.

  • WAPCOS Ltd.

  • Security Printing and Minting Corp. India Ltd. 

  • South Eastern Coalfields Ltd.

Category 2

  • Broadcast Engineering Consultants India Ltd.

  • Mecon Ltd. 

  • National Film Development Corp. Ltd.

  • Rajasthan Electronics and Instruments Ltd. 

  • Central Railside Warehousing Co. Ltd. 

  • Engineering Projects (India) Ltd.

  • Ferro Scrap Nigam Ltd. 

  • Indian Medicines Pharmaceutical Corp. Ltd. 

  • Mineral Exploration Corp. Ltd. 

  • PEC Ltd.

  • Bharat Pumps & Compressors Ltd. 

  • FCI Aravali Gypsum & Minerals India Ltd. 

  • HMT (international) Ltd.

  • Central Mine Planning and Design Institute Ltd. 

  • ECIL (India) Ltd.

4. ETFs and Mutual Funds

Mutual Funds, also known as MFs, and ETFs, which stands for Exchange Traded Funds, qualify to be part of investments that are eligible to be invested in for an investor to access the deductions and benefits of Section 80CCG of the Income Tax Act of 1961. A list of the aforementioned MFs and ETFs are as follows.

  • LIC NOMURA MF Exchange Traded Fund- NIFTY 100

  • Listing of Units of LIC Nomura MF ETF – NIFTY 50- Growth Plan under LIC Nomura Mutual Fund

  • Listing of Units of HDFC Mutual Fund – HDFC Focused Equity Fund Plan B

  • Goldman Sachs Banking Index Exchange Traded Scheme (GS Bank BeES)

  • Birla Sun Life Focused Equity Fund – Series 5 – Regular Plan – Dividend Payout

  • LIC Nomura Mf Rajiv Gandhi Equity Savings Scheme- Series 3-Dividend-Dividend Payout

  • Sundaram Top 100 Series IV (RGESS) Regular Plan-Growth Option

  • SENSEX Prudential ICICI Exchange Traded Fund

  • Sundaram Top 100 Series III (RGESS) Regular Plan Dividend Option

  • LIC NOMURA Mutual Fund Asset Management CO LTD#LIC NOMURA MF-LIC NOMURA MF RGESS SR 3-DIR PL-GROWTH

  • Birla Sun Life Focused Equity Fund – Series 3- Regular Plan-Growth

  • HDFC Focused Equity Fund Plan A – Direct Option- Growth Option

  • Sundaram Top 100 Series-V (RGESS) Regular Growth

  • LIC Nomura MF RGESS Fund Series- I

  • HDFC Rajiv Gandhi Equity Savings Scheme – Series 1-February 2013

  • HDFC Rajiv Gandhi Equity Savings Scheme – Series 2

  • Birla Sun Life Focused Equity Fund

  • Birla Sun Life Focused Equity Fund-Series 2-Direct Plan-Growth

  • Birla Sun Life Focused Equity Fund-Series 2-Regular Plan-Growth

  • ICICI Prudential Equity Savings Fund Series 1-Direct Plan Cumulative 5

  • ICICI Prudential Equity Savings Fund Series 1-Regular Plan Cumulative

  • ICICI Prudential Nifty ETF

  • Kotak Nifty ETF

  • Kotak SENSEX ETF

  • R* Share Junior BeES

  • Birla Sun Life Rajiv Gandhi Equity Savings Scheme – Series 1

  • LIC Nomura MF RGESS Fund Series- 2

  • IDBI Mutual Fund – IDBI Rajiv Gandhi Equity Savings Scheme-Series I Plan A

  • SBI SENSEX ETF

  • ICICI Prudential CNX 100 ETF

  • ICICI Prudential Equity Savings Fund Series 1-Regular Plan Dividend

  • ICICI Prudential Equity Savings Fund Series 1-Direct Plan Dividend

  • Birla Sun Life Focused Equity Fund-Series 2-Regular Plan-Dividend Payout

  • Birla Sun Life Focused Equity Fund-Series 2-Direct Plan-Dividend Payout

  • Birla Sun Life Mutual Fund

  • Sundaram Top 100 Series III (RGESS) Regular Plan-Growth Option

  • Sundaram Top 100 Series IV (RGESS) Regular Plan Dividend Option

  • LIC Nomura Mf Rajiv Gandhi Equity Savings Scheme- Series 3-Growth-Growth

  • Listing of Units of Birla Sun Life Focused Equity Fund – Series 6

  • Listing of Units of HDFC Nifty ETF a scheme under HDFC Mutual Funds

  • Listing of Units of IDFC SENSEX ETF a scheme from IDFC Mutual Fund, eligible under RGESS

  • Sundaram Top 100 Series-V (RGESS) Regular Dividend Payout

  • HDFC Focused Equity Fund Plan A – Direct Option- Dividend Option

  • Birla Sun Life Focused Equity Fund – Series 3 – Regular Plan – Dividend Payout

  • LIC NOMURA Mutual Fund Asset Management CO LTD #LIC NOMURA MF-LIC NOMURA MF RGESS SR 3-DIR PL-DIV PAY

  • Birla Sun Life Focused Equity Fund – Series 5 – Direct Plan-Growth

  • RELIANCE R* SHARES NV20 ETF

  • BIRLA SUN LIFE FOCUSED EQUITY FUND- SERIES 6-REGULAR PLAN- GROWTH

  • R* Share Shariah BeES

  • R* Share Nifty BeES

  • Quantum Index Fund – Exchange Traded Fund ETF

  • CPSE ETF

  • Motilal Oswal MOSt Shares M50 ETF (MOSt Shares M50)

Applicability of Section 80CCG

Section 80CCG of the Income Tax Act of 1961 was primarily introduced to open a way to safer investing for new investors or those with a smaller risk-appetite, and to increase the contributions coming into the Indian domestic equity market at large. 

A new investor who has never before contributed their parked funds into equities or other investments in their financial life. This includes physical shares as well since the asset hasn’t been dematerialised. 

Features and Benefits of Section 80CCG of the Income Tax Act

Section 80CCG has various benefits, owing to its distinct features that attract various first-time investors to the equity market. Its features and benefits are given below for your understanding. 

  • Tax Deduction

As per Section 80CCG, you can get up to 50% tax deduction benefits on a maximum investment of ₹50,000 to the equity market. In this case, you can get a tax benefit of up to ₹25,000 in a single assessment year. 

  • 3-year Tax Benefits

First time investors can enjoy tax benefits for three years upon parking their funds in the Indian equity market. As stated previously, the 50% tax benefit is also eligible to last for three consecutive years, helping you save a total amount of ₹75,000 over the period of three years. Subsequently, any withdrawals made within those three years from the investment will nullify your tax benefit privileges with immediate effect.  

  • Reduced Risk

Not only does Section 80CCG time and again assert how crucial it is to invest or save, and to contribute to the country’s domestic equity market, it also offers first-time investors with a safer investment option with lesser risk involved. The lock-in period is flexible as per the investor’s preference as well.

  • Savings and Stability

Section 80CCG of the Income Tax Act of 1961 offers individuals new to the financial field of investments a cushioned beginning, allowing them to start their saving and investing journey in a more stable and less risk-prone market. It also poses an opportunity for new investors to experiment with investing in a safer manner and hence, learn by practice.

Documentation and Paperwork Required for Section 80CCG

Section 80CCG of the Income Tax Act requires only a set of basic documents for qualified investors. They are as follows. 

  • Demat account documents

  • PAN Card

  • Furnished Form B

Section 80CCG Deductions and How to Calculate Them

The deduction limit under Section 80CCG of the Income Tax Act of 1951 is up to ₹50,000. Hence, any value above ₹50,000 is not taxable. 

Let’s assume that you invested ₹50,000 in equities as a first-time investor. Therefore, according to Section 80CCG of the Income Tax Act of 1961, you can claim tax benefits up to ₹25,000 and subsequently, the taxable amount is reduced by ₹25,000. 

Changes Made to Section 80CCG

At its inception, Section 80CCG of the Income Tax Act of 1961 the capping on an investor’s yearly income was ₹10 Lakhs and the lock-in duration was prescribed as only one year. However, changes were made in the provisions hence and the income capping was pushed to ₹12 Lakhs and the lock-in period was extended to 3 years. Furthermore, the original provisions allowed only equity funds to qualify, but Mutual Funds and ETFs were included to the list later. 

However, the financial year of 2017-18 saw the end of the Rajiv Gandhi Equity Savings Scheme. The batch of investors in this financial year were the last to enjoy Section 80CCG’s benefits and provisions. The scheme was shut down due to a lack of adequate number of assessees. 

Section 80CCG Alternatives

With the dissolution of Section 80CCG of the Income Tax Act, you can explore various investment options that are similar to the investment made through this section, and those alternatives are as follows:

  • Unit Linked Insurance Plan

Unit Linked Insurance Plans or ULIPs is a type of life insurance that offers investment returns as well. ULIPs offer a diverse equity and debt funds portfolio which can be changed as many times as the investor wants across the investment tenor. Unit Linked Profit Funds are also secure since the demise of the insured would lead to the assured amount being transferred to the primary nominee or, at the cusp of the policy term, you will receive the fund value. 

From income that can be taxed, the premium amount is deductible under Section 80C while every payout is not taxable as per Section 10 (10D). After holding a ULIP for 5 years, partial withdrawals are tax-free.

Another special feature allows the investors to analyse market risks and further strategize through a portfolio management that is entirely automatic. Additionally, holding a ULIP until 99 years provides all investors a golden opportunity to withdraw tax-free pension through this savings and investments option. 

As a long-term investor in ULIPs, you are offered special perks and benefits as well. For those maintaining their ULIP account on a long-term basis, the protection programme under this investment can ensure that the intended maturity amount is transferred to the primary nominee in case of an early demise. 

  • Mutual Funds

Mutual Funds is one of the most popular investment options on the equity market. Here, funds from various investors (individual and non-human entities alike) are pooled and invested further in equities. With very targeted investment habits, Mutual Funds give you the liberty to analyse your risk-appetite and your return goals, in order to help you choose the Mutual Fund type of your choice. 

Even though Mutual Funds are primarily investments and are bound to be affected by market fluctuations, choosing corporate debentures, government securities and bonds can help you receive guaranteed returns. Equity Linked Savings Scheme, or ELSS, is one such Mutual Funds type that locks your funds in for a period of three years and it is eligible for deductions from income that is taxable as per Section 80C of the Income Tax Act. 

  • National Pension Scheme

Much like an ELSS investment or a ULIP investment, funds parked, up to ₹50,000, in a National Pension Scheme, or NPS, are deductible from taxable income as per Section 80C and Section 80CCD (1B). 

At maturity, you can withdraw funds from an NPS Tier 1 account before the age of 60 years. However, 25% withdrawals from your total contribution is the strict limit of exemption benefits. 

Purchasing an annuity helps you get 100% tax exemption on the amount you contributed, although each payout is liable to taxation. 

Upon entering the senior citizen criteria after turning 60 years of age, you are eligible to withdraw up to 40% of your fund value with no taxation levied on that withdrawal. Should you choose to reinvest the remaining 60% in purchasing an annuity, on this component, you are not liable to paying any tax. However, the payouts are subject to taxation.

FAQs

✔️Is ETF an eligible investment as per Section 80CCG?

Yes, Equity Traded Funds, or ETFs, are an eligible investment option under Section 80CCG of the Income Tax Act.

✔️Is Section 80CCG applicable to Non-resident Indians?

No, the provisions under Section 80CCG are not applicable to NRIs. 

✔️Is Section 80CCG still applicable?

No, Section 80CCG has been discontinued due to a lack of assesses applying for this scheme. 

✔️Do Mutual Funds come under Section 80CCG?

Only certain types of mutual funds can be considered under Section 80CCG. Usually, they are equity related mutual funds.

✔️When did Section 80CCG get discontinued?

Section 80CCG/Rajiv Gandhi Equity Savings Scheme was discontinued in the financial year of 2017-18.