Section 80CCG

What is Section 80CCG?

Section 80CCG provided tax relief for first-time retail investors investing in specific equity securities. It was introduced to promote equity market participation among new investors and aimed to increase financial inclusion.

Is Section 80CCG Still Valid?

Section 80CCG was discontinued from Assessment Year 2018-19. No new investments under RGESS are eligible for tax benefits now. However, deductions are allowed for those who invested before the discontinuation and meet specific conditions.

Features of Section 80CCG

The key features of Section 80CCG deductions are as follows:

• Introduced for New Investors: Only first-time investors could claim this deduction.

• Lock-in Period: A three-year lock-in period, with the first year being fixed and the next two years flexible.

• Income Cap: Available to individuals with an income up to ₹12 lakh per year.

• Investment Limit: Investments capped at ₹50,000, with a deduction of 50% on the amount invested.

• Trading Restrictions: No sale is allowed in the first year, and re-investment is required if securities are sold in subsequent years to maintain the investment level.

Tax Deduction Under Section 80CCG

• The deduction was 50% of the amount invested, with a maximum investment of up to ₹50,000.

• Maximum deduction allowed: ₹25,000 per year.

• The deduction could be claimed for up to three consecutive assessment years.

Example of Section 80CCG Deduction

• Example 1: If you invested ₹40,000, the deduction would be ₹20,000 (50% of ₹40,000).

• Example 2: For an investment of ₹50,000, the maximum deduction would be ₹25,000, even if you invested more.

Eligibility to Claim Deduction Under Section 80CCG

• Must be a resident individual and a first-time retail investor.

• Income should not exceed ₹12 lakh in the relevant financial year.

• Investments should be made in eligible securities through a designated Demat account.

Eligible Investments Under Section 80CCG

• Equity shares listed on recognized stock exchanges.

• Units of eligible mutual funds or ETFs.

• Public sector undertakings’ shares as part of IPOs, meeting criteria such as minimum government holding and turnover requirements.

Conclusion

Section 80CCG was a beneficial tax incentive for first-time equity investors, though it is now phased out. Investments made before discontinuation must still adhere to the lock-in and compliance rules to maintain tax deductions under Section 80CCG.