Section 80CCG: The Forgotten Tax Benefit for First-Time Investors (Rajiv Gandhi Equity Savings Scheme)

Let’s be honest — most Indians love saving money but hesitate when it comes to investing in stocks.
To change that mindset, the government launched Section 80CCG of the Income Tax Act — a clever little move meant to nudge small investors toward equity markets, but with a safety net called tax benefits.

This provision arrived as part of the Rajiv Gandhi Equity Savings Scheme (RGESS).
It sounded promising — invest a bit in equities or mutual funds, get a tax deduction, and maybe even catch the stock market bug.
Though the scheme has now been discontinued, it’s still worth understanding how it worked & why it eventually faded away.

What Exactly Was Section 80CCG of Income Tax Act?

Introduced through the Finance Act, 2012, this section aimed to get more ordinary people into stock investing.
The idea was simple — make equities feel a little less scary by offering a tax break to first-time investors.

The purpose behind it?
✅ Get new investors into the stock market.
✅ Build a habit of long-term saving through capital market instruments."
✅ Make the whole thing slightly more rewarding through tax relief.

If you ticked all the boxes, you could claim a tax deduction of up to ₹25,000 over & above what Section 80C already allowed.

Pretty neat for beginners, right?

Who Could Actually Claim It

Not everyone could. To qualify under Section 80CCG, you needed to meet a few conditions:

• Resident Individual: You had to be a tax resident of India.
• First-Time Investor: No demat account, no share trading before the scheme launched.
• Income Limit: Your gross total income had to be below ₹12 lakh.
• Eligible Securities: Your investments had to go into approved mutual funds or equities listed under the Rajiv Gandhi Equity Savings Scheme.

If you fit the bill, the deduction under this section became yours to claim.

Also Read: An Exclusive Tax Benefit for NPS Subscribers

How Much Could You Save

The benefit was small but meaningful.
You could claim 50% of the amount invested, up to ₹25,000, as a deduction.

Here’s a quick example —
If you earned ₹6,00,000 in a year & invested ₹50,000 in RGESS-approved shares or mutual funds, you could claim a ₹25,000 deduction.
Your taxable income would then drop to ₹5,75,000.

Not life-changing, but hey — a little tax saved is a little more earned.

Lock-in Period — A Bit of Patience Required

This wasn’t a scheme for quick exits. The lock-in period lasted three years, but it came in two parts:

• Fixed Lock-in (1 Year): No selling, no pledging — your investment stayed untouched.
• Flexible Lock-in (Next 2 Years): Partial trades were allowed, but you needed to maintain the minimum number of eligible shares.

This setup was meant to ensure people stayed invested long enough to understand how markets really work — not just chase a short-term deduction.

Where Could You Invest

You couldn’t just buy any stock you liked. Only certain instruments qualified:

• Equities under BSE 100 or CNX 100 indices
• Shares of Maharatna, Navratna, or Miniratna PSUs
• Eligible ETFs & mutual funds under RGESS
• IPOs of public sector companies

The logic was simple — expose new investors to large, relatively stable companies rather than high-risk bets.

A Real-Life Example

Meet Meera. She’s 29, earns ₹9 lakh a year, & wants to start investing.
She puts ₹40,000 into an RGESS-approved mutual fund.

Under Section 80CCG, she can claim 50% of that amount — ₹20,000 — as a deduction.
Her taxable income now becomes ₹8,80,000.

So, she saves tax and begins her equity journey — exactly what the government wanted.

Also Read: Gift of tax relief on investment in NPS!

How It Differed from Section 80C

Basically, 80C was about saving; 80CCG was about investing.

Why It Didn’t Last

Good idea, not-so-great execution.
Despite the benefits, very few people used it. Here’s why:

• Hardly anyone knew it existed.
• The dual lock-in confused investors."
• ₹25,000 deduction wasn’t enough motivation.
• And let’s be real — many first-timers weren’t ready to handle market volatility.

The Finance Act, 2017 finally pulled the plug, ending the deduction from FY 2017–18.
Existing investors could still enjoy their benefits till the lock-in ended, but no new entrants were allowed.

What Replaced It

While Section 80CCG is gone, its spirit lives on.
The government still promotes equity investing — just under new names:

• ELSS funds under Section 80C
• National Pension System (NPS) under Section 80CCD(1B)
• Equity mutual funds that offer long-term capital gain benefits

These continue to blend tax savings with market participation — the same recipe, just a better flavor.

Why It Was Still a Good Idea

Even if it didn’t click, Section 80CCG had its merits:

• It offered extra tax savings beyond 80C.
• It gave first-time investors a reason to try equities.
• It promoted wealth creation over plain saving.
• It reflected an early attempt at financial inclusion through markets.

It might have been ahead of its time — but it showed where India was heading.

Also Read: Save Tax on Capital Gains by Investing in a Residential House

Its Limitations

• Not for seasoned investors.
• A tiny deduction limit of ₹25,000.
• Stock market risk scared many taxpayers.
• Rules around eligible shares and lock-ins were too rigid.

Still, it was a bold move to make middle-class Indians think beyond FDs & gold.

Quick Recap

• Section 80CCG = The Rajiv Gandhi Equity Savings Scheme.
• Introduced in 2012, withdrawn from AY 2018–19.
• Aimed at first-time investors with income below ₹12 lakh.
• Allowed up to ₹25,000 deduction on eligible equity investments.
• Though gone now, it remains a milestone in India’s tax-driven investing journey.

In Summary

Section 80CCG tried to do what few tax sections ever did — make people curious about the stock market.
It may not have survived, but it helped lay the foundation for today’s equity-linked savings culture.

So, while the deduction is history, the idea behind it — building financial confidence through investing — still matters more than ever.

Still not sure which investment gives you the best mix of returns &  tax savings now?
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