By Subhash Lakhotia, Tax and Investment Consultant, Tax Guru: CNBC Awaaz

The Finance Act 2012 has inserted a new section 80CCG from the Financial Year 2012-13 relevant to the Assessment Year 2013-14.  As per this new section tax deduction will be available to a resident individual in case he has acquired listed equity shares during the Financial Year 2012-13. Thus, this deduction exclusively is available only to resident individual tax payers and the same is not available to non-resident individual tax payers.  Hence, a person who is a non-resident Indian, in case he files his Income-tax Return in India, then he will not be able to claim any tax deduction  in terms of the new provision because very specifically the new section 80CCG clearly speaks of granting tax deduction only to resident individual tax payers.  Likewise, this deduction will not be able to a Hindu Undivided Family.  

The deduction in respect of the investment made in equity shares will  be granted at the rate of 50 per cent of the amount invested in such equity shares and the maximum deduction will be limited to Rs. 25,000.  Thus, it is very clear that an individual during the year can invest a maximum sum up to Rs. 50,000 in equity shares of listed companies only and enjoy tax deduction to the extent of Rs. 25,000.  Hence, if a person were to invest more than Rs. 50,000, even then the  deduction will be restricted to maximum of Rs. 25,000 only.  It is further clarified in the new section that once the assessee has claimed and has been allowed a deduction under this section for any assessment year in respect of any amount, he shall not be allowed any deduction under this section for any subsequent assessment year. 

The following important conditions are also mentioned in the new section 80CCG and one must comply with all the following conditions to be eligible to claim the tax deduction in terms of this new section. 

• The gross total income of the assessee for the relevant Assessment Year should not exceed Rs. 10,00,000.  In case, the gross total income exceeds the said sum of Rs. 10,00,000, then the assessee will not enjoy any tax deduction in respect of the equity share investment made by him. 
  
• The assessee claiming tax deduction in terms of the above section should be an individual retail investor, the details of which will be specified by the Government in due course when the detailed scheme is being framed. 
  
• The investment is made by the individual only in such listed equity shares as will be specified by a detailed scheme to be announced at a later date.
  
• The investment in equity shares is locked- in being the minimum period of three years from the date of acquisition in terms of the detailed scheme to be announced in due course.
  
• Any other conditions which may be prescribed by the Government in due course. 

It is further provided in this new section that if any individual assessee in  any of the previous year fails to comply with any of the above mentioned conditions, then in such event the tax deduction which was originally allowed shall be deemed to be the income of the assessee of such year in which the condition mentioned above has not been complied with. For example, we have seen that one of the conditions is that the lock in period of the equity share investment would be three years from the date of purchase and specifically the individual tax payer due to any reason whatsoever sells away such shares in less than three years, in that situation in the year in which such sale takes place, the deduction which was originally allowed will be added as income of the assessee and tax charged thereon.    

Illustration: Shyam Lal has purchased equity shares during the Financial Year 2012-13 amounting to Rs. 40,000. He is a new retail investor. Hence, while computing his income for the Financial Year 2012-13 relevant to the Assessment Year 2013-14 he will get deduction at the rate of 50 per cent on Rs. 40,000 being the investment in shares made by him. Thus, total deduction will be Rs. 20,000 in terms of section 80CCG of the Income-tax Act, 1961. 

Illustration: Ms. Shashi is having a flourishing business. She is expected to have gross total income of Rs. 20,00,000 during the Financial Year 2012-13.  Being inspired by new tax provision, she would like to invest Rs. 50,000 in equity shares. Although she would be new retail investor in the equity sharers but unfortunately she will not enjoy any tax benefit because she has violated one of the important conditions mentioned in section 80CCG namely having gross total income  exceeding Rs.10,00,000. Hence, in spite of the fact Ms. Shashi is first time retail share investor in shares, still she will not enjoy any tax benefit  at all and no tax deduction will be available to her even when she has invested Rs. 50,000 just because her income is exceeding the sum of Rs. 10,00,000. 

Illustration: Mr. Kartik is the General Manager of a Company drawing a salary of Rs. 9,00,000 per annum. He has never invested in the equity shares.  Being inspired by the new tax provision he is going to invest Rs. 36,000 during the current Financial Year in the equity shares of listed companies. However, he is very clear that he will sell these shares in April 2013. In this situation Mr. Kartik will enjoy tax deduction at the rate of 50 per cent on Rs. 36,000 being the investment made by him in equity shares. He will, thus get deduction of Rs. 18,000 in terms of section 50CCG, while computing his total taxable income for the Financial Year 2013-14. His employer will also be able to give the tax benefit for this deduction. However, as Mr. Kartik is contemplating to sell the shares in April 2013, hence, during the Financial Year 2013-14 when he sells these equity shares, the sum of Rs. 18,000 will be added to his income being the tax deduction which was claimed by him during the Financial Year 2012-13. The amount would be so added because he would violating one condition namely the condition of holding these equity shares for a period of three years and hence the amount of deduction claimed will be added in the year of sale. 

Individual tax payers are advised to refer to the detailed scheme which will be framed by the Government in due course. However, the new tax deduction under section 80CCG is surely going to be an inspiring piece of tax investment strategy for all those who are shy from the stock market.