Section 80CCG of ITA, 1961 : Section 80Ccg: Deduction In Respect Of Investment Made Under An Equity Savings Scheme

Explanation using Example

Imagine that Mr. Sharma, a resident individual with a gross total income of ₹10 lakhs for the assessment year 2016-17, decides to invest in the stock market. He learns about a government scheme aimed at encouraging new investors to invest in the equity market. Under this scheme, he invests ₹40,000 in listed equity shares. According to Section 80CCG of the Income-tax Act, 1961, Mr. Sharma is eligible for a deduction because:

• His gross total income does not exceed ₹12 lakhs.
• He is a new retail investor as specified under the notified scheme.
• He has invested in listed equity shares specified under the scheme.
• He agrees to a lock-in period of three years for his investment.

Therefore, Mr. Sharma can claim a deduction of 50% of his investment amount, which is ₹20,000 (50% of ₹40,000), but since the deduction is capped at ₹25,000, he is within the limit. This deduction can be claimed for three consecutive assessment years, starting with the year in which he first acquired the shares.

If Mr. Sharma fails to maintain the lock-in period or meet any other specified conditions in the following years, the deduction claimed would be reversed and added back to his income, and he would be taxed accordingly for that year.

However, it's important to note that the benefit under this section was phased out and no deduction under Section 80CCG would be allowed for investments made after April 1, 2017. Mr. Sharma's investments made before this date would still be eligible for the deduction until the assessment year 2018-19, provided he continues to meet the other conditions.