e    rit   ar et in ndia      14.23
           These bonds will have minimum maturity of                whose annual turnover is not less than
     5 years. These bonds can not be issued for real                Rs. 4,000 crore for each of the immediate
     estate and capital markets sectors. Withholding                past three years, will also be eligible.
     tax of 5 per cent will be applicable on interest          (vi) Exchange-traded funds (ETFs) and MFs
     income from these bonds, but the capital gains                 that have RGESS-eligible securities have
     arising in case of appreciation of the rupee will be           also been brought under the RGESS.
     exempted from tax.                                       (vii) To benefit small investors, investments
                                                                    are allowed in instalments in the year in
        rgeSS                                                       which tax claims are made.
     On 23 November, 2012, the government notified           (viii) The total lock-in period for investments
     a new tax saving scheme called the Rajiv Gandhi                will be three years including an initial
     Equity Savings Scheme (RGESS), exclusively for                 blanket lock-in of one year. After the first
     first-time retail investors in the securities market.          year, investors will be allowed to trade in
     This scheme provides 50 per cent deduction of the              the securities.
     amount invested from taxable income for that year          The broad provisions of the scheme and the
     to new investors who invest up to Rs. 50,000 and      income tax benefits under it have already been
     whose annual income is below Rs. 10 lakh.The          incorporated as a new Section 80 CCG of the
     Rajiv Gandhi Equity Saving Scheme (RGESS) will        Income Tax Act 1961, as amended by the Finance
     give tax benefits to new investors whose annual       Act 2012. The operational guidelines were issued
     income is up to Rs. 10 lakh for investments up to a   by SEBI on 6 December, 2012.
     maximum of Rs. 50,000. The investor will get 50
     per cent deduction of the amount invested from           creDit Default SwaP (cDS)
     taxable income for that year. Salient features of the
     scheme are as follows :                               CDS is in operation in India since October 2011
                                                           – launched in only corporate bonds. The eligible
           (i) The scheme is open to new retail investors
                                                           participants are commercial banks, primary
               identified on the basis of their permanent
                                                           dealers, NBFCs, insurance companies and mutual
               account numbers (PAN).
                                                           funds.
          (ii) The tax deduction allowed will be over
                                                                CDS is a credit derivative transaction in which
               and above the Rs. 1 lakh limit permitted
                                                           two parties enter into an agreement, whereby
               allowed under Section 80 C of the           one party (called as the ‘protection buyer’) pays
               IncomeTax Act.                              the other party (called as the ‘protection seller’)
         (iii) In addition to the 50 per cent tax          periodic payments for the specified life of the
               deduction for investments, dividend         agreement. The protection seller makes no
               income is also tax free.                    payment unless a credit event relating to a pre-
         (iv) Stocks listed under BSE 100 or CNX 100,      determined reference asset occurs. If such an event
               or stocks of public-sector undertakings     occurs, it triggers the Protection Seller’s settlement
               (PSUs) that are Navratnas, Maharatnas,      obligation, which can be either cash or physical
               and Miniratnas will be eligible under the   (India follows physical settlement). It means,
               scheme. Follow-on public offers (FPOs)      CDS is a credit derivative that can be used to
               of these companies will also be eligible.   transfer credit risk from the investor exposed to
          (v) IPOs of PSUs, which are scheduled to get     the risk (called protection buyer) to an investor
               listed in the relevant financial year and   willing to take risk (called protection seller).