Deduction for investment made under equity savings scheme is withdrawn

[Section 80CCG of Income Tax Act – Applicable from Financial Year 2017-18 ( Assessment Year 2018-19 )]

Under the existing provisions of section 80CCG of Income tax Act , deduction for three consecutive assessment years is allowed upto Rs. 25,000 to a resident individual for investment made in listed equity shares or listed units of an equity oriented fund subject to fulfilment of certain conditions. This deduction was introduced vide Finance Act, 2012. However considering the fact that limited number of individuals availed this deduction and also to rationalize the multiplicity of deductions available under Chapter VI-A of the Act, Finance Bill 2017 proposed to phase out this deduction by providing that no deduction under section 80CCG shall be allowed from assessment year 2018-19. However, an assessee who has claimed deduction under this section for assessment year 2017-18 and earlier assessment years shall be allowed deduction under this section till the assessment year 2019-20 if he is otherwise eligible to claim the deduction as per the provisions of this section.

This amendment will take effect from the 1st April, 2018 and shall accordingly apply in relation to assessment year 2018-19 and subsequent years.

Relevant Clause 34 of Finance Bill 2017

Amendment of section 80CCG.

34. In section 80CCG of the Income-tax Act, after sub-section (4), the following sub-section shall be inserted with effect from the 1st day of April, 2018, namely:—

“(5) Notwithstanding anything contained in sub-sections (1) to (4), no deduction under this section shall be allowed  in respect of any assessment year commencing on or after the 1st day of April, 2018:

Provided that an assessee, who has acquired listed equity shares or listed units of an equity oriented fund in accordance with the scheme referred to in sub-section (1) and claimed deduction under this section for any assessment year commencing on or before the 1st day of April, 2017, shall be allowed deduction under this section till the assessment year commencing on the 1st day of April, 2019, if he is otherwise eligible to claim the deduction in accordance with the other provisions of this section.”.

Explanation of Clause 34 of Finance Bill 2017

Clause 34 of the Bill seeks to amend section 80CCG of the Income-tax Act relating to deduction in respect of investment made under an equity savings scheme.

The existing provisions of the said section provides that where an assessee, being a resident individual, has, in a previous year, acquired listed equity shares or listed units of an equity oriented fund in accordance with a scheme, as may be notified by the Central Government, he shall, subject to certain conditions, be allowed a deduction, in the computation of his total income of the assessment year relevant to such previous year, of fifty per cent. of the amount invested in such equity shares or units to the extent such deduction does not exceed twenty-five thousand rupees.

It is proposed to insert a new sub-section (5) in the said section so as to provide that no deduction under the said section shall be allowed in respect of any assessment year commencing on or after the 1st day of April, 2018. However, an assessee who has acquired shares or units in accordance with the aforesaid scheme and claimed deduction under the provisions of the said section for any assessment year commencing on or before the 1st day of April, 2017 shall be allowed deduction under the said section till the assessment year commencing on the 1st day of April, 2019, if he is otherwise eligible to claim the deduction in accordance with the other provisions of this section.

This amendment will take effect, from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-2019 and subsequent years. 

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