Investment up to One lakh would qualify for deduction under new Income Tax regime


Well-Known Member
As of AY 2005-06 i.e. for income earned during 2004-2005 if you have invested Rs. 30,000 in eligible equity shares of companies forming part of BSE-500 index the assessee is entitled for rebate as per the tax bracket upto a maximum of 20% over and above the limit of Rs. 60,000+ 10,000 prescribed under various sections. However, you have to hold the equity for a period of 12 months.

Under the new tax laws, soon to be passed , rebates are scrapped and deductions from income is allowed upto Rs. 1,00,000. Also sub cap between various savings instruments has been removed. Effectively you can invest one lakh rupees in an instrument of your choice.

I would like to be clarified if one can invest in eligible euity shares and hole it for a year and become eligible to claim deductions subject to the conditions stipulated previously.

If so this would give maximum deduction at the rate of 30 percent in the highest bracket and also entitle one to claim exemption from Capital gains tax of 10 %, if any. Thus one would be saving cool Rs. 30000+ 10 % Capital Gains Tax. Sounds too good to be true.

Somebody can please clarify on this aspect.


Well-Known Member
Dear Traderji
No Comments till date . Is it something that sounds stupid or is patently wrong.
In either case I would like to be enlightened. Perhaps you would like to throw some light on it


Super Moderator
pkjha30 said:
Dear Traderji
No Comments till date . Is it something that sounds stupid or is patently wrong.
In either case I would like to be enlightened. Perhaps you would like to throw some light on it
Not many members in this froum have enough knowledge about IT laws.

I think sh50 would be more qualified to make a comment on this subject.
The investment has to be held for minimum 3 years for it to be considered for tax benefits.
further, what do you mean by eligible equity shares?


Active Member
Thanks for the compliment but my father is not a practicing CA. I too do not clearly understand this. I checked it out with a practicing CA. He told me about some equity linked saving scheme where the amount is locked up for three years. Where deductions are concerned, we prefer PPF and since we have never used this, I don't know clearly. I too want to know what eligible equity shares mean.


Well-Known Member
I thank for the response to lalitgu, sh50 and nkpanjiayar. I browsed the web site of income tax dept and found that three year lock in period is required. It also appears that Government is issuing seperate notifications for such shares which would qualify for IT rebates. However I am not yet sure. 12 months period is perhaps only for capital gains tax.

On browsing the IT website I found the following reply to a FAQ
"Is it true that a Special Rebate of Income Tax, on Subscription to Shares and Debentures, is available to Tax Payers ?

Yes, effective from A.Y 97-98 and subsequent years, a tax rebate of a sum equal to twenty per cent is available, of the amounts invested in debentures of and equity shares in a public company engaged in development, of infrastructure sector, including power, telecommunication etc.

The following are the salient features of these provisions:-
The eligible shares or debentures should form part of a public issue, which is approved by the government
The proceeds of the issue should be wholly and exclusively utilised for the purpose of developing , maintaining and operating a new infrastructure facility as defined under the Income-tax Act, or for generating or for generating and distributing power
A lock-in-period of three years is to be provided in respect of such equity shares or debentures.In case of any transfer of shares or debentures before three years of acquisition, the entire amount of rebate of tax allowed, earlier in any previous year, shall be treated as tax payable in the hands of the subscriber, in the year in which it is transferred.
Where a deduction is claimed and allowed under this clause, the cost ofsuch shares or debentures shall not be taken into account for the purposes of section 54EA.
In respect of the eligible shares or debentures, a higher limit of qualifying investment of seventy thousand rupees would be available, as against sixty thousand rupees in case of other qualifying investments."

I have gone through the URL given by nkpanjiyar. It is realy informative and recommended for others also. Site contains many useful articles.

What I meant by the eligible euity shares was that it would qualify for the rebate. Somewhere I read that listed euities forming part of BSE500 index and NSE index (nifty) would be eligible. However I could not trace taht reference again. It is a Circular by CBDT. Subsequently I found several individual notifications specifying such shares. I think tax saving schemes of MFs might be investing in such scripts. I have not heard those scripts quoted on the BSE?NSE though they may be listed.

I am really sorry that I put such a technical tax related query on the forum which is meant primarily for investing community.
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Section 88 has been removed. Instead section 80 C has been inroduced where one can invest in NSC, PPF, Insurance Premiums or Mutual Funds under ELSS where the lock-in was for 3 years, etc. All investments under the above upto 1 lakh would qualify for deduction from total income under Section 80C & not a rebate of Income tax under the former section 88


Well-Known Member
Thanks for clarifying

Section 80C is effective from Income Year 2005-2006 for which Assessment year is 2006-2007.
My question was that this deduction of Rs. One lakh , if invested in shares now, would qualify or not for IT purposes . If so under what conditions? Whether lock in period will be one year or three year ? Further I could not find specific reference to specified shares ( either notified individually or as a part of exchange Indices) except some notifications as mentioned in my previous post

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