The Indian government’s small savings schemes, such as the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY), are widely popular among savers. These schemes provide attractive interest rates, tax benefits, and are backed by the government, making them a safe investment option. Recently, the government introduced new rules affecting both PPF and Sukanya Samriddhi accounts. Understanding these changes is essential for individuals who are planning their investments or managing existing accounts.
Overview of PPF and Sukanya Samriddhi
Before delving into the new rules, it is important to briefly understand what PPF and Sukanya Samriddhi accounts are:
- PPF: The Public Provident Fund is a long-term investment option that offers tax-free returns. It has a tenure of 15 years, with an interest rate decided quarterly by the government. Investments in PPF can be made with as little as ₹500 annually, and the maximum deposit limit is ₹1.5 lakh per year.
- Sukanya Samriddhi Yojana: This is a government-backed savings scheme aimed at securing the future of the girl child. The account can be opened by parents of a girl child below 10 years of age and offers a high interest rate, tax benefits, and a long-term lock-in period until the girl reaches the age of 21 or gets married after the age of 18.
Now, let’s look at the 5 new rules that apply to these schemes.
1. Penalty for Default on Minimum Deposit
Both PPF and Sukanya Samriddhi require a minimum annual deposit to keep the account active. Previously, if a PPF or Sukanya Samriddhi account holder failed to make the minimum deposit of ₹500 for PPF and ₹250 for Sukanya Samriddhi, the account would become inactive. Under the new rules, a penalty of ₹100 for PPF and ₹50 for Sukanya Samriddhi will be charged annually until the account is revived by paying the minimum deposit along with the penalty.
2. Changes in Interest Rates Calculation
Interest on PPF and Sukanya Samriddhi accounts is calculated on the minimum balance between the 5th and the last day of the month. This remains unchanged. However, under the new rules, it has been clarified that interest will only be credited to active accounts. If the account becomes inactive due to non-payment of the minimum deposit, interest for that period will not be credited unless the account is revived.
3. Changes to Premature Withdrawal Rules
The government has made changes to premature withdrawal rules for both schemes. For PPF, withdrawals are allowed after completing five years of account opening for specific reasons such as medical emergencies, education, or home purchase. The amount that can be withdrawn is limited to 50% of the balance at the end of the fourth year or the immediate preceding year, whichever is lower.
For Sukanya Samriddhi, premature withdrawal is allowed only under special circumstances, such as the marriage of the girl child after she reaches 18 years of age or for higher education purposes. The withdrawal limit is capped at 50% of the balance, and supporting documentation may be required.
4. Revival of Discontinued Accounts
Under the new rules, the process of reviving inactive or discontinued PPF and Sukanya Samriddhi accounts has been streamlined. If the account has been inactive for several years, it can be revived by paying the minimum deposit for each lapsed year along with the applicable penalty. However, if the account is not revived within a specific time frame, it may become permanently closed, and the balance transferred to the government’s unclaimed accounts pool.
5. Tax Implications on Withdrawals
While both PPF and Sukanya Samriddhi offer tax exemptions under Section 80C of the Income Tax Act, the new rules have provided more clarity on the tax implications of withdrawals. For PPF, the maturity amount and the interest earned are fully tax-exempt. However, any withdrawals made before maturity may not have the same tax benefits unless they meet the specific conditions mentioned.
For Sukanya Samriddhi, the entire amount, including interest, is tax-free at the time of maturity. However, premature withdrawals may be subject to specific tax rules if they do not meet the prescribed conditions.
The new rules for PPF and Sukanya Samriddhi accounts emphasize maintaining regular contributions, keeping accounts active, and understanding the conditions for withdrawals. The changes aim to streamline account management, penalize defaults, and offer clarity on tax implications. For investors, these updates reinforce the importance of disciplined savings and ensure the schemes remain effective in promoting long-term financial security.