Major Changes to PPF and SSY from October 2024: Is Your Money at Risk?

The government has implemented several new rules regarding Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) accounts, effective from 1st October 2024. These changes are aimed at regularizing account management and preventing misuse of these popular savings schemes. If you’re an investor in either scheme, it’s crucial to understand how these new rules could impact your investments. Let us break down the key changes to PPF and SSY from October 2024 in a simple, easy-to-understand manner, and explore how they might affect your finances:

What is the Public Provident Fund (PPF) Scheme?

Overview: The Public Provident Fund (PPF) is a widely popular long-term savings instrument in India, valued for its blend of tax benefits, reliable returns, and safety. Introduced in 1968 by the Finance Ministry’s National Savings Institute, the PPF aims to encourage individuals to save consistently while providing them with attractive returns.

Objective: The primary goal of the PPF scheme is to promote small-scale savings among individuals and offer a secure and rewarding investment option.

Key Features:

– Tenure: The PPF account has a fixed tenure of 15 years, with the option to extend it in blocks of 5 years.

– Interest Rate: Currently, the interest rate on PPF accounts is 7.1%.

– Investment Limits: You can deposit a minimum of ₹500 and a maximum of ₹1.5 lakh per annum into your PPF account.

– Eligibility: Any Indian citizen can open a PPF account, but it cannot be held jointly. However, you can nominate individuals to receive the account proceeds.

– Tax Benefits: Contributions to the PPF are tax-deductible under Section 80C of the Income Tax Act. Additionally, the interest earned and the maturity amount are tax-free.

– Safety and Security: The PPF is considered one of the safest investment options as the Government of India guarantees the safety of your investments.

What is Sukanya Samriddhi Yojana (SSY)?

Overview: Launched on January 22, 2015, the Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme aimed at the welfare and empowerment of the girl child in India. It seeks to eliminate gender discrimination, support girls’ education, and protect their rights.

Objective: The SSY’s primary aim is to promote the well-being and education of girl children, ensuring they have the resources needed for their future.

Key Features:

– Minimum Deposit: ₹250.

– Maximum Deposit: ₹1.5 lakh per financial year.

– Account Opening: The account can be opened in the name of a girl child until she turns 10 years old. Only one account can be opened per girl.

– Account Locations: Accounts can be opened at post offices and authorized banks across India.

– Withdrawals: Withdrawals are permitted for the account holder’s higher education expenses. The account can also be closed prematurely upon the girl’s marriage after she turns 18.

– Transferability: The SSY account can be transferred from one post office or bank to another anywhere in India.

– Maturity: The account matures after 21 years from the date of opening.

– Tax Benefits: Deposits qualify for deductions under Section 80C of the Income Tax Act, and the interest earned is exempt from income tax under Section 10 of the Act.

These features make both the PPF and SSY valuable financial tools for individuals seeking to secure their financial future while benefiting from tax advantages.

Major Changes to PPF and SSY from October 2024:

1. More than One Minor PPF Account – Strict Regulation

– One account per minor: As per the new rule, only one PPF account can be opened in the name of a minor. Joint accounts are not allowed.

– What happens if you have multiple accounts: If you’ve opened more than one PPF account for your minor child, the irregular accounts will not earn the PPF interest rate. Instead, the Post Office Savings Account interest rate will apply to all such accounts until the child turns 18.

– Maturity period change: For these irregular accounts, the maturity period will begin only after the child becomes a major (18 years). This means the maturity period will be calculated from the time they are legally allowed to open an account themselves, which delays access to funds.

2. More than One PPF Account – How it Will be Managed

– Primary and secondary accounts: If you have more than one PPF account, the primary account will continue to earn the prevailing PPF interest rate (currently 8.1%), as long as the total deposits do not exceed the ₹1.5 lakh per year limit.

– Merging multiple accounts: The second account will be merged with the primary account, subject to the investment ceiling being maintained. Once merged, the balance from both accounts will continue to earn the scheme’s interest rate.

– Zero interest for excess balance: Any excess balance beyond the ₹1.5 lakh limit will earn zero interest, and this will apply to any additional accounts beyond the second one. Opening more than two accounts can be costly, as any balance in those extra accounts will yield no returns.

3. Extension of PPF Account by NRIs – A Warning

– No extension for NRIs: Non-resident Indians (NRIs) are not eligible to extend their PPF accounts, even if they have submitted Form H for an extension without specifying their residential status.

– Interest calculation for unauthorized extensions: For such unauthorized extensions, the PPF account will continue to earn the Post Office Savings Account rate until 30th September 2024. After this date, the account will no longer earn any interest.

– Key takeaway: If you have extended your PPF account after becoming an NRI, you need to close it or transfer it appropriately to avoid losing interest income.

4. SSY Accounts Opened by Grandparents – Clarified Guardianship Rules

– Who can open an SSY account: SSY accounts should be opened by parents or legal guardians. If an account was opened by grandparents, the account’s guardianship must now be transferred to the natural guardian (either of the living parents) or the legal guardian.

– Impact: This clarification ensures that funds saved for the girl child remain under the control of the rightful guardian. Parents and legal guardians must ensure they are the official custodians of their children’s accounts to avoid any future complications.

5. More than Two SSY Accounts – Closure of Irregular Accounts

– Two SSY accounts per family: The rule states that only two SSY accounts can be opened within a family, typically for two girl children.

– Action on irregular accounts: If more than two accounts have been opened in a family, these extra accounts will be treated as irregular and will be closed. These irregular accounts are in violation of the scheme’s guidelines and cannot be maintained.

– Recommendation: Families should ensure they stick to the two-account rule to avoid having accounts forcibly closed, which could result in loss of interest or principal.

6. Tracking Unauthorized Accounts – Aadhaar and PAN Linkage

– Aadhaar and PAN linking: With Aadhaar and PAN now mandatory for PPF and SSY accounts, it’s much easier for the government to track and identify unauthorized or duplicate accounts.

– Impact: This increased scrutiny means that it’s harder to open multiple accounts without getting flagged. If you have multiple accounts for a minor or have exceeded the investment limits, your accounts may be closed or merged, and you may lose interest earnings.

Final Thoughts

The new rules for PPF and SSY accounts, effective from 1st October 2024, are designed to create a more regulated and transparent savings environment. While the changes may seem restrictive at first, they ensure the long-term viability of these popular small savings schemes.

If you’re currently investing in PPF or SSY, or are planning to open these accounts, make sure you fully understand the new guidelines. Stick to the prescribed rules to maximize your returns and avoid penalties or loss of interest.

It’s also advisable to regularly monitor your accounts, link them with your Aadhaar and PAN, and ensure you adhere to the one-account-per-minor rule for PPF and the two-account-per-family rule for SSY. By following these new rules, you can continue to benefit from the tax-free interest and government-backed security that PPF and SSY offer.

These tips are brought to you by HappyWise Financial Services.

If you need any assistance with organizing your finances or want to discuss your investment options, feel free to connect through Email or Whatsapp.

Disclaimer: Some part/s may be generated/modified using GenerativeAI