Sukanya Samriddhi Scheme or Sukanya Samriddhi Yojana (SSY) was notified in December 2014. The scheme offered attractive guaranteed interest rates. The Finance Minister sweetened the deal by making Sukanya Samriddhi Account part of Exempt-Exempt-Exempt (EEE) tax regime. With the financial year about to end, Sukanya Samriddhi Scheme can be a credible tax saving alternative.
Sukanya Samriddhi Scheme is part of the Beti Bachao, Beti Padhao Scheme launched by the Modi Government. In one of my earlier posts on this subject, I have discussed the scheme in detail.
Must Read: All you need to know about Sukanya Samriddhi Scheme
In this post, I will do a small recap of the scheme and add a few points that I didn’t cover in the earlier post.
What is the eligibility?
The account can be opened only in name of a girl child less than 10 years of age.
The Scheme is not available to Non-resident Indians (NRIs).
Who can open the Sukanya Samriddhi Account?
A natural (parents) or legal guardian can open the account for the girl child.
Where can I open Sukanya Samriddhi Account for my daughter?
The account can be opened in post offices or authorized banks. You can view the account opening form from Bank of Baroda.
What are the documents required to open Sukanya Samriddhi Account?
You require birth certificate of the girl child. Additionally, your (depositor’s) identity proof and residence proof will be required. Banks may ask for additional documents such as PAN based on their internal requirements.
How many Sukanya Samriddhi Accounts can I open?
Only one account can be opened in name of a girl child.
Parents/legal guardian can open such account only for a maximum of two girl children. Parents/legal guardian can open a third account only in the event of birth of twin girls as second birth or if the first birth results in triplets (three girl children).
If it is found that you have opened more than 1 SSY accounts in the name of the same girl child, it is possible that you earn interest only on the first account. There is nothing mentioned in the notification about the penalty for multiple Sukanya Samriddhi Accounts. However, it is fair to assume only one SSY account will earn interest. As I understand, for the remaining accounts, money will be returned without any interest.
So, if you have opened more than one account for the same child, do close the extra accounts.
Maximum and Minimum Deposit Amounts
The account can be opened with an initial deposit of Rs 1,000. Subsequent deposits can be made in multiples of Rs 100.
You can deposit a minimum of Rs 1,000 and a maximum of Rs 1.5 lacs per financial year in a SSY account.
So, if you have two daughters, you can deposit Rs 1.5 lacs each (Rs 3 lacs in total) in their accounts. Under PPF, you can’t do that.
Must read: All you need to know about PPF Account
SSY account becomes irregular if you do not make minimum subscription in a financial year. In such case, to regularize account, you must pay Rs 50 per financial year and minimum subscription (Rs 1,000) for the years in default.
How long can I make contributions in the account?
You can make contributions to the account (of your daughter) till completion of 14 years from the date of opening the account. So, from the beginning of 15th year till end of 21st year from the date of opening account, there shall be no further contributions.
So, if you opened the account on December 31, 2015, you can make deposits in the account till December 30, 2029.
However, the balance in the account continues to earn interest till such time the account is closed. This means you cannot deposit money from 15th till 21st year but the balance continues to earn interest during the period.
Rate of Interest for Sukanya Samriddhi Scheme
The rate of interest is notified by Ministry of Finance, Government of India every year. For FY2016, the interest rate is 9.2% p.a. Your balance earns interest at the specified rate every year.
If you invest Rs 1 lac every year (for 14 years) at the start of year, the corpus will grow to Rs 53.4 lacs at the end of 21 years. The assumption is that the interest rate stays at 9.2% during the entire term.
As per Sukanya Samriddhi Rules, it appears there is an option for monthly payout too. I tried to verify with banks. Their answer was in the negative. The account opening form did not have such option. So, I am not sure about this.
When does Sukanya Samriddhi Scheme account mature?
There is a lot of confusion around when the Sukanya Samriddhi Account matures. I have read at a lot of places that the account matures when the girl turns 21. This is not right. In fact, even very credible sources such as Economic Times have it wrong in this article, which is quite surprising.
The account matures after completion of 21 years from the date of opening account.
The closure of account has no relation to the age of the girl child.
In the event the account holder (girl child) gets married before completion of such 21 years, the account will have to be mandatorily closed. The operation in the account is not permitted after marriage.
If the account is closed due to marriage of the account holder (girl child), the account holder must submit an affidavit that she is not less than 18 years of age.
You can verify the same from Sukanya Samriddhi Scheme Circular or SBI Website or ICICI Bank website.
If the account is not closed, the balance in the account continues to earn interest.
Can I make partial withdrawal from Sukanya Samriddhi Scheme Account?
You can make partial withdrawal up to 50% of the account balance at the end of preceding financial year. So, as on December 25, 2015, you can withdraw up to 50% of the balance outstanding on March 31, 2015. There are certain pre-conditions to be met before you make partial withdrawal.
The partial withdrawal can be made only after the account holder (girl child) turns 18.
The partial withdrawal can only be made for the purpose of marriage and higher education.
As I understand, only one such withdrawal is allowed.
Tax Incentives for deposits in Sukanya Samriddhi Scheme Account
The scheme falls in the category of EEE (Exempt-Exempt-Exempt) products, i.e. your investment in the scheme qualifies for tax deduction, interest earned during the accumulation phase is tax-free and the maturity amount is also exempt from tax.
The investment into the scheme qualifies for deduction under Section 80C of the Income Tax Act. Hence, you can get tax deduction up to Rs 1.5 lacs per financial year for deposits in the account.
Even if you have deposited Rs 1.5 lacs each in SSY accounts of your two daughters, the tax benefit will be limited to Rs 1.5 lacs (and not Rs 3 lacs.
If your spouse is also working, you can deposit money in account of first daughter and your wife can deposit in the account of second daughter. This way, both of you will be able to tax benefits.
Should you invest in Sukanya Samriddhi Account?
The account offers attractive (and guaranteed) tax-free interest, which is higher than interest rate offered on PPF accounts.
There are restrictions on deposits. You can make deposits for only 14 years and the account matures in 21 years (or at the time of marriage). You can’t continue beyond that even if you want to.
There are restrictions on liquidity. However, this is in line with the objective of the scheme. The Government does not want you to use the corpus for any other reason.
Your daughter’s education and marriage are long term goals. Equity investments are best suited for such long term goals. However, that does not mean the entire portfolio for the purpose should be in equity investments. SSY can be an integral part of debt portfolio for the same purpose. It will provide stability to your overall investment corpus.
In addition to SSY account, you can also think about opening PPF account for your daughters.
Unlike SSY, PPF account can be continued even after marriage of your daughter.
Even if you are not sure whether SSY should make an integral part of your portfolio for your daughter’s education and marriage, do open an account for them before they turn 10.
Though this is nothing less than speculation, the Government may choose to offer better incentives on deposits in SSY accounts. In such a case, your daughter may have crossed the maximum age and you wouldn’t be able to open account even if you want to. So, do open Sukanya Samriddhi Account and keep making minimum contributions if you are not sure.
Image Credit: Vijayanarasimha, 2013. The original image and information about usage rights can be downloaded from Pixabay.