Sukanya Samriddhi Scheme or Sukanya Samriddhi Yojana (SSY) was notified in December 2014. The scheme is part of the Beti Bachao, Beti Padhao Scheme The scheme offers attractive guaranteed interest rates. The Government sweetened the deal by making Sukanya Samriddhi Account part of Exempt-Exempt-Exempt (EEE) tax regime.
The motive of the scheme is to encourage the savings in the name of the girl child.
Since its inception, there has been quite a bit of confusion about maturity rules for Sukanya Samriddhi accounts. Many aspects were left to interpretation. In March 2016, the Government notified amendments to rules for Sukanya Samriddhi Yojana accounts.
With those rules, many aspects of the scheme are quite clear.
Though I have discussed Sukanya Samriddhi Scheme and aforementioned amendments in some of earlier posts, I think it is better to consolidate the latest information about the scheme in a single post.
Here we go.
Can I open SSY account for my daughter? Sukanya Samriddhi Account Eligibility Rules
The account can be opened only in name of a girl child less than 10 years of age. The account can also be opened in the name of the adopted girl child.
The account can only be opened in the name of a girl child (beneficiary or account holder), who is a resident Indian citizen. The Scheme is not available to Non-resident Indians (NRIs). Do note parents can be non-residents. The account cannot be opened in the name of an NRI girl child.
The scheme is NOT available to Foreign Citizens or Overseas Citizens of India either.
The account must be closed if the beneficiary (girl child) becomes a non-resident. As I understand, the definition of non-resident should be as per FEMA (and not Income Tax Act) should apply. As per FEMA, you become a non-resident the day you go abroad for studies. So, you must keep these aspects in mind.
The change in residential status shall be intimated to post office/bank within 1 month of such change.
Even if you don’t intimate the status to post office/bank, the account will be deemed closed from the date of change in residential status. No interest shall accrue to such an account. If any interest has been credited to the account post such change, it will be clawed back.
NRI have been not been welcome to small savings schemes. In October 2017, similar treatment was extended to even PPF and NSC.
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?
What are the documents required to open Sukanya Samriddhi Account?
Along with a filled up application form, you require the 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 or Aadhaar card 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 fair to assume only one SSY account will earn interest. As I understand, for the remaining accounts, money will be returned without any interest. I do not see any provision for the merger of accounts under the scheme.
So, if you have opened more than one account for the same child, do close the extra accounts. Frankly, I have no idea how to close the second account (or if it can even be opened accidentally).
Sukanya Samriddhi Account: Maximum and Minimum Deposit
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.
If you have accidentally or deliberately deposited more than Rs 1.5 lacs per financial year in a SSY account, the excess amount won’t earn any interest. The excess amount can be withdrawn anytime by the depositor.
SSY account becomes irregular if you do not make minimum subscription (Rs 1,000) 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.
Here comes the blow. If you don’t regularize the account within 15 years of opening account, you shall be eligible for only Post Office Savings Account rate (4% p.a.) at the time of maturity. Interest credited (at a higher rate) will be reverted to Government Account. It is a good move. This is to ensure that you make regular deposits in the account. This rule shall not apply if the default occurred because of the death of guardian of the account holder.
How long can I make contributions to Suknaya Samriddhi Yojana Account?
You can contribute to the account until the completion of 15 years (earlier 14 years) from the date of opening the account.
So, if you opened the account on December 31, 2015, you can make deposits in the account till December 30, 2029.
The Sukanya Samriddhi Account matures in 21 years (discussed later).
So, from the beginning of the 16th year until the end of the 21st year from the date of opening the account, there shall be no further contributions. However, the balance in the account continues to earn interest until the end of the 21st year. This means you cannot deposit money from 16th until 21st year but the balance continues to earn interest during the period.
Sukanya Samriddhi Scheme Interest Rate
The rate of interest is notified by Ministry of Finance, Government of India every quarter. For the current quarter (Jan-March, 2018), the notified interest rate is 8.1% p.a. Your balance earns interest at the specified rate for the quarter.
For the latest update on interest rates for various small savings schemes such as PPF, SSY and SCSS, please refer to this post.
If you invest Rs 1.5 lac every year (for 15 years) at the start of the financial year in a Sukanya Samriddhi Account for your daughter, the corpus will grow to Rs 72.85 lacs at the end of 21 years. The assumption is that the interest rate stays at 8.3% during the entire term.
Sukanya Samriddhi Scheme: Credit of Interest
The interest shall be calculated on the lowest balance between 10th and the last day of the month. So essentially, you should deposit on or before 10th of every month to maximize returns. Won’t impact returns too much though.
Sukanya Samriddhi Scheme: Mode of Contribution
You can make contributions in cash, by cheque or demand draft or through online transfer.
Unfortunately, IDBI Bank, where I have opened Sukanya Account for my daughter does not allow online transfers.
Sukanya Samriddhi Account: Transfer Rules
You can transfer Sukanya Samriddhi accounts across post offices, across banks and even from a post office to a bank (or vice-versa) free of cost. You will have to furnish proof of shifting of residence (for guardian or account holder). I don’t know what constitutes proof of shifting.
As I understand, if you can’t do that, you can still get SSY account transferred by paying a fee of Rs 100.
If both the concerned banks or post-offices have access to Core Banking Solution (CBS), the amounts in the account can be transferred online.
Sukanya Samriddhi Scheme Account Maturity Rules
The account matures after completion of 21 years from the date of opening the account.
Do note the closure of account has no relation to the age of the girl child.
The balance in the account will not earn any interest once the maturity period of 21 years is complete. Hence, your daughter must withdraw money from the account once the account completes 21 years.
Sukanya Samriddhi Scheme Account: Premature Closure Rules
Premature Closure (before completion of 21 years) is allowed if the beneficiary (girl) intends to get married. Such application for premature closure cannot be made unless the beneficiary turns 18. You need to furnish age proof. Quite bizarre because you specified the date of birth at the time of opening the account.
Such application for premature closure shall be made at least a month before the date of marriage or within 3 months from the date of marriage. By the way, there is no mention of what is an acceptable proof of intention to get married.
This is a realistic move. If you are saving in SSY account for your daughter’s marriage, you should be able to take money out for marriage.
Under the old rules, the account had to be closed on completion of 21 years or the date of beneficiary’s marriage, whichever was earlier. No longer true. Please understand it is NOT mandatory to close the account if the account holder (girl) get married. It is an option.
Additionally, please note the account needs to be mandatorily closed in the following cases:
- Death of the account holder (girl)
- In case the account holder becomes non-resident (NRI) or non-citizen (takes citizenship of another country).
In addition, the concerned bank/post office can allow premature closure of account after 5 years on compassionate grounds (life-threatening illness to the account holder, death of guardian causing hardship in continuing the account). No premature closure is permitted under this provision before completion of 5 years. If the account is prematurely allowed to be closed for any other reason (don’t know how to do that), you shall earn the interest rate prescribed for post office savings bank account.
Sukanya Samriddhi Yojana Account: Withdrawal Rules
You don’t have to close Sukanya Samriddhi Yojana Account to access funds in the account. The rules allow for withdrawal if you (your daughter) needs to funds for daughter’s higher education
You can withdraw up to 50% of the account balance at the end of previous financial year for the purpose of higher education of the beneficiary (girl).
So, if you (your daughter) wants to withdraw money for her higher education on July 15, 2022, you/she can withdraw 50% of the account balance as on March 31, 2022.
This is allowed only when the girl child turns 18 or has passed 10th standard, whichever is earlier. Under the old rules, this was allowed only once the girl child turned 18. Higher education is not defined. I assume it means education beyond 10th standard.
Such application for withdrawal shall be made along with documentary proof of admission and fee slip from the institution stating the financial requirement. The amount of withdrawal is capped at actual demand of fee and other charges required at the time of admission (in addition to 50% of the balance amount). This should be as per offer of admission or fee-slip issued by the education institution.
The withdrawal can be made in lump sum or in installments. In case you choose to withdraw in installments, you can withdraw in up to five installments, not exceeding one installment per year. The installments need not be equal.
Sukanya Samriddhi Scheme Tax Benefits
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 the account of the first daughter and your wife can deposit in the account of the second daughter. This way, both of you will be able to tax benefits.
Should you invest in Sukanya Samriddhi Yojana?
The scheme offers attractive (and guaranteed) tax-free interest, which is higher than the interest rate offered on PPF accounts.
However, there are restrictions on deposits. You can make deposits for only 15 years and the account matures in 21 years. You can’t continue beyond that even if you want to. There are stringent limitations on withdrawal from the corpus.
Personally, I prefer PPF over SSY since it does not have many restrictions of SSY account (because PPF serves a different purpose). Disclosure: I have opened both PPF and SSY account for my daughter.
Another point to note. Your daughter’s education and marriage are long-term goals. Equity investments are well suited for such long-term goals. If you are comfortable with volatility in equity investments, you can consider taking some exposure to equity mutual funds too for such goals.
By the way, if you foresee that you may choose to work abroad or may become NRI (as per FEMA) in the near future, don’t even consider Sukanya Samriddhi Account for your daughter. For that matter, avoid investment in any small savings scheme (SSY, PPF, NSC etc). NRIs are clearly not welcome in small savings schemes.
The post was first published on November 15, 2017.