SUKANYA SAMRIDDHI YOJONA

              Sukanya Samriddhi Scheme

Sukanya Samriddhi Scheme Vs Public Provident Fund (SSA Vs PPF)

Sukanya Samriddhi Scheme was officially launched on 22nd January, 2015. This scheme was introduced by our honorable Prime Minister Narendra Modi.

Last week, I had published an article about Sukanya Samriddhi Account Scheme. In that article I had provided information on the features, scheme review, SSA is a Small Savings Scheme with a fixed tenure. Many people are of the view that this scheme is like “old wine in a new bottle” and have started comparing it with good old PPF (Public Provident Fund). Sukanya Samriddhi Account (SSA) is structured more or less like Provident Fund much in terms of interest calculation, tenure, withdrawal limits etc.,

So, let us understand and compare SSA with PPF based on their features and terms/conditions.

Sukanya Samriddhi Scheme Vs Public Provident Fund:

      

• Who can open the account?

Public Provident Fund (PPF) – Any Indian Citizen can open Provident Fund account.
Sukanya Samriddhi Account (SSA) – Sukanya Samriddhi a/c can be opened on a girl child’s name by her natural (biological) parents or legal guardian. 

• Is there any Age limit to open PPF / SSA?

PPF – There is no age limit.
SSA – SSA can be opened in the name of a girl child from the birth of the girl child till she attains the age of 10 years. As per the government’s notification, account can be opened on girl child’s name who has already attained 10 years within 1 year from now.

• Where can I open the account?

PPF – You can open PF account in post offices, nationalized banks (like SBI, PNB etc). You can even open PF account in Private banks like ICICI bank. You can operate the account online.
SSA – As of now you can open it in authorized commercial bank branches and Post offices. Online facility is not available.

• What are the required documents?

PPF – Account opening form (Form A), Nomination form, Passport size photo, Pan card copy, ID proof & address proof (as per Bank/post office KYC norms).
SSA – Account opening application form, girl child’s birth certificate, Depositor’s (Guardian/parent) address & ID proofs.

• What is the minimum Initial Deposit ?

PPF – The minimum deposit is Rs 500.
SSA – You need to deposit Rs 1000 as initial account opening deposit.

• Can I open multiple accounts?

PPF – Only one PPF account is allowed.
SSA – A depositor may open and operate only one account in the name of same girl child under this scheme. There is one exception to this rule. The natural or legal guardian can open two or three accounts if twin girls are born as second birth or triplets are born in the first birth itself.

• How many times can I deposit the monies in a Financial Year?

PPF – 12 deposits in one FY.
SSA – The minimum initial contribution in any financial year is Rs 1000. Thereafter the contributions can be in multiples of one hundred rupees. You can deposit 1,490 times.

• What is the maximum total deposit allowed in a Financial Year?

PPF – You are not allowed to deposit more than Rs 1.5 Lakh in a FY.
SSA – Same as in PPF.

• What is the applicable current rate of interest?

PPF – For the fiscal year 2015-2016, rate of interest is 8.7%.
SSA – For the fiscal year 2015-2016, rate of interest is 9.2%.

• Is the rate of interest fixed (as in bank fixed deposits)?

PPF – Rate of interest will be notified each fiscal year by the Government.
SSA – Same as above. So the rate of interest will keep floating every year under both the schemes.

• For how many years the contributions (deposits/SIPs) are allowed?

PPF – The minimum tenure is 15 years. Thereafter you can extend the PPF account tenure in block of 5 years.
SSA – You can deposit till 14 years from the date of opening the account.

• What is the maturity tenure?

PPF – after 15 years (provided the account is renewed or extended).
SSA – The account will mature after 21 years from the date of account opening (or) on marriage, whichever is earlier.

• Is Partial withdrawal allowed?

PPF – partial withdrawal is allowed from 6^th year onwards.
SSA – 50% of the accumulated fund can be withdrawn when girl attains 18 years of age.

• Can I extend the tenure?

PPF – You can extend PPF account tenure in blog of Five years (after initial 15 year lock-in period).
SSA – No such option is available.

• Is there any penalty if no-contributions are made?

PPF – Rs 50 is charged as penalty.
SSA – If minimum (Rs 1000 pa) amount is not deposited, the account will be treated as an irregular account. This can be regularized on payment of Rs 50 per year as penalty.

• What is the income tax benefit on contributions?

PPF – Yearly contributions of upto Rs 1.5 Lakh can be shown as tax deduction under Section 80c.
SSA – Same as above.

• What is the income tax benefit on ‘Interest amount earned?’

PPF – Interest amount earned on PPF account is exempted from income tax.
SSA – As of now there is no clarity on this aspect. Let’s wait till the Budget session (till this month-February end).

• What is the income tax benefit on ‘Maturity amount?’

PPF – It is treated as tax free money.
SSA – Looks like the maturity amount will be treated as ‘tax free’ and exempted from income tax.

• Can NRIs open PPF & Sukanya Scheme accounts?

PPF – An NRI (Non Resident Indian) can not open PPF account. However, If you had opened a PPF account when you were a resident of India and subsequently became an NRI, you may continue to deposit the monies in PPF a/c, till it matures (15 years).
SSA – Sukanya Samriddhi scheme is also governed by Post Office Savings Account Rules, 1981. As per RBI guidelines, a Non-Resident Indian (NRI) may not be eligible to invest in Small Savings schemes.


 Which one is better? Sukanya Samriddhi Scheme or Public Provident Fund?

 If you have a girl child and want to choose between SSA and PPF? Then your investment decision should be primarily based two important factors . The first one is ‘rate of interest offered by both the schemes’ and the second factor is ‘Income tax deductions/benefits.’

SSA could be a better option based on the current applicable rate of interest. The contributions (deposits) under PPF and Sukanya Scheme can be claimed as income tax deductions under Section 80C. The withdrawals (under both the schemes) are also exempted from income tax.

The real question is about the taxation of ‘Interest income’ under Sukanya Samriddhi account. If it is going to be taxed then PPF would be a better choice. We have to wait for few more weeks to get clarity on this.

If you are planning to open Sukanya Samriddhi account, I think it is prudent to wait for few more weeks till we get clarity on the taxation of interest income part. If you want to keep it short and simple, you can still go ahead with PPF (ignore the differential rate of interest and confusion related to taxation of interest income on SSA).

Another important thing that you need to keep in mind is about ‘When do you want the money?’ & the current age of your girl child.

(Sukanya Samriddhi Scheme & Other Tax saving options :

The other tax saving options which have defined rate of interest are – Five year Bank Fixed Deposits and National Savings Certificates (NSC). The rate of interest offered under these options is lower than the interest rate offered for Sukanya Samriddhi deposit scheme. (The rate of interest on NSC Five year deposit is 8.50% and 10 year NSC deposit is 8.8%. The best rates of interest offered on 5 year Tax saving Bank deposits are 9.10% by DCB bank and 9% by banks like Dena, Dhanalakshmi, Indian overseas and Lakshmi Vilas). The interest income earned under these options is taxable.