Small savings, big changes

With a few exceptions, recent tweaks to the Sukanya Samriddhi Scheme seem welcome

So, the Sukanya Samriddhi deposits are earning 8.6 per cent per annum from April to June 2016, compared with 9.2 per cent during 2015-16. The quicker rate reset is a double-edged sword — a boon when rates rise and a bane when they fall.

Next, new Sukanya Samriddhi Account rules notified in March this year have replaced the old ones issued in December 2014.

Welcome changes

A big plus is an enhanced definition section which clarifies that the account can be opened in the name of adopted girl children too, aged less than 10 years.

Of course, like earlier, only one account can be opened for a girl child; also, the accounts can be opened for maximum two girl children in a family.

Deposits can now be made in the account each year for 15 years from the date of account opening. Earlier, it was 14.

Like earlier, in each financial year, the deposit should be a minimum ₹1,000 and cannot exceed ₹1.5 lakh; this is eligible for tax deduction under Section 80C.

Also, the interest accrued continues to be exempt from tax and so is the amount on maturity. The new rules clarify that deposit in excess of ₹1.5 lakh in a year will not earn any interest; such excess amount can be withdrawn anytime.

Interest on the deposit will continue to be compounded yearly. But in a concession, deposits made until the 10th of each month will be eligible for interest for that month; earlier, though not clearly specified, the cut-off date was the 5th of each month.

Another positive is allowing the beneficiary of the account — the girl child — to also make deposits, if she has crossed the age of 10. Earlier, only the guardian was allowed.

Next, besides cash and cheque, the deposit can now be made electronically if the post office or the bank branch has access to the core banking solution (CBS) facility.

Also, instead of the pass book, the guardian or account holder can maintain records in electronic form if the post office or bank has CBS facility.

Besides, the account can be transferred anywhere in India electronically if the post office or bank has CBS facility. The transfer, electronic or otherwise, is free of cost on change of residence of the account holder or guardian; else, it will cost ₹100.

The rule on partial withdrawal to fund higher education has also been relaxed. Unlike earlier, when withdrawal was not allowed until the child turned 18, now withdrawal for higher education is allowed if the girl has turned 18 or has passed 10th standard, whichever is earlier.

But like earlier, the withdrawal is allowed only up to 50 per cent of the balance in the account at the end of the preceding financial year.

The not-so-nice

Not all the changes are helpful. Make sure to deposit the minimum amount of ₹1,000 each year; else, the account will be considered as one under default. Like earlier, this can be regularised by paying a penalty of ₹50 for each year of default, along with the minimum amount for each such year.

But now, if the default is not regularised within 15 years of the account opening, there’s much to lose. It’s now specified that on maturity, all the deposits in an account under default, including those made prior to the default date, will earn only the post office savings bank interest rate.

This seems quite harsh because if there is a default in the 15th year which is not regularised, the entire deposit until then will suffer a low rate.

The new rules provide for an exception though — if the default in yearly payment is due to the death of the guardian of the account holder, the high interest rate will continue to apply.

Another not-so-nice change is the compulsory premature closure of the account if the account holder — the girl child — becomes a non-citizen or non-resident of India.

In such cases, no interest will accrue from the time of change in the status, and the balance in the account will be returned.

Premature closure of the account continues to be allowed on extreme compassionate grounds such as medical support in life-threatening diseases of the account holder or death of the guardian. But according to the new rules, such premature closure is not allowed before completion of five years from the account opening. If the account is closed prematurely for other reasons, the entire deposit will only earn the post office savings bank interest rate.

As before, the account will mature on completion of 21 years from the date of opening. Unlike earlier, the account is not considered closed when the girl gets married after she is 18 years of age; this is now at the request of the account holder.

But partial withdrawal (up to 50 per cent of prior year balance) for marriage, earlier allowed, is not there under the new rules. Also, now, interest will accrue only till maturity, not after.

Under the earlier rules, interest was payable even after the maturity period of 21 years if the account was not closed.