Small savings: Girl, uninterrupted

By: | Published: March 31, 2015 12:07 AM

Why the Sukanya Samriddhi account can come in handy if you want to build a corpus for your daughter

To help the parents of a girl child build a corpus for her education and marriage expenses, Prime Minister Narendra Modi launched the Sukanya Samriddhi Account (SSA) in January this year as part of the ‘Beti Bachao Beti Padhao’ campaign. And, for further fillip to the scheme, the finance minister in this fiscal’s budget announced more tax incentives for the small deposit scheme.

When it was launched, only the investments in the account were eligible for tax deduction under Section 80C of the Income Tax Act, 1961. But in this year’s budget, the finance minister granted tax exemption on the interest accruing on deposits in the account and even on withdrawal of the corpus after maturity. So, SSA will have the exempt-exempt-exempt (EEE) model. These amendments will take effect retrospectively from April 1, 2015 and accordingly apply for assessment year 2015-16 and subsequent assessment years.

Therefore, as with Public Provident Fund (PPF), an individual who invests in SSA will get tax deduction at the time of investment every year, the income generated by the scheme will be tax-exempt and even the corpus at the time of withdrawal will be tax-free.

The interest on the SSA deposit will be 75 basis points over the 10-year government bond yield of the previous financial year. At present, the deposit will fetch a yearly interest rate of 9.1%. The interest rate will be notified by the government every year and will be calculated on a yearly compounded basis.

In fact, in PPF, a popular small savings scheme to accumulate funds for children’s education and retirement, interest rate is fixed every year on April 1 and is 25 basis points over the 10-year government bond yield of the previous year. Currently, PPF gives a return of 8.7% per annum. So, on the parameter of returns, SSA scores better than PPF.

The guardian of the girl child (father or mother) can open an SSA account in the name of the girl child in designated branches of public sector banks or in a post office till she attains the age of 10 years. The account can be opened with a minimum deposit of R1,000, after which the guardian can deposit any amount in multiples of R100. The upper limit of deposit in a financial year is R1,50,000. The depositor cannot open more than one account in the name of a girl child and the natural or legal guardian is allowed to open an account each for two girl children only.

However, the guardian can open the third account in the case of birth of twin girls as second birth, or if the first birth itself results into three gild children.

One withdrawal, up to 50% of the balance in the account,  will be permitted for education expenses of the girl child on attaining 18 years of age.

The account will mature on completion of 21 years from the date of opening of the account or marriage of the account holder on attaining 18 years of age, whichever is earlier. Experts say this is one of the major drawbacks of SSA compared with PPF, where the account can be extended for a block of five years after the 15-year maturity period.

The guardian can deposit the money in the account through either cash, cheque or demand draft. If the deposit is made by way of a cheque or demand draft, the date of encashment will be the date of credit to the account. However, the scheme does not provide for online transfers to the account. If the minimum amount of R1,000 a year has not been deposited, the account can be regularised after paying a penalty of R50 per year along with the minimum subscription of R1,000 for the years of default till the account completes fourteen years.

The account holder, or the girl child herself, can operate the account on attaining 10 years of age. however, deposits  to the account may be made by the guardian. In the event of the account holder’s death, the account will be closed immediately upon the production of death certificate issued by the competent authority, and the balance at the credit of the account will be paid along with the interest till the month preceding the month of premature closure of the account to the guardian of the account holder. The account can be transferred anywhere in the country.

Experts say the SSA outscores PPF, especially when it comes to building a corpus for daughter’s education and marriage as there is no limit on the number of transactions in a year and the returns are higher. In PPF, an investor can do a maximum of 12 transactions a year. Also, while a PPF subscriber can open an account in the name of minors, the maximum investment limit in a fiscal will be R1.5 lakh by adding the balance of the guardian’s account as well.

The upshot
* In this year’s budget, the govt granted tax exemption on the interest accruing on SSa deposit and even on with-drawal after maturity, making it exempt-exempt-exempt
* At present, ssa will fetch a yearly interest of 9.1% while PPF gives 8.7%
* The account can be opened with a minimum of R1,000 and the maximum amount one can invest is R1.5 lakh in a year. One withdrawal, up to 50% of the balance in the account, is permitted for education expenses after the girl turns 18

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