New Rule for Payment of Small Savings Account Balance 2023: The Finance Bill 2023 has proposed an amendment to the Government Savings Promotion Act. The proposed amendment clarifies who will get money if the Small Savings Scheme account holder dies and there is no nomination in place at the time of his/her death.
In this article, we take a look at what the new proposal says and what experts think about the implications of the new rule.
Who will get the money if depositor dies without nomination?
As per the proposed amendment, the payment of the available balance in the account will be made to the person legally entitled to receive it if the accountholder dies without declaring his nominee.
The Finance Bill has proposed to add the following to Section 4A of the Government Savings Promotion Act 1873. It says:
If a depositor dies and no nomination is in force at the time of his death, and the probate of his will or letters of administration of estate or a succession certificate granted under the Indian Succession Act, 1925, or legal heir certificate issued by the revenue authority not below the rank of Tahsildar having jurisdiction, is not produced within six months from the date of death of the depositor to the Authorised Officer, then, where the eligible balance does not exceed such limit as may be prescribed, the Authorised Officer may, for reasons to be recorded in writing, pay the eligible balance to the person legally entitled to receive it or to administer the estate of the deceased in accordance with such procedure and manner as may be prescribed.”
Small Savings Schemes Covered Under Government Savings Promotion Act 1873
The following schemes are covered under Government Savings Promotion Act 1873:
- Post Office Savings Account
- National Savings Monthly Income Account
- National Savings Recurring Deposit
- Sukanya Samridhhi Account
- National Savings Time Deposit (1 year, 2 years, 3 years and 5 years)
- Senior Citizens‘ Savings Scheme
- Kisan Vikas Patra (discontinued from 1st December, 2011 and restarted from 23rd September, 2014);
- National Savings Certificates (VIII Issue).
- Public Provident Fund Scheme
What will be the impact of the proposed amendment?
Legal experts say that the proposed amendment to the Government Savings Promotion Act 1873 is a progressive move that will help in reducing the misuse of power by officials while disbursing the amount in the account of the deceased person.
“The proposed amendment to Government Savings Promotion Act to lay down the procedure for paying over the balance in the account in the event of unfortunate death of the account holder which is neither a joint account nor having nomination facility is progressive and will avoid the undue concentration of powers in the hands of the officials as there is a laid down procedure,” says Sandeep Shah, Managing Partner at N.A. Shah Associates.
According to Shah, the proposed amendment has considered the risk management practice of specifying the quantum up to which this authority can be exercised and also what procedures to be followed.
“As a result, the concerned authorities cannot force the rightful claimants to run pillar to post to get the amount which the deceased has left behind. For account balance above the threshold, the nature of documents has also been specified and this brings clarity for all concerned,” says Shah.
Adding to Shah’s assessment of the proposed amendment, Apoorva Bhadang, Partner at Vesta Legal, says this is a welcome move in matters where the balances are small or not significant enough to undertake the exercise (time and cost) of obtaining probates/LOA/ succession certificates and in cases where there is no dispute amongst the legal heirs.
“However, the implementation will face hurdles where the amounts are significant and/ or there is a dispute between the legal heirs. The period of 6 months mentioned is in anyways insufficient to obtain LOA/ probates. The administration of the estate of the deceased both in case of testamentary ( where there is a will) and intestate succession (where there is no will) are specifically governed by succession laws which are specific to religion of the deceased, the procedure to be prescribed by the authorized officer should be in sync with the existing procedure/s established in law,” says Bhadang.
What has changed
Bharath Gangadharan, Senior Associate, SKV Law Offices, says that as per the existing provisions of the Government Savings Promotion Act 1873 (“Act”), if a depositor dies and a nomination exists in respect his/her deposit, the outstanding balances will be paid to nominee(s).
Further, if the depositor dies and there is no nomination in force then in the absence of a probate of his will or letters of administration of his estate or a succession certificate granted under the Indian Succession Act, 1925 being produced to the Authorised Officer within three months of the death of the depositor, the Authorised Officer may pay the same to any person appearing to him to be entitled to receive it or to administer the estate of the deceased, as per the procedure prescribed under the existing provision of the Act. This will now change when the proposed amendment comes into force.
“The proposed amendment to the above provision evidently aims to bring the provision in line with the ground realities of the timelines for securing the specified documents, by increasing the time period for producing them from three months to six months,” says Gangadharan.
“Further, in addition to the documents that could be produced before the Authorised Officer have been expanded to also include a legal heir certificate from the prescribed authority as a valid document. Thus, the proposed amendment further clarifies the rights of the successor(s) of the deceased and aims to simplify and facilitate the process of payment of claim where no nomination has been made by the deceased depositor,” he adds.
What RBI says on this matter
The Reserve Bank of India (RBI) in its Master Direction had earlier urged banks to adopt a simplified procedure for repayment to legal heir(s) of the depositor keeping in view the imperative need to avoid inconvenience and undue hardship to the common person. “RBI has also advised the banks to fix a threshold limit up to which claims in respect of the deceased depositors could be settled without insisting on production of any documentation other than a letter of indemnity,” says Shah.
What Supreme Court says on this matter
Bhadang says that the Supreme Court in the case of Ram Chander Talwar & Anr. v. Devender Kumar Talwar & Ors., had ruled that nominees are merely empowered to collect the amounts which shall form part of the estate of the deceased depositor and thereafter devolve according to the rule of succession by which the depositor may be governed.