Sukanya Samriddhi Account – Investment, Tax & Other benefits
Before making any investments there are lots of matters to be considered for the safety of principal amount, earning reasonable return, availing capital appreciation and much more. Tax benefit arising from such investment is one of the major aspects to be considered for making investment. One of such tax benefit providing investment has been announced by our Prime Minister Narendra Modi. A campaign has been launched which is named as “Sukanya Samriddhi Yajna” where an account is opened in the name of a girl child and amount is deposited into this account by her legal guardian.
Amount deposited in the Sukanya Samriddhi Account will be allowed as a deduction under Section 80C. This scheme will help in development of Girl Child as well as saving them. Tax benefit of this scheme will fetch a huge amount of investment. Interest rate on such deposit will be fixed annually. Rate for the financial year 2014 – 14 is 9.10% which seems money-spinning. Let us go through the benefits provided by the scheme and terms and conditions applicable thereon.
The particulars of Sukanya Samriddhi Scheme are as follows:
- Commencement of the Scheme: The scheme of Sukanya Samriddhi Account came into effect via notification of Ministry of Finance. The notification details are Notification No. G.S.R.863(E) Dated 02.12.2014. Scheme will be governed by ‘Sukanya Samriddhi Account Rules, 2014’.
- Definition of Depositor: First of all a depositor is required to be defined for the purpose of understanding the scheme. A depositor is a person who will deposit the amount in the Sukanya Samridhi Account in the capacity of a guardian of a minor girl child in whose name the account will be opened.
- Individual Eligible for being a Guardian of a Girl Child: Basically father or mother can be a guardian of a minor child. In case where parents of a minor girl child are not alive, or are alive and are not capable of acting as a guardian, a legal guardian who takes care of the property of the girl child will be eligible.
- Ceiling on Number of Account per Girl Child: More than one account can not be opened in the name of a single Girl Child. One account per child is the policy of the scheme.
- Ceiling on Number of Girl Children for whom account can be opened: The schemes allows opening of account only for two girl children. So the issue arises when there are more then than two daughters to an individual. Let us discuss such issue in the next point.
- Consequences of having three girl children: In cases where an individual or guardian have one daughter and in case of subsequent event the guardian gets twin daughters or the guardian has three daughters in the first birth itself, then the account for the third girl child is allowed to be opened under this scheme. In no other cases Sukanya Samriddhi Account can be opened for more then two girl children. So the guardians of more then two girl children will have to select the girl child for whom the Sukanya Samriddhi Account is to be opened.
- Age Limit of Girl Child eligible for opening account under this scheme: A girl child whose account is to be opened should of age ranging from 0 to 10 years. One year exemption in age limit is allowed as the scheme is newly introduced so the girls who have attained the age of 10 years before one year of starting of this scheme will also be eligible for opening an account under this scheme.
- Procedural Formalities / KYC requirements: For opening an account under this scheme, a birth certificate of girl child in whose name the account is to be opened along with the identity and address proof of the depositor are to be provided.
- Fluctuating Rate of Interest: This is not a fixed interest bearing scheme. The interest will be decided on yearly basis by the government. The rate in force for Financial Year 2014 – 15 is 9.10% which is very higher as compared to industry rates. This rate was announced by the government via notification in public.
- Compounding of Interest: Interest under this scheme will be compounded every year. Such compounded interest will be credited in the account itself every year. An option is also available to the account holder for crediting monthly interest. Such interest will be calculated on the balance in multiple of thousands at the end of previous month and the fraction will be ignored and will be considered in the subsequent months.
- Accounts under this scheme are available to be opened at: Sukanya Samriddhi Account is available to be opened at any post office in India carrying out work of savings bank as well as a Branch of Commercial Bank which is authorised to open such accounts.
- Restriction on amount of Deposit: Depositor can deposit an amount ranging from Rs. 1,000 to Rs. 1,50,000 every year. But minimum Rs. 1,000 is required to be deposited every year. First deposit of Rs. 1,000 is to be made on opening of account and subsequently any amount in multiple of one hundred rupees can be deposited through out the year without limitation on number of times of depositing the amount.
- Term of Account: Amount is to be deposited in the account till 14 years from the date of opening the account while the maturity of account will be on completion of 21 years from the date of opening of account.
- Rectifying the irregularities in the Account: Penalty of Rs. 50 along with minimum deposit amount of Rs. 1000 for each year in default is payable in regularize the irregular account. Irregularity arise when depositor fail to pay minimum amount of Rs. 1000 for any year.
- Medium of acceptance of Deposits: Deposits will be accepted by way of cash, cheque or a Bank Draft.
- Authority of opening and operating such Account: The account can be basically operated by the guardian until the account holder girl child attains the age of 10 year. After that, the account holder will be eligible to operate the account. The liability of depositing money will always be on the shoulders of the depositor.
- Availability of Passbook: On opening of Sukanya Samriddhi Account, the guardian or depositor will be issued a passbook wherein all the transactions carried out in the account will be recorded. The passbook will bear information of the account holder minor girl child such as the birth date, full name etc. Details like date of opening of account, full address of the account holder, account number etc will be printed on the passbook. Passbook will be required in case where the amount is to be deposited in the account or withdrawn from the same as well as when the account is to be closed on the maturity.
- Facility of premature closure of Account: Premature closure of account is allowed in the case of death of account holder. In this case the balance in account along with interest is paid to the guardian on providence of death certificate of the account holder. In the other cases where accountholder is in need of money and the central government is satisfied with the reason, will allow premature closure of the account.
- Facility to transfer place of Account: Account held at one place can be easily transferred to other place in the country in case where the account holder girl child shifts to another place.
- Withdrawal before completion of Account Term: An option of premature withdrawal is allowed in case where money is required for higher education or marriage expenses of account holder. 50% of the balance in the account at the end of last preceding year is allowed to be withdrawn provided that the account holder girl child has become of age eighteen years or more.
- Closure of Account: Account can be closed in mainly two consequences. One in case of maturity of account after 21 years of opening of account and second on marriage of account holder. After the marriage of account holder, account can not be continued and to close account on consequence of marriage of account holder, affidavit proving that the girl child is not less than 18 years of age is to be presented.
- Interest and Principal Payment: Account holder will be authenticated to withdraw the principal amount along with the interest on maturity of the account or in case where the girl child is going to marry. All you need to do is fill a simple withdrawal slip and prest it along with the passbook at the bank.
- Benefits available with respect to tax implications: Along with other eligible investments, amount deposited in Sukanya Samriddhi Account is also allowable as deduction under section 80C. For including investment in Sukanya Samriddhi Account, Government has issued a notification which was numbered 09/2015 and was dated 21.01.2015. For details regarding exemption, the stated notification can be referred. The limit of deduction allowable under section 80C is Rs. 1,50,000. Along with benefit on principal amount, there is a tax liability on the interest earned from this account.
Along with lots of benefits, the scheme has some drawbacks which are as follows:
- Lock in period is very high. This will lead to liquidity problems.
- Accounts can only be opened for 3 Girl Children of an individual. This will be a narrow scheme for individual with more then 3 daughters.
- Interest Income from this account is taxable. This is one of the most vital drawbacks.
- Online banking facility is unavailable.
- Scheme is having Fluctuating rate of interest so the future rates of interest are uncertain.
- It is nowhere provided whether the maturity amount is taxable or taxfree.
If we compare the Sukanya Samridhdhi Scheme with the investment in Public Provident Fund (PPF) in matters of benefits in taxation, as both are allowable as deduction from Gross Total Income under section 80C, the basic difference is that the interest earned on PPF is not taxable while the interest earned on amount deposited in Sukanya Samridhi Account is taxable.
Thus, we can conclude that Government has handed good support for development and importance of a girl child but on other hand it has snatched various other benefits such as no tax exemption is allowed on interest earned through this account and also the exemption of amount deposited is clubbed with other investment under section 80C where the Government would have provided a separate exemption to this effect.