For those who have multiple small savings accounts under the Public Provident Fund (PPF), the Sukanya Samriddhi Account Scheme (SSAS), or the now defunct NSS-87 (National Savings Scheme), there’s trouble. The government has announced new rules pertaining to investors who have opened multiple accounts over the years, which had gone unnoticed so far. Here’s what they mean.
Not more than one PPF account
In a circular that the Ministry of Finance issued on July 12, it reiterated that investors in PPF can open (or continue to have) only one account. If they're found to have two accounts, they will be asked to designate one of those accounts as the primary one. The money that lies in the secondary account will then be transferred to the first one. Bear in mind that you need to deposit a minimum of Rs 500 per year in a PPF account. The maximum you can deposit is Rs 1.5 lakh.
The excess amount in the secondary account will be given back to the investor at zero percent interest, effective July 12.
Per PPF rules notified in 2019 and amended in 2020, you are allowed to open one PPF account on your own behalf. If you are found to have more than two PPF accounts, you will have to forego all the interest you’ve earned so far (from the date of opening the account) on accounts other than your primary and secondary ones.
Only one PPF account per minor
In addition to your own PPF account, you are also allowed to open one account on behalf of a minor, as per the PPF rules, 2020. Here too, you need to invest a minimum of Rs 500, or a maximum of Rs 1.5 lakh a year.
In the case of minors as well, the government has observed that investors had opened multiple accounts in the name of their children. This will need to stop.
Once the guardians recognise one minor account as the main account, the other accounts in the name of the same minor will be classified as ‘irregular accounts.’ Effective July 12, while the minor's regular PPF account will continue to earn interest at the prevailing rate (7.1 percent), the irregular account will earn the Post-Office Savings Account (PoSA) interest rate (4 percent at present) till the child turns 18.
The irregular account will not be closed, though. Once the child turns 18, the irregular PPF account will be treated the same as way as an adult's second PPF account, for an adult can have only one PPF account at a time, per current rules.
NRIs cannot have residency PPF account
For those who have been investing in PPF accounts without disclosing their NRI status, it will cease to be business as usual. These accounts will earn the PoSA interest rate between July 12 and September 30, 2024. Thereafter, they will earn zero interest.
Per PPF rules, a non-resident Indian (NRI) cannot open a PPF account. However, if you become an NRI after you’ve opened a PPF account as a resident Indian, then you are allowed to continue investing in the existing account till it matures; however, no extensions will be granted, unlike an Indian citizen who can extend her PPF by five years.
In 1997, the government changed the rules and prohibited NRIs from continuing to invest in their existing PPF accounts once they changed their residency status to NRI. At the time, it had said that if PPF accounts are found where the investor had changed her residence from Indian to NRI, such accounts will be closed from the date of change in status, and the PoSA rate of interest would be paid from this date till the account is closed.
Subsequently, in 2018, the PPF rules allowed NRIs to continue investing in existing PPF accounts till maturity, with no extensions allowed.
The latest rule applies to NRIs who continued with their PPF accounts that earned them the regular PPF rate and did not disclose their change in residency status.
Grandparents cannot open Sukanya Samriddhi accounts
The government has reiterated that the Sukanya Samriddhi Account (SSAS) can only be opened by the guardian of the girl child. It has been found that many people had opened SSAS accounts for their grandchildren. The new rules now state that only legal or natural guardians (parents) can open SSAS accounts. If grandparents are found to have opened such accounts, then the guardianship will be shifted to the parents or legal guardian of the girl child in whose name the account has been opened.
SSAS is a popular small-savings scheme that can be opened in the name of a girl child below the age of 10. The account is operative till the child turns 18. The scheme currently pays an interest rate of 8.2 percent per annum.
You can open one SSAS per girl child and a maximum of two such accounts in a family, unless the family has had twins or triplets.
National Savings Scheme shut down
The National Savings Scheme (NSS) was a popular small-savings scheme, and you could earlier open an NSS account at any post-office. The scheme was introduced in 1992 and discontinued in 2002. Per the scheme’s rules, you could withdraw your deposits after four years of investment, while the interest could be withdrawn at any time.
What made the scheme immensely popular was that it paid an interest of 7.5 percent per annum, even though the rate had come down all the way from its peak of 11 percent.
However, effective July 12, till September 30, the first account opened under this scheme will continue. But subsequent accounts will earn you the PoSA rate, plus 200 basis points, or 6 percent. Keep in mind that you could only have invested a maximum of Rs 40,000 per year in this. If you have multiple NSS accounts, the total amount would be subject to this limit, and the excess will be returned to the investor.
Effective October 1, your primary account too, will earn zero interest, which is as good as being shut down.
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