Sukanya Samriddhi

Sukanya Samriddhi Account is another welcome step from Govt of India. Honorable Prime Minister of India, Sh. Narendra Modi Ji launched Sukanya Samriddhi Account “A Small Savings Scheme” on 22nd January 2015. It is part of “Beti Bachao – Beti Padhao” initiative of Government of India (GOI) also known as BBB. Despite sincere efforts from Govt of India, Sex ratio in India is still a grave concern and it shows the backwardness of the country. It’s commendable that Govt of India is taking steps to change the mindset of people towards Girl Child. Recently i saw few TV ads of GOI with a message that if we have to make India a Safer Place for Women then we have to fix the gender imbalance. A deep social message delivered in the most simplistic way.

Sukanya Samriddhi Account is a step forward in this direction. I was quite disheartened when i observed that when so-called “Financial Planners” flooded the internet with a comparison of Sukanya Samriddhi Account with other financial instruments. Most favorite one is PPF account and everyone is taking the lead to comparing Sukanya Samriddhi Account with PPF account along with beautiful infographics & loads of financial data. My dear friends forgot to check the objective behind Beti Bachao – Beti Padhao initiative and social message attached to it. The objective behind this initiative is to address the Gender imbalance and create a positive environment in favor of Girl Child.

For Gazette Notification of Sukanya Samriddhi Account and complete scheme details please CLICK HERE

Sukanya Samriddhi Account – Objective

In India, a Girl child is considered as a Financial Burden especially in North India. Being a father of a girl child i can say this with 100% conviction. It may be because of dowry practice or outdated social norms. People show sympathy towards the father of a Girl Child. Through Sukanya Samriddhi Account, Govt is trying to give a social message that Girl Child is not a financial burden if parents of a Girl child secure their future through proper financial planning. It is quite evident from the scheme document. I will highlight these points in next section. In my opinion, be it a Girl Child or a Boy its the responsibility of every parent to secure future of their child financially. The unfortunate part is that to teach this basic lesson, a separate scheme for Girl Child is required. Sukanya Samriddhi Account cannot be considered as an investment option but a savings scheme to secure the future of Girl child. It is not right to compare Sukanya Samriddhi Account with other investment options / savings scheme. There is a purpose behind this scheme and it is being launched with an objective.

Sukanya Samriddhi Account – Benefits

As i mentioned that it is not right to compare Sukanya Samriddhi Account with any other scheme. I am highlighting 7 standalone benefits of Sukanya Samriddhi Account both financial and non-financial for the benefit of my readers

1. Highest Interest Rate among all Small Savings Schemes offered by Govt of India

Sukanya Samriddhi Account will offer an interest rate of 9.1% for current financial year i.e. FY 2014-15. It is highest among all Small Savings Schemes. The rate of interest for this scheme will be market linked. The rate of interest will be 75 bps or 0.75% more than the average 10-year G-Sec yield for the previous year. The Interest Rate applicable for the Financial Year will be declared every year by the Govt of India. Interest will be compounded yearly i.e. will be credited on a yearly basis. It will be accrued on a monthly basis on the lowest balance between 5th and last day of the month.

2. Tax Savings

In order to encourage people to open Sukanya Samriddhi Account, Govt has exempted contribution to this account u/s 80C of the Income Tax Act, 1961. In all probability this scheme will be EEE i.e. exemption will also be available on interest income and at the time of withdrawal. It is under consideration of Department of Revenue (DOR). DOR will soon bring a legislative amendment to this effect. It will be a most tax efficient scheme.

3. Lock-in Period

 In my opinion, this is the BEST Feature of this scheme. The maturity of account is 21 years from the date of opening of the account or Marriage of the Girl Child, Whichever is earlier. For Marriage, Girl should be of 18 years at the time of marriage. The operation of account is not permitted beyond the date of marriage.

One Premature withdrawal is allowed on attaining the age of 18 years by girl child only if funds are required for Higher Education. Premature withdrawal is restricted to 50% of the balance at the end of preceding financial year. The deposits in the account can be made till completion of 14 years from the date of opening of the account through maturity is 21 years from the date of opening of the account.

4. Purpose of Sukanya Samriddhi Account

As i mentioned earlier, it is quite evident that Sukanya Samriddhi Account is launched with the sole objective of financial planning for the marriage of Girl Child. Social Message is that Marriage or Education of a Girl Child is not a financial burden if parents plan well in advance.

With lock-in period as i explained in point 3, the parents cannot withdraw the money for any other purpose except marriage or for higher education of Girl Child. Because of this reason i mentioned in the beginning of the post that Sukanya Samriddhi Account cannot be compared with any other financial instrument or small savings scheme. My friends who are comparing this account with PPF forgot that in PPF, partial withdrawals are allowed after 6 years. Moreover, PPF is not linked to any end purpose but just a tax saving instrument. They fail to understand the objective behind this scheme.

5. Maturity Proceeds to be Paid to Girl Child

On maturity of Sukanya Samriddhi Account, the account balance along with accrued interest will be paid directly to the account holder i.e. Girl Child. It gives financial independence to Girl child which is currently missing in India.

6. Interest to be paid even after Maturity

Unlike other financial schemes where interest is not paid on maturity of the deposit / investment scheme. A unique feature of Sukanya Samriddhi Account is that even after maturity if the account is not closed by the account holder, Interest shall be payable in the account till final closure of the account.

7. Flexibility to operate Sukanya Samriddhi Account

Based on past experience, Government of India has given a lot of flexibility in terms of account operations. I am listing down few of them

(a) The account can be opened with an initial deposit of Rs 1000 and thereafter any amount in multiple of Rs 100 can be deposited subject to the max limit of 1.5 lakh during the financial year. Every FY, a minimum sum of Rs 1000 should be deposited to keep account operative. In the case of two daughters i.e. two Sukanya Samriddhi Accounts, the cumulative contribution cannot exceed 1.5 Lakh during Financial Year.

(b) On attaining age of 10 years, a girl child can operate her account

(c) Account can be closed if it is proved that account is causing undue hardship to the account holder

(d) Account can be transferred anywhere in India

Imp Points:

1. The scheme was notified on 2nd Dec 2014 therefore as a one-time grace any girl child who attained the age of 10 years, one year prior to the commencement of this scheme, is eligible to open the SSA. What is implies is that Girl Child born between 2nd Dec 2003 and 1st Dec 2004 are eligible to open the account.

2.  This scheme is not available for NRI’s as it is small savings scheme.

3. Under this scheme, you can make a deposit for 14 years from the date of account opening. The account will mature only after 21 years. From 15th to 21st year of account opening, you cannot make any deposit but will only receive interest on the deposits under Sukanya Samriddhi Account. Another condition of maturity is marriage. For example, if your daughter’s age is 8 years at the time of opening Sukanya Samriddhi Account. Now you can make deposits only till she turns 22 years. The account will mature after 21 years i.e. when she turns 29 years. In case, she gets married between 18 years to 29 years of age then account will mature automatically at the time of marriage.

4. If the money is not withdrawn from SSA after the maturity then also you will continue to receive the interest till the account is closed voluntarily.

5. Variable contribution between Rs 1000 and Rs 1.5 Lakh is allowed. What it implies is that you can deposit any amount of your choice in Sukanya Samriddhi Account during FY. For example, the 1st year you deposited Rs 1000 to open the account. Now 2nd year you can deposit Rs 10,000, 3rd year Rs 90,000 and so forth. The contribution is not fixed and may vary.

6. To download Sukanya Samriddhi Account Opening Form CLICK HERE

7. It is not possible to change the guardian after the account is opened. It is only allowed under special circumstances like death of an existing guardian.

8. The tax deduction can be claimed only by the Guardian of the child as provided at the time of opening of account even though the contribution is made by another parent/relative. For example, if my wife is the guardian of my child for sukanya samriddhi account. Assuming, i am making a contribution to my child’s SSA account. In this case, i cannot claim tax deduction even though investment is from my end. Only my wife can claim a tax deduction.

 I hope you liked the post and will open Sukanya Samriddhi Account for your Girl Child.

Beti Bachao – Beti Padhao

Update April 05, 2015:

1. EEE Taxation Status for Sukanya Samriddhi Account: As i mentioned and anticipated in my post, Sukanya Samriddhi Scheme is accorded EEE Tax status in Budget 2015. What it means is that Tax Exemption is now available at all 3 stages i.e. Deposit, Growth, and Withdrawal under section 80C. In short, Scheme is 100% Tax Free. 

2. Interest Rate of 9.2% for Financial Year 2015-16: I would like to thank Govt of India for declaring interest rate of 9.2% for FY 2015-16 for Sukanya Samriddhi Account. It shows the commitment of Govt towards the scheme. Even though interest rates are declining but Govt declared interest rate higher than FY 2014-15 for FY 2015-16.  Interest Rate is variable. For next Financial Year, Interest Rate will be declared in April 2016. 

3. Banks Authorized to open SSA: On Mar 11, 2015, RBI authorized following 28 banks to open SSA. Now there is a confusion on which branches are authorized to open SSA. One of my reader who is a senior banker confirmed that Branches of following banks which are authorized to open PPF account are authorized to open Sukanya Samriddhi Account.

State Bank of India
State Bank of Patiala
State Bank of Bikaner & Jaipur
State Bank of Travancore
State Bank of Hyderabad
State Bank of Mysore
Andhra Bank
Allahabad Bank
Bank of Baroda
Bank of India
Punjab & Sind Bank
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Oriental Bank of Commerce
Union Bank of India
United Bank of India
Vijaya Bank
Axis Bank Ltd.
ICICI Bank Ltd.
IDBI Bank Ltd.

Update July 05, 2016:

I keep receiving queries on whether an NRI or OCI can invest in Sukanya Samriddhi Account. Just to clarify that NRI or OCI cannot open or invest in Sukanya Samriddhi Account. The account can be opened only in the name of a Girl Child who is Resident Indian Citizen.

In future, if the residential status of a girl child changes from resident Indian to NRI then NO INTEREST will be paid from the date of change of residential status. In this case, the Sukanya Samriddhi Account will be considered CLOSED. The parent or guardian should inform the bank or post office regarding the change in residential status within one month. Any interest credited after the change of residential status will be reversed, the account will be closed and the fund value will be refunded to the account holder.

Image Courtesy: Government of India 

Content  Courtesy: : http://www.nitinbhatia.in/personal-finance/sukanya-samriddhi-account/