Falling Interest Rate:
Know about Sukanya Samridhi Yojana & Senior Citizens Saving Scheme
Drastic reductions in the interest rate of bank FDR have created a conundrum for risk-averse investors and retired employees who are dependent on interest as their regular source of income. Interest rate on Bank FDR has been reduced to around 5% in general which is almost at par with the savings bank account interest rate of the recent past. The drop in the interest rate has made such people explore alternate investment options without comprising the risk aspects. Two such fully secured investment options by eligible investors could be in the form of Sukanya Samriddhi Yojana (SSY) & Senior Citizen Saving Scheme (SCSS). Let us know more about it.
SUKANYA SAMRIDDHI YOJANA (SSY): NEW SCHEME FOR A GIRL CHILD IN INDIA
SSY was launched as a part of the ‘Beti Bachao Beti Padhao’ campaign of the Central Government to provide financial security for Girl child. The account can be opened by the parent or legal guardian in the name of a girl child from birth till she attains the age of 10 years. For one girl, only one account is permissible. Natural or legal guardian of a girl child can be allowed to open the account for two girl children only. The third account in the name of the girl child can be opened in the event of birth of twin girls, as second birth or if the first birth itself results in three girl children. This account can also be opened for adopted daughters. It can be done at Post Offices or authorized Banks (SBI, PNB, BOB, BOI, Canara Bank, Andhra Bank, UCO Bank, and Allahabad Bank, to name a few).
Investment Limit:
Minimum Rs. 1,000/- can be invested in one financial year. Maximum investment of Rs. 1,50,000/- can be made in one financial year. Any excess amount deposited will not earn any interest & such excess amount can be withdrawn anytime. Deposits in an account can be made till completion of 15 years, from the date of opening of the account. The account shall mature on completion of 21 years. The girl child strictly has to be an Indian resident throughout the tenure of the scheme. In case if the residency status of the girl child changes in the interim, no interest shall be payable from the date of change and the account will be closed prematurely.
Interest Rate:
SSY offers an interest rate of 7.60% at present. Interest rate is regulated by the Ministry of Finance from time to time & can be reset every quarter, similar to other small savings schemes.
Tax Benefits:
Investment is eligible for deduction u/s 80C of the Income Tax Act. It operates under E-E-E Model i.e., Principal, interest and withdrawals, all are exempt from income tax.
Withdrawal Facility:
To meet the financial requirements of the account holder for the purpose of higher education and marriage, account holders can avail partial withdrawal facility after attaining 18 years of age. Earlier, one could withdraw 50% of the accumulated amount for education purposes, provided the girl is 18 year of age or passed 10th Standard. Now, the withdrawal will be allowed on the basis of the actual fees payable. It can either be withdrawn as a lump sum or in course of five annual installments. In case of marriage, the accumulated sum can be withdrawn one month before or three months after the date of marriage. At that time, it is imperative to provide age proof in order to prove that the child is not below 18 years of age.
Premature closure:
Premature closure is not allowed now before the completion of five years. But redemption is allowed in cases of extreme compassionate grounds such as medical support in life-threatening diseases of the A/c holder or death of the guardian. In such instances, interest paid will be equivalent to post office savings.
SENIOR CITIZEN SAVING SCHEME (SCSS): AN INVESTMENT CUM TAX SAVING OPTION FOR SENIOR CITIZEN
The five-year SCSS was launched to provide safety, security, regularity of income, risk free investment to the senior citizens. An individual of the Age of 60 years or more may open the account in any post office or designated branches of nationalized banks & one private sector bank. An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under VRS can also open an account subject to the condition that the A/c is opened within one month of receipt of retirement benefits & amount should not exceed the amount of retirement benefits. Similarly, the retired personnel of Defense Services (excluding Civilian Defence Employees) will be eligible to subscribe under the scheme irrespective of the age limit of 60 years.
The investment is eligible for an interest rate of 7.40% p.a., payable quarterly. There shall be only one deposit in the account which could be in multiples of Rs. 1,000/. Maximum amount of investment under the scheme is restricted to Rs. 15 Lacs. A depositor may operate more than one account in individual capacity or jointly with spouse (husband/wife) subject to overall maximum cap of Rs. 15 Lacs. Account can be opened by cash for the amount below Rs. 1 Lacs & and by cheque if the deposit amount exceeds Rs. 1 Lacs. Maturity period is 5 years. After maturity, the account can be extended for further 3 years within one year of the maturity by giving application in prescribed format. In such cases, accounts can be closed at any time after one year of extended period.
Premature Withdrawals:
a] Premature withdrawal is allowed only on completion of one year. In case of premature closure there would be deduction @ 1.50% & after 2 years @ 1% of the deposit amount.
b] If the deposit is withdrawn within a period of 5 years of its deposit, the amount withdrawn would be taxable in the year of withdrawals. It is better not to invest if the investment could not be kept untouched till 5 years.
Tax benefit, Taxability of Interest & TDS:
Interest income is not tax free. It would be taxable and would also be subject to Tax Deduction at Source (TDS) if interest amount is more than Rs. 10,000/- p.a. Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act, 1961 subject to overall maximum cap of Rs. 1.50 Lacs.
The pandemic drove central banks across the globe to lower interest rates to help stimulate economic activity. Falling interest rates lead to a drop in income and yields on investment. However, both the investment options discussed above are safe and secured and offer considerably higher interest rates as compared to the Bank FDR of nationalised banks.
[Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
