Among the most popular tax-free debt schemes, we have the public provident fund (PPF) and Sukanya Samriddhi Account (SSA). These are long-term, deposit-like investments that are used towards many financial goals.
The Finance Ministry’s Department of Economic Affairs came out with a few guidelines recently on these schemes. Some of these are actually clarifications, reiterations of existing rules, while a few others are fresh mandatory guidelines.
A host of issues such as multiple PPF accounts, excess deposits beyond stipulated limits, investments in the name of minors, appointment of guardians in the case of SSA and PPF and operational aspects for NRIs (non-resident Indians) have been addressed.
These are important guidelines and could affect your goal-planning exercise in case you made wrong assumptions on investments, especially with several accounts.
Read on for more on how these announcements affect your PPF and SSA investments.
Cleaning up PPF accounts
Many investors open multiple PPF accounts to take advantage of the tax-free interest from the avenue.
Going by the new notification, an investor having two PPF accounts must designate one of those – opened in a bank or a post office – as the primary account. The second or the one designated as a secondary account by you has to be merged with the primary account. The amount after adding the primary and secondary accounts should not exceed the specified limit each year (maximum of ₹1.5 lakh per PAN per year currently).
The primary account with the specified investment (minimum ₹500, maximum ₹1.5 lakh per PAN per year currently) alone will earn PPF interest. Any excess balance in the second account post-merger with the primary account, above the specified limit, will be refunded with zero interest.
If an investor has any more accounts other than the ones designated as primary and secondary, then all such amounts in these accounts will earn zero interest from the date of opening.
The rules are also clarified for minor accounts. A parent or a guardian can open a PPF account in the name of a minor. A separate PAN can be obtained for minors as well.
Now, there are cases where each parent opens a separate account in the name of a minor child. And if there are, say, two children, there are instances of four or more accounts being opened in the name of these children.
Now the one main account opened in the name of a minor child – subject to annual minimum and maximum investment limits – will earn PPF interest. Any second account opened in the name of a minor child will earn only post office savings account interest (4 per cent currently) till such time as the child turns 18.
This second account will not have to be closed. After the child turns adult at age 18, the PPF account can be regularised to earn normal PPF interest and maturity period will be calculated from that time.
Though the operational aspects of investments have been clarified here, some of these rules are reiterated in the amended PPF rules notified in 2020 itself.
NRIs face curbs
The PPF account is available only to Indian citizens. Earlier, the Form H did not explicitly ask for the residency status of investors. New rules apply to this category of account holders.
So, those NRIs holding PPF accounts that were opened when residency status wasn’t asked in the Form H, will receive only post office savings account interest (4 per cent currently) till September 20, 2024. Thereafter, they will receive zero interest.
A few investors may have opened the PPF account as resident Indians, but may have later become NRIs. Such persons may have forgotten or overlooked the part about declaring the change in residency status as and when it happened. These accounts can be continued with regular investments till maturity. But no extension would be allowed for NRIs. These investors must transfer their PPF maturity proceeds to their non-resident ordinary (NRO) bank accounts.
Grandparents cannot invest in SSA
There are cases where grandparents may have opened the SSA account in the names of their grandchildren. The guardianship in such cases is now to be transferred to natural parents or legal guardian.
The other key rule – which is a reiteration of an earlier rule set in 2019 – is that if more than two accounts are opened in a family, the irregular accounts would be closed.
Banks and post offices have been asked to obtain the PAN and Aadhaar numbers of all PPF and SSA account holders before implementing the existing and new regulations.