On October 1, 2024, significant changes will take effect in small savings schemes like the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and National Savings Scheme (NSS). The Department of Economic Affairs (DEA) has published six new regulations that impact these schemes, aiming to streamline operations and ensure compliance. Investors in these schemes must be aware of the changes, as they will affect how interest is accrued and accounts are managed. Below is a breakdown of the new rules that come into force.
1. Irregular National Savings Scheme (NSS) Accounts
NSS accounts that were opened before and after April 2, 1990, will be treated differently:
- Before April 2, 1990: The first account will earn the current scheme rate, and the second account will earn the Post Office Savings Account (POSA) rate plus an additional 2% of the balance. However, starting October 1, 2024, both accounts will earn zero interest.
- After April 2, 1990: The first account will earn the current scheme rate, while the second will only earn the POSA rate. From October 1 onwards, both accounts will receive zero interest.
Additionally, if someone has more than two NSS-87 accounts, they will no longer accrue interest, but the principal will be returned to the account holder.
2. PPF Accounts Opened in the Name of Minors
A significant change impacts PPF accounts opened for minors. Until the minor reaches 18 years of age, such accounts will accrue interest at the POSA rate. After the minor turns 18, the account will start earning interest based on the prevailing PPF interest rate. The maturity period for these accounts will also be recalculated from the date the minor turns 18.
3. Multiple PPF Accounts
If an investor holds more than one PPF account, there are new rules on how interest is applied:
- If the total deposits across multiple PPF accounts remain within the annual limit, the primary account will earn interest at the prevailing scheme rate.
- Any balance in additional accounts will be consolidated with the primary account for interest calculation. However, deposits in excess of the annual limit will be refunded without accruing any interest.
- From October 1, 2024, accounts beyond two will accrue zero interest.
4. Extension of PPF Accounts by Non-Resident Indians (NRIs)
Non-Resident Indians (NRIs) with PPF accounts opened under the Public Provident Fund Scheme, 1968, will see significant changes. If Form H was submitted without clarifying the account holder’s residency status, the POSA interest rate will apply for Indian citizens who became NRIs during the account tenure until September 30, 2024. After this date, these accounts will earn zero interest.
5. Regularisation of Sukanya Samriddhi Accounts Opened by Grandparents
Under the new guidelines, Sukanya Samriddhi accounts opened by grandparents will be subject to specific rules:
- Guardianship of the account will be transferred to the legal guardian of the minor, such as living parents or a legally appointed guardian. Grandparents are no longer considered valid guardians unless they are the legal guardians under specific circumstances.
- In cases where more than two Sukanya Samriddhi accounts were opened for a single family, the irregular accounts will be closed as they violate the provisions of the Sukanya Samriddhi Account Scheme, 2019.
6. Small Savings Accounts for Minors (Excluding PPF and SSY)
For other small savings accounts opened in the name of minors, the accounts will continue to earn simple interest at the POSA rate. These accounts will transition to the regular interest rates when the minor becomes eligible to hold the account in their own name after reaching adulthood.
Impact of the New Guidelines
These new regulations are designed to regularise and streamline the operation of small savings schemes like PPF, SSY, and NSS. By enforcing stricter rules on irregular accounts, the government aims to enhance transparency and compliance in small savings schemes, which have long been a popular option for risk-averse investors. The changes will significantly impact NRIs, guardians managing minor accounts, and those holding multiple accounts in these schemes.
Investors are advised to review their account holdings and make necessary adjustments to ensure compliance with the new rules effective from October 1, 2024.
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