Jigar M. Patel
International Tax Attorney
Under its recent notification dated August 21, 2024, the Department of Economic Affairs has made revisions and announced new guidelines aimed at regularisation of investments in Public Provident Fund (PPF) and Sukanya Samriddhi (SSY) Accounts. These changes shall be effective from October 1, 2024.
Consequences for Multiple PPF Accounts in One Name
If a taxpayer holds multiple PPF accounts, only the primary account will earn the scheme rate of interest, provided the deposit falls within the applicable annual ceiling limit. Primary account will be one of the accounts chosen by the investor in any Post Office or Bank and which the investor prefers to keep as such account after regularization. The balance from any second account will be merged into the primary account, to the extent the primary account is under the applicable investment ceiling in each year (current ceiling being Rs.1,50,000). Any excess balance remaining in the second account will be repaid to the taxpayer without any interest. Any additional accounts beyond the two will earn zero interest from their opening date.
Why NRIs need an Urgent Review of their PPF Accounts?
Currently NRIs with PPF accounts that did not require residency details (or the account holder’s status wasn’t asked for) continue to earn interest at the Post Office Savings Account rate. This interest rate is set to remain applicable till 30th September, 2024. Thereafter, such accounts would not receive any interest. NRIs would be well advised to take note of this important change and consider taking timely action before the interest rate change takes effect.
Check this on PPF Account of Minors
PPF regulations permit an account to be opened in the name of minor. However, if the parent who is contributing to the account of the minor child also has his or her own PPF account, the total combined contribution in both should not exceed the applicable annual ceiling of Rs. 1.5 lakhs. The new rules provide that interest at Post Office Savings Rate shall be payable for any such irregular PPF accounts of minors, till they attain 18 years of age. Thereafter, the applicable normal rate of interest on PPF shall be payable. Moreover, the maturity period for such irregular accounts shall be calculated from the date the minor becomes an adult.
SSY Accounts opened by Grandparents
As per the SSY scheme, only parents or legal guardians are eligible to open SSY accounts for the girl child. Under the new rules, in case of accounts opened under by grandparents (who are not the legal guardian), guardianship shall be transferred to a person who is entitled under law to be a natural or legal guardian. This mandatory transfer is to comply with the scheme’s original guidelines.
Closure of Multiple SSY Accounts
In addition to the guardianship transfer requirement, the new guidelines also address the issue of multiple SSY accounts opened in violation of the scheme rules. It is pertinent to note that a maximum of only two SSY accounts (one for each girl child) per family are allowed to be opened as per the rules of the Scheme. In case multiple accounts that have been opened for a single girl child or for where accounts have been opened for more than two girl children, the additional accounts shall be closed immediately and the balance in such accounts shall be refunded without any interest.
