New rules for PPF, Sukanya Samriddhi Yojana, and small savings schemes starting October 2024

From October 1, 2024, new regulations will come into effect for small savings schemes, including Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and others. Issued by the Department of Economic Affairs (DEA), these six rules aim to streamline account management and ensure compliance with existing regulations. This article provides an overview of the upcoming changes and what investors need to know.

Overview of the New Rules

The DEA's amendments are categorised across several small savings schemes, with a focus on irregular accounts, multiple account holders, and non-resident accounts. The changes primarily affect National Savings Scheme (NSS) accounts, PPF accounts opened under minors, multiple PPF accounts, PPF extensions for Non-Resident Indians (NRIs), and the regulation of Sukanya Samriddhi Accounts (SSAs). Let’s break down these changes in detail.

1. Irregular National Savings Scheme (NSS) Accounts

The government has introduced new interest policies for NSS-87 accounts, particularly those opened before and after April 2, 1990. The interest rates will change significantly for irregular accounts:

• For accounts opened before April 2, 1990: Currently, the first account earns the scheme’s current interest rate, while the second earns the Post Office Savings Account (POSA) rate plus an additional 2%. From October 1, 2024, both accounts will stop earning interest and will receive 0% interest.
• For accounts opened after April 2, 1990: The first account will continue earning interest at the scheme's current rate, while the second will earn at the POSA rate. However, beginning October 1, both accounts will stop earning any interest.
• For individuals holding more than two accounts: No interest will be paid on the additional accounts, though the principal amount will still be returned to the account holder.

These rules are aimed at discouraging the misuse of NSS accounts by limiting interest accruals to a manageable number of accounts.

2. Public Provident Fund (PPF) Accounts Opened for Minors

The new rules address irregular PPF accounts opened in the name of minors. Currently, such accounts earn interest at the POSA rate until the minor reaches the age of 18, which is when they become eligible to open their own account. However, the revised guidelines introduce the following changes:

• Interest Calculation: Interest at the POSA rate will be paid until the minor turns 18. Once the individual reaches the age of majority, the applicable PPF interest rate will be applied.
• Maturity Period: The maturity period of such PPF accounts will now be calculated from the date the individual turns 18, not from the date of account opening.

This ensures that minors receive the benefits of the savings scheme only once they are legally eligible to manage their accounts.

3. Multiple Public Provident Fund (PPF) Accounts

Holding multiple PPF accounts is a common practice, but the new rules impose stricter limits on how such accounts will be treated:

• Primary and Secondary Accounts: If deposits across multiple PPF accounts remain within the permissible annual limit, the primary account will continue to earn interest at the prevailing scheme rate. However, balances in secondary accounts will be combined with the primary one, and any excess deposits beyond the limit will be refunded without interest.
• Interest on Additional Accounts: Any balances in more than two accounts will now earn 0% interest from their opening dates.

These regulations are designed to ensure that individuals do not benefit unfairly by exceeding the annual deposit limits across multiple accounts.

4. Extension of PPF Accounts by Non-Resident Indians (NRIs)

The new rules also impact NRIs who hold PPF accounts. Specifically:

• Interest Rate for NRI Accounts: For NRIs who opened a PPF account under the 1968 scheme but did not explicitly declare their residency status, the POSA interest rate will apply until September 30, 2024. After this date, these accounts will earn zero interest.

This regulation aims to align the interest earned by NRIs with that of other residents, ensuring equal treatment for all PPF holders.

5. Regulation of Sukanya Samriddhi Yojana (SSY) Accounts

The new rules also target irregular Sukanya Samriddhi Yojana accounts, particularly those opened under the guardianship of someone other than the natural or legal guardian. The following changes will come into effect:

• Transfer of Guardianship: If an SSY account was opened by a grandparent or another individual in violation of the scheme’s guidelines, guardianship will be transferred to the child’s rightful legal guardians, typically the parents or a court-appointed guardian.
• Violation of Scheme Guidelines: If more than two SSY accounts are opened in a family, which disobeys Para 3 of the Sukanya Samriddhi Account Scheme, 2019, the irregular accounts will be closed, and any deposits made will be refunded without interest.

This step is critical in maintaining the integrity of the scheme and ensuring that it is utilised correctly by families for the benefit of their female children.

Conclusion

The new regulations introduced by the Department of Economic Affairs are a step toward creating a more streamlined and compliant environment for small savings schemes like PPF, Sukanya Samriddhi Yojana, and the National Savings Scheme. These changes will ensure better management of irregular accounts, restrict the misuse of multiple accounts, and regulate interest payments, especially for accounts held by NRIs and minors.

Investors should be aware of these changes and assess how they may affect their existing accounts. Those holding multiple accounts or irregular NSS, PPF, or SSY accounts should make necessary adjustments to comply with the new rules. The changes, effective October 1, 2024, are aimed at simplifying these schemes, ensuring fairness, and upholding the integrity of India’s small savings ecosystem.