National Small Savings Schemes: Changes In PPF, SSY, And NSS Accounts From October 1

Starting October 1, 2024, several major changes will be implemented across various National Small Savings Schemes. The new guidelines, issued by the Union Ministry of Finance aim to regularise irregular accounts under schemes like the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY) and the now-discontinued National Savings Scheme (NSS-87).

This update was formally announced in the Department of Economic Affairs circular on August 21, 2024.

The new guidelines would affect six key categories of irregular accounts, namely, NSS accounts, PPF accounts opened in the name of a minor, multiple PPF accounts, PPF account extensions by non-resident Indians (NRIs), SSY accounts opened by grandparents who are not legal guardians, and other small accounts for minors.

Here’s a detailed breakdown of what these changes mean for you:

A) NSS-87 Accounts

The National Savings Scheme (NSS) was a popular post-office savings plan introduced in 1992, but was later discontinued in 2002. The scheme allowed individuals to invest small sums of money, with the promise of a fixed rate of interest. Initially, the scheme offered a high rate of interest of up to 11 per cent, which was eventually reduced to 7.5 per cent before its discontinuation.

Investors could withdraw their deposits after four years, and the interest could be withdrawn anytime during the investment period.

New Changes: Starting July 12, 2024, until September 30, 2024, the first account opened under this scheme will continue to earn interest at the prevailing scheme rate. The second account will earn a 6 per cent interest or {Post Office Savings Account rate (POSA) + 200 basis points} on the outstanding balance.

However, it is important to note that the total deposits in both accounts should not exceed the annual deposit limit of Rs 40,000 per year. Any excess deposit will be refunded to the account holder without interest.

Also, this arrangement is a one-time special dispensation valid until September 30, 2024. Additionally, no interest will be paid for third and any further irregular accounts. The investors will get a refund of only the principal amount.

Effective October 1, 2024, all NSS accounts, including the primary one, will earn nil interest, effectively ending the benefit of holding these accounts altogether.

B) PPF Accounts

1) PPF Accounts for Minors: One of the most significant changes applies to PPF accounts opened for minors. Under the PPF rules, 2020 an individual is allowed to open one account on behalf of a minor in addition to their own PPF account. To keep these accounts active, the investors must invest a minimum of Rs 500 or a maximum of Rs 1.5 lakh per year. The government found that investors had opened multiple accounts in the name of their children, and therefore, announced new rules to prevent this from happening.

Irregular Accounts: Under the new rules, once the guardians recognise one minor account as the main account, the other accounts in the name of the same minor will now be termed as ‘irregular accounts.’

These accounts, when found to be irregular (i.e., not conforming to the latest rules), will earn POSA interest (currently 4 per cent) until the minor turns 18. Once the minor reaches adulthood, the account will start earning the prevailing PPF interest rate.

The maturity period for such accounts will be re-calculated from when the minor turns 18. This means the typical 15-year PPF maturity period will be extended for these accounts based on the minor’s age.

2) Multiple PPF Accounts: Many investors have been found to have multiple PPF accounts, which is against the rules. The Ministry of Finance, in its circular issued on July 12, 2024 has clarified that only one PPF account will be allowed per individual. If they are found to have two accounts, they will be asked to designate one of those accounts as the primary one.

Starting October 1, 2024, only the designated primary PPF account will continue to earn the scheme’s interest rate (currently 7.1 per cent). The balance from any secondary account will be transferred to the primary account if it’s within the annual deposit limit (Rs 1.5 lakh per year). Any excess funds will be refunded without interest, effective July 12, 2024.

Moreover, if an individual is found to have more than two PPF accounts, they will not get any interest earned so far (from the date of opening the account) on accounts other than their primary and secondary ones.

3) PPF Accounts For NRIs: Under the PPF guidelines, non-resident Indians (NRIs) are not permitted to open a PPF account. This restriction was introduced in 1997 when the government also barred NRIs from continuing to invest in their PPF accounts after their residency status had changed. At that time, the rule was that such accounts would be closed once the individual’s status changed to NRI, and they would only earn interest at the POSA rate from the date of status change until the account closure.

However, if an individual opened a PPF account as an Indian resident and later became an NRI, they were allowed to keep the account active until its maturity, although no further extensions were permitted. Unlike Indian residents who can extend their PPF accounts in a block of five years after maturity, NRIs must close their account once they mature. This was formalised in 2018, allowing NRIs to continue contributing to their existing PPF accounts but prohibiting any extensions beyond maturity.

The most recent change, which takes effect from October 1, 2024, impacts NRIs who failed to disclose their residency change, but continued to earn regular PPF interest rates.

Starting October 1, 2024, such PPF accounts will stop earning any interest altogether. Until September 30, 2024, they will still earn the POSA interest rate of 4 per cent. This update will likely affect many NRI investors who have not regularised their accounts yet.

C) Sukanya Samriddhi Yojana (SSY)

SSY Accounts Opened By Grandparents: SSY is a popular small-savings scheme for a girl child, opened for them while they are below the age of 10. The account is operative till the girl turns 18. The scheme currently pays a rate of interest of 8.2 per cent per annum, with the maximum deposit allowed in a financial year capped at Rs 1.5 Lakh. The minimum deposit is Rs 250, and subsequent deposits must be in multiples of Rs 50.

The government has found that many SSY accounts have been opened by grandparents, deeming it an ‘irregularity’. Under the new rules, only legal guardians or parents can now open SSY accounts for a girl child.

The ‘irregular accounts’ will see the guardianship transferred to the girl’s legal or natural guardians. Families that have opened more than the allowed two SSY accounts will see any extra accounts closed. Under the rules, one can open only one SSY account per girl child and a maximum of two such accounts in a family, unless the family has had twins or triplets.

D) Small Savings Accounts for Minors (Other than PPF and SSY)

According to the new updates, accounts for minors (excluding PPF and SSY) will now earn simple interest at the POSA rate (currently 4 per cent). This also applies to irregular accounts that do not conform to the scheme’s rules, ensuring that such accounts are streamlined.

So, if you fall into any of these categories and your accounts could get affected by the new changes, then take note and do the needful.