Sukanya Samriddhi Yojana in detail

Sukanya Samriddhi Yojana (SSY) was launched in 2015 for the girl child.  It is another small savings scheme like PPF from the government of India and it will be administered through post office and banks.

The maturity amount and the total interest paid on the scheme will be tax free under EEE like in PPF. 

It is a long term debt investment which can help the girl child for her higher education and marriage.

Under this scheme, the account can be opened for a girl child in the age group of 0 -10.

The account can be opened by parents or legal guardian.

The yearly investment is flexible and you can pay any amount between 250 – 1, 50,000 as you like in lumpsum or in installments. If you don’t invest the minimum amount of 250 in a year, there will be a penalty of Rs. 50/- to continue the account. You can invest money for 15 years from the date of opening.

The account will mature after 21 years from the date of opening of the account. In case of early marriage, the account will be closed on marriage after age 18.

There is early withdrawal option in Sukanya Samridhi Account. 50% of the accumulation can be withdrawn after age 18.  This can help funding the child’s higher education.

The interest rate for this scheme will be declared by government every quarter. The interest rate is 7.6% as on date.  Interest will be compounded annually.

The investment upto 1.5 lakhs in a year will qualify for tax deduction under Section 80C of the Income Tax Act. But, more attractive is the taxation of this scheme on maturity. The maturity amount including interest is totally tax free on withdrawal.

Eligibility: A girl child (Indian Resident) between the age of 0-10 years is eligible for Sukanya Samriddhi Yojana.

Minimum investment amount: An account can be opened by depositing Rs 250 with the required documents (Note: earlier, the minimum amount was Rs. 1000). The minimum amount that can be deposited in a Sukanya Samriddhi Scheme is Rs. 250 per annum. The maximum limit is Rs. 1.5 Lakhs per annum for an account.

Maturity Period: The maturity period of Sukanya Samriddhi Yojana is 21 years. For example: If you open an account when the girl child is 8 years old, the account will mature when she will turn 29.

Withdrawal Rules: You can withdraw money from Sukanya Samriddhi account when the girl child turns 18 years old. There are 2 rules for withdrawal:

  • Partial Withdrawal – Maximum 50% of the balance (of the preceding year) can be withdrawn for the higher education of girl child.
  • Complete Withdrawal – After the completion of 21 years from date of opening the account or on marriage of the girl child, whichever is earlier. However, the account holder needs to provide an affidavit stating that she is not below the age of 18 at the time of closing the account.

Closing the account: In the unfortunate event of death of the account holder, the scheme can be closed immediately by producing the death certificate.

The Sukanya Samriddhi account can be closed after 5 years. The pre-closure request can be made after 5 years of opening the account. This request is only considered under extreme compassionate grounds like life threatening disease.

Tax implications: The interest on Sukanya Samriddhi account is not taxable. The scheme comes under EEE category

  • Exempt at the time of investment
  • Exempt at the time of accumulation
  • Exempt at the time of withdrawal.

Documents for Opening SSY Account:

  • Account Opening Form
  • Birth Certificate of Girl Child
  • Address Proof of Parents/Guardian
  • ID proof of guardian/parents

Benefits of SSY Scheme:

  • Interest rates are higher than most of the debt-oriented schemes like bank deposit and FDs / PPF.
  • Since it’s a debt scheme by Govt. of India, chances of defaults are Nil.
  • Tax benefits under Section 80C
  • You can invest any amount between 250 – 1.5 Lakhs per year as per your cash position.
  • Scheme comes under EEE as explained above. This is the most attractiveness of this scheme.

Drawbacks:

  • Lock in period is high in this scheme. You can not withdraw money till the girl child is 18 years old.
  • You can withdraw only 50% at the time of higher education.
  • Interest rates may higher today but may not be in the same range for long periods.
  • Maturity proceeds would be in the hands of Girl Child.

What can you do?

It is not advisable to create the entire amount for your daughter’s needs by investing in this scheme. If your daughter’s higher education is 15 years away, you can earn better returns by investing in equities through mutual funds. But you should not invest the entire amount in equities.

For the debt portion, you can consider this scheme. When you are nearing the goals like higher education and marriage, you can reduce your allocation towards equity and can increase it towards debt. This account can be useful for this. You can withdraw 50% accumulation after age 18 for her higher education and the balance amount can be withdrawn for her marriage.

Along with an SIP in equity funds, this can be a suitable investment scheme for your daughter.

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