Saving Income Tax by Investing in the Future of Your Girl Child

There are several ways to invest for your girl child’s future and simultaneously save income tax. One of such innovative ways is to invest in Sukanya Samriddhi Yojana (SSY) Account. The Sukanya Samriddhi scheme especially encourages parents/legal guardians to save for their daughter’s higher education and marriage. The current Sukanya Samriddhi Account interest rate is 7.6% for the quarter ending in June 2020.

The scheme provides tax exemptions under Section 80C of the Income Tax Act, 1961. It aims to secure a girl child’s future to avail enough funds at the end of the account’s maturity (i.e. 21 years), or anytime in between due to certain circumstances. All the withdrawals be it on maturity or partially in between, are tax-free.

In this post, we will discuss about Sukanya Samriddhi Yojana and its details such as deposit amount, eligibility criteria, how to open an SSY account, lock-in period, interest rate, tax benefits, number of accounts, transfer of accounts, withdrawal on maturity, partial withdrawal, premature closing of the account, and frequently asked questions.

A) About Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a fixed income investment. It is a scheme by the Government of India, launched in 2015. It is a part of the campaign – Beti Bachao Beti Padhao. The scheme encourages you to save for the girl child’s future. You can make regular deposits in this account and earn interest on it. As per the Income Tax Act of India, you can claim tax deductions up to Rs. 1.5 lakhs under Section 80C in a financial year (FY) on contributions to SSY.

1. Deposit Amount

Every year, the minimum deposit amount is Rs. 250. This needs to be constant for at least 15 years. The account will be discontinued if you fail to save the minimum amount in a given year. But you can reactivate the account after payment of Rs. 50 as penalty and depositing the minimum deposit amount.

• The upper cap on the deposit amount for a financial year is Rs. 1.5 lakhs.
• You can deposit as many times you wish to in the account in a year.
• You have to deposit in the multiples of 100 through cash, demand draft, cheque, or online transfer.

2. Eligibility Criteria

Here are the Sukanya Samriddhi Account eligibility criteria:

For beneficiary (the girl child)

• The benefit of this scheme is only for girl children.
• You have to submit your daughter’s age of proof document.
• The age eligibility is maximum 10 years to open the account for the girl child.
• A grace period for the age is however for a year more.
• Thus, you can open the account within a year of your daughter turning ten years of age.

For those who will operate the account

• If you are a biological parent or legal guardian, then you can open the SSY account on behalf of your daughter.
• As a legal guardian or parent, you can open up to two accounts.

3. How to Open a Sukanya Samriddhi Account?

To apply for Sukanya Samriddhi account for your daughter, you have to visit an authorized bank or post office that offers this scheme. The customer representative will provide you the application form. You need to duly fill and sign the application form, and submit it with the below mentioned documents:

• The girl child’s birth certificate.
• Address proof and identity proof of the depositor.
• If there are multiple girl children at once, then you have to submit medical certificates as proof of birth.
• Apart from these, you need to provide any other documents as requested by the post office or bank.
• You have to deposit at least Rs. 1,000 initially to open the account.
• You can submit the amount through cash, demand draft, cheque, or online payment.

4. Lock-in Period

The lock-in period for SSY is 21 years. For instance, if you opt for this scheme when your daughter is 6 years old, it will mature when she attains 27 years of age.

5. Interest Rate

The rate of interest is fixed by the government in every quarter. The interest rate was 7.6% per annum for the quarter ending in June 2020. The interest is compounded annually. Also, the interest earning is payable only on maturity. You can also receive the earning if there is a change in your daughter’s citizenship status or residency.

6. Tax Benefits

This SSY scheme has the status of EEE or exempt-exempt-exempt. You can build a corpus for your daughter as well as meet your tax-saving goals with this scheme. Here are the Sukanya Samriddhi Yojana tax benefits:

• Under Section 80C of the Income Tax Act, investment towards this scheme makes you eligible for tax deductions of up to Rs. 1.5 lakhs in a financial year. So, if you invest this entire amount in a given FY, then the whole investment amount will be tax exempt.
• The interest earning is also tax exempt under this scheme.
• You do not have to pay tax on withdrawal or maturity amount.
• You do not have to pay any taxes on maturity or withdrawal.

7. Number of Accounts

You can open two accounts in name of one family but only one account in the name of your girl child. If you have triplets (all females), then you are allowed to open more than two accounts. This is applicable even if your first child is a girl, and later on you get twin girl babies.

8. Account Transfer

On change of residence, it is possible to transfer the Sukanya Samriddhi Account balance to any bank branch or post office in India, or from a post office to a bank, without paying any fee. However, you have to provide the proof of address for this purpose. You will have to pay a fee of Rs. 100 if the account transfer is done under any other circumstances.

B) SSY Balance Withdrawal and Account Closure

You can withdraw the balance and interest earning on completion of 21 years of the SSY account. Remember, if you fail to withdraw the balance after 21 years then the accumulated balance does not earn any interest. The beneficiary will receive the interest accrued and balance when the account matures. There is no need to pay any tax on withdrawal. To withdraw an amount, all you have to do is submit an application form for withdrawal, citizenship proof, residence proof, and identity proof.

1. Partial Withdrawal

You can make partial withdrawals for two reasons, either for the girl child’s higher education or marriage. In such a case, you can withdraw up to 50% of the balance in SSY account. If the reason for withdrawal is higher education, then the daughter must have completed the tenth standard. Also, the account holder must be at least 18 years of age.

• To withdraw balance for higher education, submit admission acceptance letter by the educational institution and other required documents.
• To withdraw balance for marriage, the girl must be at least 18 years of age.

2. Premature Closing of Account

You can opt for premature closure of Sukanya Samriddhi account for the following reasons:

• You can apply for premature closure of SSY account when your daughter is getting married and she is at least 18 years of age. You can withdraw up to 50% of the balance. The withdrawal is allowed at the end of the preceding FY. You do not have to pay any tax. You can apply for withdrawal in one-month window period before the wedding. Or, you may also do so 3 months after the marriage and submit the daughter’s age proof papers.
• If the status of the female child changes, i.e. she becomes a citizen of another country or a non-resident, you can prematurely close the account. As a parent/guardian, you have to provide documents that reflect the change in her citizenship status or residency within a month.
• If the account is 5 years old minimum, and the post office or bank where the account is opened at, believes that the account continuation is difficult for the girl child because of the child’s illness or death of parent/guardian, then the account could be closed before the maturity date. If the account is closed prematurely due to any other reason, then the interest earned on balance accumulated will be the same as the interest rate offered by the post office.
• You can prematurely close the account in case of the girl child’s death. For withdrawal, you have to submit the death certificate of the female child. There are no tax implications on such a withdrawal. The legal guardian/biological parent of the child will then receive the entire corpus in the SSY account. The beneficiary will also get the interest accrued till the month preceding the month of account closure.