Budget 2015, Sukanya Devi Yojana Better than PPF
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| Arun Jaitley Sukanya Samriddhi Yojana - Union Budget 2015-16 |
Sukanya Devi Yojana Save Tax & Build Wealth
Thinking of investing in the PPF and fixed deposits for your little daughter's education or marriage? The Sukanya Samriddhi Yojana (SSY) could be a better alternative. The scheme, which was launched in January as part of the Prime Minister's Beti Bachao Beti Padhao initiative, was already eligible for deduction under Section 80C. The Budget has now made the income from the scheme tax free. The SSY is more attractive than the PPF because it offers a higher interest rate. The interest rate of the SSY is also linked to the government bond yield. While the PPF offers 25 basis points higher than the yield of 10-year government bonds, the SSY will offer 75 basis points higher than the 10-year government bond yield for the previous year (which was 8.33% for 1 April, 2013 to 31 March, 2014). For 2014-15, the interest for PPF is 8.7% while the SSY offers 9.1%. Though the SSY is an attractive proposition, the scheme is not open to everybody. An SSY account can be opened by the parent or guardian in the name of a girl child not more than 10 years old. Only for this year, the government has offered a grace period of one year and allowed accounts to be opened for girls who will be 11 years old by 1 December 2015. Children born before 2 December 2003 are not eligible.
"More Details About the Sukanya Samridhi Yojna are given below"- Sukanya Samriddhi Yojana (SSY)- There is a new investment option available for investors looking to plan for the education of their girl child in the form of Sukanya Samriddhi scheme. To make it more attractive, it will also allow them to save tax through deduction under Section 80C. It is important to look at the details so that an investor knows the impact of the available choice. The Union Budget has amplified the benefits that are available for this scheme. This will make it more attractive but the question is whether this is suitable for you. One of the restrictions for investors is that it can only be utilised by those who have a girl child. Here is a closer look at the details of the scheme and the tax implications.
- Minor girl child - The scheme can be used only for a minor girl child who is less than 10 years old. However there is a concession that has been given whereby if the child turned 10 between December 2013 and December 2014 then the account can still be opened in her name. The account can be opened by the biological parents of the child or the guardian and the investments can then be made in her account. There can only be one account that can be opened in the name of the child. There are some basic initial documents that need to be given including the birth certificate of the child and the identity and residence proof of the depositor. There is an ease in terms of opening the account since this is a small savings scheme and it would be possible to open this at the post office or a public sector bank.
- Investment - The investment benefit is present only for two girl child of an individual unless a person is blessed with two girls in the second birth. The account can be opened with a minimum amount of Rs 1,000. The maximum amount that can be deposited in a year is Rs 1.5 lakh. The amount can be deposited by cash, cheque or draft. There has to be a minimum amount of Rs 1,000 in a year. The deposit is to be made for a period of 14 years from the opening of the account and maturity is 21 years from the date of opening of the account or if the girl gets married before this date then such a period. While the amount of Rs 1.5 lakh can be invested each year for the duration of the scheme the return is not certain as this would be announced each year and this can go down as the rates in the economy fall. This makes the final figure of accumulation impossible to estimate as the time period of the scheme is extremely long and the rates can fluctuate significantly.
- Taxation - The real benefit for the account has to be considered in the form of taxation that will be encountered by the individual when they are investing in the account. There are two angles to this whole process where the first is the amount that is contributed each year. The amount invested is eligible for a deduction under Section 80C of the Income Tax act upto a sum of Rs 1.5 lakh. However one has to know that there is a whole list of instruments that are covered under this specific section and for most people they would already be exhausting the limit that is available under this particular section. The other aspect is the income that is earned as interest on the scheme. The interest for the first year is 9.1 per cent and like the PPF account the figure would be announced each year so one will be able to know the returns only when this is announced. The income here is now tax free and hence would not have to be included in the taxable income of the individual. This makes the investments an easy option from the tax point as it would not involve any clubbing with the income of the parent since the income itself is tax free. This also ensures that the entire amount earned on the scheme would be available at the time of maturity of the scheme.
- Comparison - Like the Public Provident Fund (PPF) the individual can use the Sukanya Samriddhi Yojana to accumulate amounts tax free but there is a fundamental difference between the two options. One is that the PPF is meant for retirement and hence structured accordingly whereby it can be extended indefinitely till required. The Sukanya Samriddhi Yojana is meant for the girl child to meet expenses for critical moments in her life and hence the target nature of the scheme is different. Also there is limited liquidity in this scheme so the individual has to undertake all the calculations properly before starting the investment. The liquidity options in a PPF are far more and these can be used effectively. On the whole one should look at this investment only if there is a specific need for a girl child and the time period matches with the requirement.
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