Sukanya Samriddhi Account Tax Benefits are the ones that an investor having a girl child can not slip off. To explain, through this guide on Sukanya Samriddhi Account Tax Benefits you will know:
Firstly, whether 15 years of deposits in SSY are tax -free?
Secondly, interest earned in SSY is tax-free?
Maturity is also tax-free in SSY or not?
Who all can invest in your daughter’s SSY Account and so they get tax benefits?
So, you would like to know the answers to all such questions for which you may be scratching your head?
And lots more.
Let`s dive in.
Sukanya Samriddhi scheme has been a reliable investment choice since its launch. Apart from being an investment that no parent of a girl child can deny, it offers vast tax benefits also. Sukanya Samriddhi Account Tax Benefits are often discussed at large to understand it better.
In fact, the Prime Minister of India has launched Sukanya Samriddhi Yojana (SSY) in 2015. It provides the girl children of India with equality and freedom in terms of features and benefits.
Of course, today`s children are tomorrow’s citizens. So, it is a fact that the future of a nation is in the hands of its children. Both boys and girls play a significant role in development. Indeed, India is one such country with an enormous potential for growth in the future. But, growth is possible only through inclusive means.
Women in India are often denied basic rights owing solely to their gender especially. Furthermore, this is making it hard for them to fully realize their potential. The Sukanya Samriddhi Scheme was started with an objective to bridge the financial gap. Specifically, the gap that had hitherto prevented women from accomplishing their best. Above all, this small savings scheme is the brainchild of Prime Minister Narendra Modi. In fact, he has the vision to offer for the education and marriage needs of a girl child. Further, it contributes to her suitable prospects to follow her dreams.
Earlier, prior to 23-07-2018, the minimum deposit for opening a Sukanya account and minimum annual deposit for 15 years is as high as Rs 1000. This high minimum deposit amount has restricted many poor people. In particular, to readily enter the scheme for want of such deposit immediately. It is not that they cannot deposit subsequently little amount. But fundamentally they are deprived of the immediate participation in the postal scheme that they are looking for because of this hurdle of minimum deposit.
Based on the feedback including the requests from several public and communities also, the Central Govt has reviewed the scheme to leverage the benefits to downtrodden/poor as well. With this in mind, the Govt has reduced the minimum deposit from Rs1000 to Rs250. This has enabled every citizen with a girl child to participate including the poor w.e.f 23-07-2018. Meanwhile, the latest interest rate for April to June-2020 is pegged at 7.6%.
Tax Benefits under Sukanya Samriddhi Account
You reap the following Sukanya Samriddhi Account Tax Benefits when you deposit in the scheme :
Investments made in Sukanya Samriddhi Yojana Scheme are eligible for tax deduction under Section 80C of the Income Tax Act-1961.
However, a maximum of Rs1.5 Lakhs is only eligible for deduction under the scheme. One should remember that the maximum of Rs1.5 Lakhs can be claimed as tax deduction under section 80 © for all instruments put together. The instruments include SSY, PPF, NSC,5-year TD, SCSS, and other instruments as well.
Lets walk through the details of Sukanya Samriddhi Account Tax Benefits:
1.EXEMPT of tax on Principal Deposit
Firstly, Sukanya Samriddhi Account Tax Benefits starts with the principal deposits made by the investor over a period of 15 years.
Under Section 80C of the Income Tax Act, 1961, and existing taxation rules of Sukanya Samriddhi Yojana, the tax deduction benefit on the principal amount deposited is up to Rs 1.5 lakh per annum. Any amount above this will not fetch any income tax relief under section 80C of the Income Tax Act. This Sukanya Samriddhi Yojana scheme accrues interest which is compounded and credited to the account annually. You are given tax exemption for interest earned on the amount deposited in Sukanya Samriddhi Account. So, the funds deposited in this postal scheme safeguarding to raise to maximum possible.
Now, let’s move to the other Sukanya Samriddhi Account Tax Benefits.
2.EXEMPT of tax on Interest earned
Secondly, Sukanya Samriddhi Account Tax Benefits are seen in the interest earned in the account. The present rate of interest in the Sukanya Samriddhi scheme is 7.6%. The interest rate on Sukanya Samriddhi postal scheme is highest among all the postal schemes or bank schemes available in the market. If this interest earned is taxed that will be a huge disadvantage to the girl child.
There have been many apprehensions on this for a while on this initially when nothing specifically mentioned in the rules. So, the Govt has later provisioned for exemption of interest under income tax rules in the budget. This Sukanya Samriddhi Yojana scheme accrues interest which is compounded and credited to the account annually. You are given tax exemption for interest earned on the amount deposited in Sukanya Samriddhi Account. So, now, the interest earned on the deposits made in the SSY account is exempt from Income tax.
Let`s see the Sukanya Samriddhi Account Tax Benefits at the time of maturity.
3. EXEMPT of tax on Maturity Amount:
Thirdly, Sukanya Samriddhi Account Tax Benefits could be seen in maturity as well. Thus, enjoying the fruit of EEE benefit of tax in sukanya samriddhi account. Furthermore, you can withdraw the amount invested on maturity or on closing the account. There are 2 types of maturities for an SSY Account:
(i) You may close the SSY account when the account matures. In other words, you may close the SSY account on completion of 21 years from the date of opening of the account.
(ii) You can close the Sukanya Samriddhi Account at the time of marriage of the girl child provided her age is beyond 18 years. It is possible, even when a period of 21 years from the date of opening of the account doesn`t complete.
In either of the above two cases, the girl child gets a full maturity amount without any deduction (TDS)at the time of closure also. Thus, the maturity amount paid in the SSY account is fully exempt from Income tax. Therefore, this helps the girl child to utilize the entire amount without any tax payment, thereby, resulting in reaping the Sukanya Samriddhi Account Tax Benefits to the maximum extent.
4.Tax benefits on Premature closure of sukanya Samriddhi account :
Fourthly, You observe Sukanya Samriddhi Account Tax Benefits during premature closure for various reasons. Premature closures are only allowed in the following circumstances:
(i) Death of the girl child: There is a provision for premature account closure in the event of the death of the girl child. A death certificate must be produced. The entire corpus of the Sukanya Samriddhi Account will be paid to the guardian along with interest earned till the month preceding the month of closure of the account. No taxes will be levied on premature closure.
(ii) Any circumstance in which the continuation of the account becomes difficult for the girl child: like a life-threatening disease to the account holder.
(iii) Change in residence or citizenship status of the girl child or in other words, when the girl becomes NRI.
In all the cases mentioned above, tax exemption is provided for the withdrawal also.
The provisions enunciated in the Tax rules help both the parent/guardian and the girl child. It is possible as the income tax exemption is provided to the parent/guardian when he deposits the amount for 15 years in the SSY Account. The parent enjoys the fruit of Sukanya Samriddhi Account Tax Benefits for 15 continuous years while depositing on one side. Further, on the other side, after 21 years or at the time of marriage when the account reaches final maturity, the beneficiary relishes the exemption of tax as well without having to worry about taxes.
Tax Deduction Eligibility Criteria
Of course, if you are a parent or guardian for a girl child, you can deposit money on behalf of that child. However, grandparents or relatives can also deposit the money for the girl child as a gift online through the IPPB app. The IPPB app is available in Android and iOS versions also.
But one should understand that the contributions towards this scheme are eligible for tax deductions and only one depositor can claim tax exemptions under Section 80C of the Income Tax Act. So, it implies that only one can claim the Sukanya Samriddhi Account Tax Benefits. Either it can be the parent or legal guardian and not for both.
Who all can invest in your daughter’s SSY Account and get tax benefits?
Sukanya Samriddhi Account Tax Benefits naturally raises the above question as the benefits are huge.
But, according to Clause (viii) to sub-section 2 to section 80C of the Income Tax Act-1961, a specified person means Parents or Legal Guardian of the Girl child.
Accordingly, grandfather/relatives who deposited amount in SSY Account will not be eligible to claim benefit under section 80C, unless the said relative/grandfather is the legal guardian of the girl child.
So, anyone can invest in SSY account of the girl child but they cannot claim the tax benefits under section 80© unless the person is a legal guardian/natural parent of the girl child.
Further, One should understand that the combined maximum limit for deduction which can be availed under section 80C,80 CCC, 80 CCD(1) is Rs1,50,000 only as per section 80 CCE of Income Tax Act-1961.
Sukanya Samriddhi Scheme provides for a solution where everyone benefits, that is, both the girl child and her parents/legal guardian. Why because it offers tax incentives to both, laying a good foundation for the prosperity of a girl child in the future.
Now you know that no part of Sukanya Samriddhi investment attracts any taxes due to its EEE status. Thus, Sukanya Samriddhi Account Tax Benefits are multifarious. Therefore, it can aid you to shape a significant corpus over the years for your daughter’s future.