[Analysis] How to Regularise Irregular Accounts in Small Savings Schemes

Small savings scheme irregular accounts refer to accounts in government-backed savings programs (like NSC, PPF, and Sukanya Samriddhi Yojana) that do not comply with the prescribed rules. These irregularities may include multiple accounts opened under the same scheme, accounts exceeding contribution limits, or accounts opened by ineligible individuals. The Ministry of Finance has issued guidelines to regularise such accounts by adjusting interest rates, setting refund terms, or merging accounts to ensure they align with the scheme's regulations and intended benefits.

Table of Contents

1. Introduction
2. National Savings Scheme
3. Sukanya Samriddhi Scheme
4. Public Provident Fund
5. Other Small Saving Schemes opened in the name of minor

1. Introduction

People often need more time to save for the future due to uncertainty and the personal goals they wish to achieve. The government introduced several appealing small savings schemes to encourage better saving habits and improve financial security. The Central Government manages these schemes, including the National Savings Certificate (NSC), Public Provident Fund (PPF), Senior Citizen Savings Scheme, Kisan Vikas Patra, etc.

These savings schemes offer higher interest rates and tax benefits to help individuals achieve long-term financial goals.

It came to the government’s attention that many people have opened accounts violating the prescribed rules for small savings schemes. These accounts have been marked as ‘irregular’ by the government. To manage these accounts, the Ministry of Finance has issued the following guidelines through letters:

1) F. No. 14/1/2018-NS-Part(1), dated 12-07-2024
2) F. No. 14/1/2018-NS-Part(1), dated 30-09-2024

These guidelines provide norms to regularise the accounts opened under the National Savings Scheme, Public Provident Fund, and Sukanya Samriddhi Yojana.

This article discusses the irregularities in the following accounts and guidelines issued by the Government to regularise them.

2. National Savings Scheme

The National Savings Scheme (NSS) was designed to encourage regular savings by offering secure investment options with tax benefits. It was discontinued and is no longer in operation.

The NSS was first introduced on 1st April, 1987. Under this scheme, individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs) or Bodies of Individuals (BOIs) could deposit funds. Each depositor was allowed to open only one account, with a minimum deposit of Rs. 100 and a maximum annual contribution of Rs. 40,000.

However, the NSS 1987 was discontinued on 30th September, 1992, and a new National Savings Scheme was introduced on 1st October, 1992. Subsequently, this scheme was also discontinued on 1st November, 2002.

It was noticed that depositors had opened multiple accounts under this scheme to enjoy the benefit of higher interest rates, which was against the scheme’s rules. To resolve this irregularity, the following guidelines have been issued:

2.1 Two accounts opened before 02.04.1990

If the depositors opened two NSS accounts before 02-04-1990, the first account will earn interest at the prevailing scheme rate. The second account will earn interest at the prevailing Post Office Savings Account rate plus 200 basis points, i.e. 2% on the outstanding balance.

However, this is subject to the condition that the combined deposits across both accounts should not exceed the annual limit of Rs. 40,000. Any excess deposits in the accounts beyond this limit will be refunded without interest.

2.2 Two accounts opened on or after 02.04.1990

If the depositors opened two NSS accounts before 02-04-1990, the first account will earn interest at the prevailing scheme rate. The second account will earn interest at the prevailing Post Office Savings Account rate on the outstanding balance.

However, this is subject to the condition that the combined deposits across both accounts should not exceed the annual limit of Rs. 40,000. Any excess deposits in the accounts beyond this limit will be refunded without interest.

2.3 More than two accounts

If a depositor has opened more than two NSS accounts, no interest will be paid on these additional accounts. The principal from these extra accounts will be refunded without any interest.

2.4 No Interest after 01-10-2024

Although the NSS is discontinued, depositors are permitted to keep funds in the account until it is closed. However, these accounts will not earn any interest from 01-10-2024 onward.

3. Sukanya Samriddhi Scheme

The Sukanya Samriddhi Scheme is a government initiative designed to secure the future of a girl child by accumulating funds for her education and marriage. This scheme allows a guardian to open an account for a girl under 10 years of age. Each family can open accounts for a maximum of two girl children, with each account holder permitted to have only one account under the scheme. The Sukanya Samriddhi Scheme offers attractive interest rates and tax benefits, making it a compelling choice for parents looking to invest in their daughters’ long-term financial security.

Although the scheme does not explicitly define the term “guardian,” it follows the guidelines outlined in the Hindu Minority and Guardianship Act, 1956. Under this Act, a guardian can be the natural guardian (father or mother), a court-appointed guardian, or one designated by a will.

For unmarried girls, the father is considered the natural guardian, and the mother assumes this role after him. Stepfathers and stepmothers are not recognised as natural guardians under the Act.

3.1 Accounts opened by Grandparents

It has been observed that some accounts under this scheme are opened by grandparents. The government has clarified that grandparents cannot open a Sukanya Samriddhi account for their granddaughter if her parents are alive. However, if the grandparent is the legal guardian of the girl, they are allowed to open an account.

If a grandparent who is not the legal guardian opens the account, the account’s guardianship will later be transferred to the parents or the legal guardian.

3.2 More than two accounts opened

If more than two accounts are opened in a family, then the irregular account shall be closed by treating it as an account opened in contravention of the scheme.

However, in the following cases, the account can be opened with respect to more than two girl children provided an affidavit supported by the birth certificate of all the girl children is submitted by the guardian:

a) The first order of birth resulted in triplets, and all the children were girls; or
b) The second order of birth resulted in two girl children, and the first order also was the birth of a girl child. However, this exception shall be applicable if the first order of birth results in two or more surviving girl children.

4. Public Provident Fund

The Public Provident Fund (PPF) is a tax-free investment avenue which is open to all individuals. The Government had brought the scheme to encourage the saving and investment habits among the individuals.

An individual can open only one account in his name under the PPF scheme. Additionally, an individual can also open one PPF account each in the name of a minor or a person of unsound mind of whom he is the guardian (legal or natural).

4.1 Account opened in the name of a minor

A minor with a guardian can continue holding or open a new PPF account and earn the prevailing PPF scheme interest rate, currently 7.1%.

If a minor’s account is opened without a guardian, it will be classified as an irregular account. Such an account will earn interest at the Post Office Savings Account rate until the minor turns 18, making them eligible to open an account. From that point on, interest will be paid at the applicable PPF rate, currently 7.1%.

Additionally, the maturity period for this account will be calculated from the date the minor reaches adulthood and becomes eligible to open the account.

4.2 Holding more than one account

If a person has more than one PPF account, only the primary account will earn interest at the rate set by the scheme as long as the deposits stay within the annual limit. The primary account is the one selected by the investor at any Post Office or Agency Bank where they want to keep the account active.

The balance of the second account will be combined with the primary account, as long as the primary account stays within the investment limit each year. After the merger, the primary account will continue to earn interest at the current rate. Any amount over the limit in the second account will be refunded without interest.

Additional accounts beyond the primary and second accounts will earn 0% interest from the date they are opened.

4.3 Interest rate on the account held by NRI

For active NRI PPF accounts opened under the PPF Scheme, 1968, where Form H did not request the account holder’s residency status, the account holder (an Indian citizen who became an NRI while the account was active) will receive the Post Office Saving Account interest rate until 30th September 2024. After this date, the account will earn 0% interest.

5. Other Small Saving Schemes opened in the name of minor

If a small savings scheme (other than PPF and SSA) is opened in a minor’s name, it will be considered an irregular account. This account may be regularised with simple interest, calculated at the current post office savings account rate.