Small Saving Schemes Rules Changed: PPF, SCSS, And 5-Year Time Deposit; Govt Issues Clarification

Recently, the Department of Posts announced a detailed notification that talked about changed rules for investing in small savings schemes including the Public Provident Fund (PPF), Senior Citizen's Savings Scheme (SCSS), and 5-year post office time deposit.

The relaxation in norms by the Central Government as announced in the recent notification has allowed more people to benefit from small savings schemes in the long run. In this article, we will discuss in detail the changes made to these small savings schemes and the clarification issued by the Department of Posts on November 29, 2023, as to whom the new SCSS and PPF rules would apply.

Senior Citizen's Savings Scheme

The government has extended the duration for starting an SCSS account from one month to three months. This means that a retired individual above 55 years of age but below 60 years of age will now have three months' time from the earlier one-month time to initiate a senior citizen's savings scheme account.

The updated regulations became effective following the gazette notification issued on November 7, 2023. Meanwhile, interest on deposits in an account established under the senior citizen's savings scheme will be calculated based on the applicable scheme rate on either the maturity date or the extended maturity date.

Public Provident Fund (PPF) Scheme

The Public Provident Fund (Amendment) Scheme, 2023, announced on November 9, 2023, introduces various changes to the PPF scheme, most importantly revision to the regulations with respect to to premature closure of accounts.

These methods involve the need for funds to address life-threatening illnesses affecting the account holder or their immediate family, covering higher education expenses, or arising from changes in the account holder's residency status. According to the report, substantiating documents such as furnishing medical reports, evidence of educational admission, and pertinent immigration papers must be furnished to substantiate these assertions.

Moreover, the regulation stipulating that premature closure of a PPF account will result in a penalty, manifested as a 1% deduction in the interest rate for the duration the account is maintained, remains unchanged.

National Savings Time Deposit Scheme

The government has modified the interest rate for premature withdrawals from five-year time Deposit accounts. Earlier, closing a five-year account after four years would result in interest calculation as per the rate applicable to three-year time deposit accounts. However, now after this amendment, the interest will be calculated at the Post Office Savings Account rate of 4%.

This alteration is believed to be beneficial to depositors as the interest rate for the Post Office Savings Account exceeds that of three-year Time Deposit accounts. As of November 2023, the interest rate for three-year Time Deposit accounts is 6.5%.

November 29, 2023 Government clarification on to whom the new SCSS and PPF rules would apply:

SCSS and PPF clarifications

"This office was in receipt of many references regarding the applicability of rules amended in connection with the premature closure of 5-year TD accounts which have already been opened before the issue of notification G.S.R.830(E) dated 07.11.2023. Hence, clarifications were sought from the Department of Economic Affairs (DEA), Ministry of Finance (MoF) regarding applicability of amended rules.

DEA, MoF in OM No. 11412023-NS(PI.) dated 28.11.2023 clarified that the amendments related to SCSS and PPFwill be applicable to both existing account holders and new account holders, whereas, the amendments in National Savings Time Deposit Scheme will be applicable only to new account holders.

Accordingly, it is clarified that all the existing SCSS accounts can be extended in accordance with the provisions in the amendment issued vide notification G.S.R.829(E) dated 07.11.2023 and the existing 5-year TD accounts which have been opened before 10.11.2023 can be prematurely closed after six months in accordance with the rules under which they have been opened. However, 5-year TD accounts opened on or after 10.11.2023 can be prematurely closed in accordance with the amendments issued vide notification G.S.R.830(E) dated 07 .11.2023.," said the Department of Post in a notification circular dated November 29, 2023.