Small savings schemes are a preferred investment option for conservative investors due to their assured returns, tax benefits, and government’s guarantee. However, many different schemes have come up over the years, under many different rules and Acts.
In order to overcome discrepancies due to this, Government of India has proposed to merge the Government Savings Certificates Act, 1959 (which covers National Savings Certificates and Kisan Vikas Patra) and the Public Provident Fund (PPF) Act, 1968, with the Government Savings Banks (GSB) Act, 1873.
GSB Act covers Post Office Savings Bank, and banking companies or any other company or institution that the central government may include in this Act.
A press release from the Ministry of Finance says that relevant provisions under the various existing Acts would be subsumed in the amended Act.
Apart from consolidation, some amendments are also proposed in various schemes. Let’s read more about the consolidation and amendment in schemes.
Government’s backing is a crucial aspect in these investments. Investors believe that both principal and interest are secure and will be paid on time. The Ministry of Finance assured investors in a press release dated 13 February 2018: “All existing protections have been retained while consolidating PPF Act under the proposed Government Savings Promotion Act. No existing benefits to depositors are proposed to be taken away through this process."
It further stated: “The main objective in proposing a common Act is to make implementation easier for the depositors as they need not go through different rules and Acts for understanding the provision of various small saving schemes, and also to introduce certain flexibilities for the investors."
For instance, in the existing Acts, there is no provision for nomination with regard to accounts opened in the name of minors. Further, existing Acts say that if an account holder dies and there is no nomination and the amount is above the prescribed limit, the amount shall be paid to legal heirs. In this case, the guardian has to obtain succession certificate. Therefore, proposals are made to make things simple in such cases.
However, financial planners believe that consolidation of Act does not make a big difference for investors. “As per the explanations given, if all the Acts are subsumed in one Act, namely Government Savings Bank Act, then it could remove ambiguities due to the existence of multiple Acts for small savings schemes and make it easy for a user to understand the conditions. This is just a small benefit," said Suresh Sadagopan, founder, Ladder7 Financial Advisories.
Apart from consolidation of Acts, few amendments are also proposed in the Bill. Given that liquidity is a big concern when someone considers investment in small savings schemes, there are few relaxations proposed in the Bill. As per the current PPF Act, it can’t be closed prematurely before completion of five financial years. Under the proposed Bill, benefits of premature closure of Small Savings Schemes may now be introduced to deal with medical emergencies, higher education needs and so on.
Besides that, investment in Small Savings Schemes can be made by guardian on behalf of minor(s) under the provisions made in the proposed Bill. Guardian may also be given associated rights and responsibilities.
“Relaxations like benefits of premature closure for medical emergencies, higher education, etcetera, and an enabling provision for a guardian to make investment in Small Savings Schemes on behalf of a minor could be helpful," said Sadagopan.
Under the new Bill, provisions were made regarding deposit by minors to promote culture of savings among children. Other amendments include clear provisions for the operation of accounts in the name of physically infirm and differently abled persons. Ambiguities related to nominee and beneficiary in case of death of investor will also get clear once the new Act comes into existence. The amended Act will allow government to put in place mechanisms for redressal of grievances and for amicable and expeditious settlement of disputes relating to small savings.
Apart from offering slightly higher interest rates compared to bank deposits, some of the small savings schemes also enjoy income tax benefits. No change in interest rate or tax policy on small savings scheme is being made through this amendment.