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Sukanya Samriddhi Yojana (SSY) is a small savings scheme available to the parents of a girl child below 10 years of age. “Among all the small savings schemes, SSY enjoys exempt-exempt-exempt (EEE) tax break and offers the highest interest rate of 7.6% which has consistently remained so," said Amit Suri, a Delhi-based financial planner.

How the scheme works

A parent or legal guardian of a girl child can open an account in the child’s name before she turns 10 years. A maximum of two accounts are allowed to be opened in a family for two girl children.

The total investment allowed in a financial year is 1.5 lakh, which is also the combined limit in the case of two accounts in the same family.

The minimum annual investment required to keep the account active is 250, failing which 50 penalty per default year should be paid to regularize the account. If not regularised, the available balance in the account will continue to earn interest till maturity. An SSY account comes with a tenure of 21 years, out of which deposits are allowed for the first 15 years. For instance, if an account is opened for a 5-year-old girl, deposits can be made till she turns 20 and the account will mature by the time she is 26 years old. Premature withdrawal of up to 50% of the total balance is allowed under specific conditions of higher education, on producing proof of admission, or marriage after the account holder turns 18 years old. The parent/guardian can apply for premature closure under three conditions - the girl child’s demise, her marriage after she turns 18, and the depositor’s financial inability to continue making contributions.

The interest rate on SSY is reviewed every quarter by the government. The current rate of 7.6% was last revised for April-June 2020 quarter and has remained unchanged since. The interest is calculated on the lowest balance in the account between the fifth and last date of the month. For this reason, it is advised that the deposits are made by the fourth of each month, and those who make a one-time annual contribution should do so by 4 April to maximize returns on their contribution.

Tax rules

Deposits made to SSY can be claimed as deduction under the section 80C limit of 1.5 lakh. The annual interest accrued and the amount withdrawn on maturity are also exempt from tax.

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