What Will Be the Penalty for Not Depositing Money in PPF, Sukanya Samriddhi Yojana by March 31 Every FY?

Investors in various government-backed savings schemes in India, such as the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and the National Pension System (NPS), are required to make a minimum annual deposit to keep their accounts active. Failure to meet this requirement by the end of the financial year (March 31) can lead to penalties and the accounts being frozen or becoming inactive. This article delves into the specifics of these penalties, the importance of adhering to the minimum deposit requirements, and the implications of the new income tax regime on these investments.

Also Read: Which New Rule Has Made the NPS Accounts More Secure?

Public Provident Fund (PPF)

Minimum Annual Deposit Requirement

The PPF scheme, governed by the PPF rules of 2019, mandates a minimum deposit of Rs 500 every financial year. This minimal amount is essential to keep the account operational and to accrue the benefits associated with the account, including loan and withdrawal facilities.

Consequences of Non-Compliance

Failing to deposit the minimum amount results in the PPF account becoming inactive. Consequently, the account holder loses access to loan and withdrawal options, which are available from the third and sixth year of account opening, respectively.

Revival of Inactive PPF Account

To reactivate an inactive PPF account, the account holder must pay a default fee of Rs 50 for each year of default. Additionally, a minimum annual deposit of Rs 500 for each year of non-compliance must be made. Therefore, for each year the account remains inactive due to non-deposit, a total of Rs 550 (default fee plus minimum deposit) is required to revive the account.

Implications of Inactivity

While the penalty might seem nominal, the real loss comes in the form of forfeited tax-exempt interest. The PPF allows a maximum deposit of Rs 1.5 lakh per financial year, offering tax-exempt interest upon maturity. Non-compliance not only leads to penalties but also to a significant opportunity cost in terms of lost interest earnings.

Sukanya Samriddhi Yojana (SSY)

Minimum Annual Deposit Requirement

The SSY scheme requires a minimum deposit of Rs 250 every financial year to maintain the account’s active status. This scheme is designed to encourage savings for the girl child’s future.

Consequences of Non-Compliance

If the minimum amount is not deposited within a financial year, the SSY account is considered defaulted.

Revival of Defaulted SSY Account

To revive a defaulted SSY account, a penalty of Rs 50 per year of default is charged. Alongside the penalty, the account holder must deposit Rs 250 for each year they failed to meet the minimum requirement.

Implications of Inactivity

Similar to the PPF, non-compliance in SSY leads to lost interest opportunities. The scheme permits a maximum investment of Rs 1.5 lakh per financial year, with tax-exempt interest, emphasizing the significance of regular contributions to maximize returns.

National Pension System (NPS)

Minimum Annual Deposit Requirement

The NPS rules stipulate a minimum contribution of Rs 1,000 per financial year to keep the account active and avoid freezing.

Consequences of Non-Compliance

A frozen NPS account incurs no direct penalty charges from the NPS trust. However, the account’s functionality is limited until the minimum contribution is made.

Revival of Frozen NPS Account

Reviving a frozen NPS account requires a minimum contribution of Rs 500 for a single deposit, ensuring that the total annual contribution reaches at least Rs 1,000.

Employer Contributions and Tax Implications

Employer contributions to an employee’s NPS Tier-I account can prevent the account from becoming inactive. These contributions are deductible under both the old and new tax regimes, offering a strategic advantage for employees opting for the new tax regime.

New Tax Regime and Its Impact

The revised income tax regime introduced on April 1, 2023, makes the new tax regime more attractive by increasing the basic exemption limit and introducing a standard deduction. However, opting for the new tax regime means forfeiting the tax benefits associated with investments in PPF, SSY, and NPS. Investors must carefully consider the implications of switching tax regimes, especially if they have been leveraging these schemes for tax savings.

Conclusion

The mandatory minimum deposits in schemes like PPF, SSY, and NPS underscore the government’s intention to encourage consistent savings among its citizens. While the penalties for non-compliance are relatively modest, the real cost is the loss of tax benefits and interest earnings, which can compound significantly over time. Investors should plan their finances to ensure compliance with these minimum deposit requirements, keeping in mind the potential implications of the new tax regime on their investment strategy.