Penalty for not depositing money in PPF, Sukanya Samriddhi Yojana by March 31 every FY
Investors in Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY) and National Pension System (NPS), must deposit a minimum amount in their accounts every financial year.The rules for these schemes make minimum annual deposits mandatory to keep the deposit accounts active. If the individual misses making the minimum annual deposit, then the account can be frozen, and penalty can be applicable as well. The last date to make minimum deposit in the PPF, NPS and Sukanya Samriddhi accounts is March 31, 2024 for current financial year.
The government has made the new tax regime more attractive. From April 1, 2023, the income tax slabs under the new tax regime were revised and basic exemption limit was hiked to Rs 3 lakh from Rs 2.5 lakh in a financial year. Further, standard deduction has been made available in the new tax regime and zero tax is payable on incomes not exceeding Rs 7 lakh under it.
Hence, it may happen that for current financial year 2023-24, you might want to use the new tax regime to pay your taxes. Income tax laws allow individuals (not having any business income) to choose between the new and old tax regimes every financial year as per their convenience.
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It is important to remember that if you were paying tax under old tax regime till last financial year you may have been investing in tax savers like Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY) and National Pension System (NPS). If you switch to new tax regime for FY2023-24 then you would not get the benefit of the tax break available on investments in these schemes. Consequently, you may think that you need not invest/deposit funds in them for FY2023-24. However, you should be aware that not depositing a minimum amount in these accounts can invite a penalty.
Here is a look at the minimum money that individual must deposit in his/her accounts in the above-mentioned schemes before March 31, 2024 to avoid having to pay a penalty.
Public Provident Fund (PPF)
As per the PPF rules 2019, a minimum deposit of Rs 500 must be made in a PPF account every financial year. If the minimum deposit is not made in the account, then the PPF account will become inactive.Once the PPF account becomes inactive, then loan and withdrawal facility are not available. The PPF account provides loan facility from third year onwards. The withdrawal facility is available from sixth year onwards.
The inactive PPF account can be revived by the depositor before maturity. A default fee of Rs 50 is levied for each year of default. Along with default fee, the individual is required to make the annual minimum deposit of Rs 500 as well for each year there was no deposit.
Hence for every year of default when no deposit is made, the account holder is required to pay Rs 550 to make the PPF account active again. The PPF account matures after 16 years of opening of account. Premature withdrawals are allowed in specified conditions only. Hence, if PPF account is discontinued, then money lying in the discontinued PPF account will be available at maturity only. A discontinued PPF account cannot be extended for five-year blocks on maturity.
While the penalty may seem very small, the tax-exempt interest that one loses out is very large. By not investing the maximum amount allowed of Rs 1.5 lakh per financial year, the individual loses the tax-exempt interest that could be earned on this amount. PPF is a popular tax-saving investment option because it offers tax-exempt interest on maturity.
Sukanya Samriddhi Yojana (SSY)
This is another tax-saving investment option for those who want to save for their girl child. The SSY scheme rules require the account holders (investors in the scheme) to deposit a minimum of Rs 250 every financial year.If the minimum deposit of Rs 250 in a financial year is not made in the account, then the SSY account will be treated as defaulted account. The scheme rules allow a defaulted account to be revived any time before maturity.
An individual will be required to pay Rs 50 as default fee for each defaulted year. Along with the default fee, individual will be required to deposit the minimum contribution of Rs 250 for each defaulted year.
If the defaulted Sukanya Samriddhi account is not revived, then money lying in the account will be payable at maturity. An SSY account matures after 21 years from date of opening of account or at the time of marriage of the girl child after age of 18 years (1 month before or three months after date of marriage).
Here also, by not depositing money in the Sukanya Samriddhi account, the individual loses out on the tax-exempt interest that can be earned by investing the maximum amount allowed of Rs 1.5 lakh every financial year.
National Pension System (NPS)
Many individuals have opened National Pension System (NPS) accounts to save tax by investing additionally Rs 50,000 under section 80CCD(1B) of the Income Tax Act. This investment of Rs 50,000 is allowed over and above the limit of Rs 1.5 lakh under Section 80C of the Act. The NPS scheme rules require an individual to deposit a minimum of Rs 1,000 per financial year.The account will be frozen if the minimum deposit is not made into the NPS account. Kurian Jose, CEO, Tata Pension Management says, “There are no penalty charges from NPS trust if the NPS account gets frozen.”
It may happen that individual’s employer is also contributing to the Tier-I NPS account. Jose says, “In such a case, penalty will not be levied. This is because contribution is happening in Tier-I account even if there is no minimum contribution by individual.”
Employer’s contribution to employee’s NPS Tier-I account is eligible for deduction from gross total income (before tax) under Section 80CCD (2) of the Income-tax Act. A maximum deduction of 10% of salary (14% for government employees) can be claimed. This deduction is available under old as well as new tax regime. Hence, individuals opting for new tax regime for current financial year can claim deduction under Section 80CCD (2).
Jose says, “The frozen account can be activated by making the minimum contribution of Rs 500 for a single deposit. However, the subscriber must make sure that he has contributed a minimum of Rs 1000 in a financial year to keep the account active.”
This story originally appeared on: India Times - Author:Faqs of Insurances
