PPF to recurring deposits: Breather for investors in small savings schemes

As cash is priority, you can delay payment. But there will be loss in interest income

The finance ministry on recommendation from the department of posts has relaxed the provisions for account holders of public provident fund (PPF), Sukanya Samriddhi Account (SSA) and recurring deposits (RDs). Other measures have also been taken to make life of the small depositor simpler. Penalty/revival fees have been waived until June 30 for not investing the minimum amount due for the financial year 2019-20 and April 2020 (as the case may be) in various small savings schemes. So, in case you were not able to make any deposits in FY 20, there won’t be any default fee for the time being.

 

In case you had to make a payment, say, for an RD on April 20 and because of the lockdown, you haven’t been able to make it, you can do so till June 30 without a penalty.  Also, for PPF and SSA, you can make a single payment for FY19-20 until June 30. Balwant Jain, a tax consultant, says: “Assuming you are making two PPF deposits of Rs 1.5 lakh each, one for FY19-20 and FY20-21. For FY19-20, you will have to give an undertaking for the respective years. Also, you can’t club the deposits and make a single payment of Rs 3 lakh.”

In case you make an excess payment, it will be returned to you without any interest payment. Pankaj Mathpal, founder and managing director, Optima Money Managers, says: “What’s important is that you get extra time until June 30 for tax savings purposes for FY19-20.” The government had already said the money could be deposited in tax-saving instruments for FY20 until June 30.

 

 

Also, remember that if the payment is delayed, there will be a loss in interest income since the deposit will earn interest from the date of actual deposit and will be calculated according to the provisions of PPF/SSA. For PPF, Jain says: “If the deposit is made between June 1 and June 10, you will earn interest for 10 months. The interest amount is paid on the highest balance between Day 1 and Day 10 of the month. If you make a payment after June 10, you will earn interest for the nine months, until March 2021. Interest is credited at the end of the year.”

This move is especially good in these times as many people may face fund crunch during the lockdown. Small businesses, freelancers, and those whose salaries have been cut or who have been laid off get a much-needed breather. If you have 6-month expenses in hand, you should make the most of these extra three months to make up for the otherwise lost tax savings’ opportunity. Rachit Chawla, founder and CEO, Finway, says: “Since there are more than two months to go, don’t hurry to make the investments now. There is no harm in waiting until, say, June 25. By that time, you will have better clarity on what’s happening in the economy, regarding further lockdowns, your job, your financial position, etc. That time decide if you want to invest or pay just the minimum amount to keep the account active.”

In such uncertain times, an essential thing is cash-in-hand. Remember for PPF/SSA, you can continue to deposit the money for FY20-21 as usual. Mathpal says: “What’s most important right now is liquidity. The more, the better. So, hold on to cash.” This time is a good learning experience for many who have not moved to online channels. Those who have invested in small-savings instruments via bank will find it easier to do so. For those who still do it physically, a visit to the post office will need to done to activate the online process.